Reviewer Corpo.docx

Corporation - 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 incidental to its existence. (Sec.2) Corporation as artificial being - The Corporation Code has embodied the accepted concept of a corporation as an “artificial” being. - A Corporation is given by law with rights, powers and liabilities usually accorded a natural person. Other attributes of corporation - Aside from a corporation being considered as an artificial being it has other attributes like it is created by operation of law. Created by operation of law - A corporation comes into being by authorities of the state. - A primary franchise is distinguished from a secondary franchise which is given to the corporation such as the right to expropriate private property for use as railroad, public highways, gas, electric services, etc. Right of succession - A private corporation may continue regardless of the death, insolvency, incapacity of any of its directors, officers or employees, and regardless of transfer of shares from one stockholder to another. Power, attributes and properties - A corporation, being a mere creature of law, has such powers only as are expressly or impliedly conferred upon it by the Charter or act of incorporation. Corporate nationality - It is a recognized doctrine of corporate law that a private corporation is a national, citizen, resident, or inhabitant of the country or state, by or under the laws of which it was created or organized. • Incorporation rule • Control test

3 Identical features of partnership and corporation 1. Partnerships and corporations are organizations composed of an aggregate of individuals; 2. Partnerships and corporations have juridical personalities distinct from that of their respective component members; 3. Partnerships and corporations can act only through their respective agents. 8 Distinctions between Partnership and a Corporation: 1. A partnership is created by agreement among the partners, but corporation cannot be created without the consent of the state; 2. A partnership may be organized by only two persons while a corporation requires at least five incorporators; 3. In the absence of stipulation to the contrary, a partner is considered an agent of the partnership while in a corporation, the power to bind the corporation, unless delegated, rest in the board of directors; 4. In a partnership, general partners are liable to third person even with their separate property; in corporation, the shareholders are liable only to the extent of the shares subscribed by them; 5. A partnership does not have the power of succession, so that the death of the general partner causes dissolution of the partnership while the death of a stockholder does not affect the existence of a corporation; 6. A partner’s interest in the partnership cannot be transferred to another without the consent of the partner because of the personal character of the relationship (delectus personae); but in a corporation, a stockholder may transfer his share even without the consent of the stockholders because the characteristic of delectus personae is foreign in a corporation; 7. A partnership may be formed for an indefinite period of time; a corporation’s life is limited by law to 50 years, extendible to not more than 50 years for each extension; 8. A partnership is governed by Civil Code while corporation is governed by Corporation Code .

Advantages of a corporate form of business organization:

Stock Corporation. All other corporations are Non-stock Corporation.

1. The capacity to hold property, to contract, to sue and be sued as a legal unit or distinct entity; 2. Exemption of shareholders from individual liability; 3. Continuity of existence in spite of death or change of members; 4. Transferability of shares; 5. Centralized management under a board of directors; 6. Standardized method of organization, management and finance for the protection of shareholders and creditors under statutory regulations.

Other kinds of corporations:

Disadvantages of a corporate form of business organization: 1. The limited liability of the stockholders serves to limit the credit available to the corporation; 2. The transferability of shares permits the uniting incompatible and conflicting interest in one enterprise; 3. The minority stockholders are usually subservient to the wishes of majority; 4. In big corporations, the stockholders voting right have become largely theoretical because of widespread ownership, luke warmness and disinterest in management, inertia, and inaccessible meeting places; 5. In large corporations, management control has been separated from ownership; 6. By and large corporations are subject to governmental restrictions, controls, and report requirements not imposed on other forms of business organization; 7. Corporate sphere of activity is limited in the transaction of its business to the state of organization; 8. The corporate form involves “double taxation” on corporation income. Sec.3. Classes of corporations – - 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 basic of shares held are

1. Quasi-corporation – Some entities are not absolutely corporations but are considered as if they were. 2. Quasi-public corporations – is one engaged in rendering basic services of such public importance as to entitle them t certain privileges like eminent domain or use of public property. 3. Government-owned or controlled corporations – are those organized by the government or corporations of which the government is a majority stockholder. 4. Domestic and foreign corporations – - Domestic corporation is one incorporated under Philippine laws. - Foreign corporation is one formed, organized, or existing under any laws other than those of the Philippines. 5. Corporation aggregate and corporation sole - Corporation aggregate is one composed of more than one member or corporator. - Corporation sole consists of one member or corporator and his successors. 6. Religious corporations, sole or aggregate – Religious corporations are organized either as a corporation sole or a corporation aggregate. 7. Ecclesiastical and lay corporations – - Ecclesiastical corporation is one organized for religious purposes. - Lay corporation is one organized for a purpose other than religious. 8. Eleemosynary and civil corporations - Eleemosynary corporation is one organized for charitable purposes. - Civil corporations are those than ecclesiastical and eleemosynary, whether public or private. 9. Close and open corporations - Close corporation is one wherein all the outstanding stock is owned by the persons who are active in management and conduct on the business.

- Open corporation is one in which all the members or corporations have a vote in the election of the directors and other officers. 10. Multi-national corporation – is one having been created or organized in one state conduct its business or activities across national boundaries and but subject to the legal sanctions of the countries in which they operate. 11. Non-profit corporations – are those organized without contemplation of gains, profits, or dividends to their members on invested capital. 12. De Jure Corporation – is one created in strict or substantial conformity with the statutory requirements for incorporation. Sec. 4. Corporation created by special laws or charter – Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. Sec. 5. Corporation and incorporations, stockholders, and members - Corporators are those who compose a creation, whether as stockholders or members. - Incorporators are those stockholders or members mentioned in articles of incorporation as originally forming and composing the corporation and who are signatories thereof. Components of a Corporation: 1. Corporators – are those who composed a corporation, whether as stockholders of members. 2. Incorporators – are those stockholders or member mentioned in articles of incorporation as originally forming and composing the corporation and who are signatories thereof. 3. Stockholders or shareholders – are those corporators in a stock corporation. 4. Members – are those corporators in a nonstock corporation. 5. Incorporator and corporator distinguished.

- Incorporators refer to those natural people whose names appear in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. - Corporators refers to all persons whose compose the corporation at any given time and need not be signatories to the article of the corporation. 6. Capacity of incorporators - Incorporators of a corporation is in legal effect a contract between the organizers and the state. 7. Promotion - is the act of procuring the finances and the making of all preparations necessary to launch a corporation. 8. Activities of promoter – the promoter in the fullest sense, perform various services in launching an enterprise and may employ experts, lawyers, bankers, solicitors and other persons to aid him. 9. Promoter’s contracts – A corporation is, thereof, not bound by any agreement made by a promoter on its behalf, unless until the corporation approves the agreement. Sec 6. Classification of Shares - Stock or Share of Stock – A stock or share of stock is one unit into which the capital stock has been divided. It represents the interest or right that the holder of the stock or stockholder has in the corporation. - Stock Certificate – A stock certificate certifies that one is holder or owner of a certain number of shares of stock in the corporation. Shares of stock may be divided into Classes or series -

The shares of stock of stock corporations may be divided into classes or series of shares , or both , any of which classes or series may have such rights , privilege or restrictions as may be stated in the articles of incorporation.

Classes or series of shares of stock subject to restrictions 1. Shares shall not be deprived of voting rights except preferred or redeemable shares but nonvoting shares must still be entitled to vote on matters. 2. Where non- voting shares are provided for there must always be a class or series of shares with complete voting rights. 3. Banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue non-par value shares of stock; 4. Preferred shares of stock may be given preference in the distribution of assets in case of liquidation and distribution of dividends or other preferences may be issued only with stated par value; 5. The terms and conditions of preferred shares or series thereof may be fixed by the board of directors only when authorized by the articles of incorporation by the effectively thereof shall be reckoned from the filing of a certificate with the Securities and Exchange Commission. 6. Shares w/o par value may not be issued for a consideration less than the value of P5.00 per share. 7. Unless otherwise provided by law the rights, privileges or restrictions on classes or series of shares must be stated in the articles of incorporation and in the stock certificates. Presumed equality of Shares - “ Each share shall be equal in all respects to every other share”. Classes or Series of Shares 1. Voting and Non- Voting Shares; 2. Par Value and No- Par Value Shares; 3 Common and Preferred Shares. a.) Preferred as to asset b.) Preferred as to dividends 1.1. Cumulative or Non Cumulative 1.2. Participating or Non Participating 4. Promotion Shares; 5. Shares of Escrow; 6. Founder’s Shares; 7. Redeemable “ Callable” Shares;

8. Treasury Shares; 9. Other shares classified to comply with constitutional or legal requirements. Voting and Non-Voting Shares - In the absence, however, of a contrary provision in the articles of incorporation, all shares shall be considered voting shares. - The general rule is that every member of a non- stock corporation and every legal owner of shares in a stock corporation have a right to be present and vote at all corporate meetings. Par Value and No- Par Value - A share of stock that is given a fixed or definite value in the articles of incorporation is known as a par value share. Then a share of stock that has no fixed value is called no- par value shares. Preferred Stock as to Dividends - One that entitles the holder to preference in the distribution of dividends over common stock. Kinds of Preferred Stock as to Dividends A. Cumulative Preferred Stock- those w/c entitle the holder to payment not only of current dividends but also those in arrears, when dividends are declared, to the extent stipulated, before holders of common shares are paid. B. Non-Cumulative Preferred Stock - Those that entitle the holder to payment of current dividends but not those in arrears, before holders of common shares are paid. C. Participating Preferred Stock - Those that entitle the holder to participate with the holder to participate with the holders of common shares in the surplus profits after the amount stipulated has been paid to the holder of preferred shares. D. Non- Participating Preferred Stock - Those that entitle the holders only to the stipulated preferred dividend. Promotion Stock – issued to those who may originally own the mining ground or valuable rights connected therewith, for incorporating the company or for services rendered in launching or

promoting the welfare of the company, such as advancing the fees for incorporation, attorney’s fees, surveying, advertising, etc. Instances when Non-voting shares may vote - The holders of such shares shall nevertheless be entitled to vote on the ff. matters.

Common and Preferred Shares - A common share of stock entitles the owner of it to an equal pro rata division of profits, if there are any, with no stockholder or class of stockholders having preference or advantage in that respect over any other stockholder or class of stockholder. Shares in Escrow

1.) Amendment of the articles of incorporation; 2.) Adoption and amendment of by-laws; 3.) Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4.) Incurring, creating or increasing bonded indebtedness; 5.) Increase or decrease of capital stock; 6.) Merger or consolidation of the corporation with another corporation or other corporations; 7.) Investment of corporate funds in another corporation of business in accordance with the Corporation Code; 8.) Dissolution of the corporation. Reason for allowing non-voting shares to vote -They refer to basic or fundamental changes in the corporation. - A vote of stockholders represents 2/3 of the outstanding capital stock or 2/3 of the members is required to approve any of the changes mentioned above. Par Value and No- Par Value -It indicates the amount which the original subscribers are supposed to contribute to capital as basis privileges of profit sharing w/ limited liability. No- Par Value Shares deemed fully paid - Shares of capital stock issued w/o par value shall be deemed fully paid. - Shares w/o par value may not be issued for a consideration less than the value of five (P5.00). Banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock.

- Subject to an escrow agreement, - It is in effect the issuance of shares subject to suspense condition. Sec. 7 Founder’s Share - Founder’s shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stock, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed 5 years subject to approval of the Securities and Exchange and Commission. The 5 year period shall commence from the date of the aforesaid approval by the Securities and Exchange and Commission. Founder’s Share Generally common stock, given to the founders or promoters of a corporation in payment of money expended or services rendered in the promotion of it. Issue of Founder’s Share requires SEC approval “ Where the exclusive right to vote and to be voted for in the election of directors is granted. It must be for limited period for 5 years and may not be extended for to do so may result in the permanent disqualification of the other stockholder. Sec. 8. Redeemable Shares - Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration

of a fixed period, regardless of the existence of unrestricted, retained earnings in the books of the corporations as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares. Redeemable Shares - Redeemable ( Callable) shares of stock which are usually preferred are frequently issued subject to redemption at the option of either the corporation, the stockholder, or both, at a definite price representing premium above the amount originally paid. Redemption of Shares is Virtually a Repurchase of Shares - A redemption by the corporation of its stock is, in a sense, a repurchase of its cancellation. The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation . Retired or redeemed shares, cannot be reclassified - Retired or redeemed preferred shares cannot be reclassified into common shares considering that upon redemption, they lose their status as outstanding or unissued authorized capital stock. Sinking Fund - Sinking Fund refers to a fund set-up by the corporation where cash is gradually set aside in order to accumulate the amount necessary to meet the redemption price of redeemable shares of specified dates in the future. Sec.9. Treasury Shares - Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, and donation or through some other lawful means. Such share may again be disposed of for a reasonable price fixed by the board of directors. - Treasury shares carry no voting rights or right as to dividends or distributions.

Treasury Shares are not outstanding shares - Treasury shares are issued shares, but being in the treasury they do not have the status of outstanding shares. Treasury Shares do not revert to unissued shares - Treasury shares do not revert to the unissued shares of the corporation but are regarded as property acquired by the corporation w/c may be reissued or sold by the corporation at a price to be fixed by the Board of Directors. Incorporation and organization of private corporations CORPORATION CODE INCORPORATION - The act of creating a corporation Issuance of certificate - It is the certificate of incorporation that gives juridical personality to a corporation and places it within the jurisdiction of the sec. Section 10: number and qualifications of incorporators 1. compose of 5-15 natural persons 2. legal age 3. majority of who are residents of the Philippines 4. must own or be a subscriber to at least one share of the capital stock Section 11: A corporation shall exist for a period not exceeding fifty (50) years Unless: sooner dissolved said period is extended Section 12: Minimum capital stock required of stock corporations - Shall not be required to have any minimum authorized capital stock Section 13- Amount of capital stock to be subscribed and paid for purpose of incorporation 1.

25% authorized capital stock must be subscribed

2.

25% of 25% authorized stock must be paid upon subscription

Section 13: Example: 1000 shares P100 par value 100,000 capital stock x 25% of authorized capital stock 25000 x 25% 6250 must be paid

Section 15: Form of articles of incorporation -unless otherwise prescribed by special law, articles of incorporation of all domestic corporations shall comply substantially with the prescribed form. Section 15 - The Articles of Incorporation of all corporations organized in accordance with the Corporation Code written in any of the official languages (English or Filipino) signed and acknowledged by not less than five nor more than fifteen natural persons before a notary public. Contents of Articles of Incorporation 1. The name of the corporation 2. Specific purpose or purposes 3. Principal office of the corporation 4. Term of existence of corporation 5. Names, nationalities, and residences of incorporators 6. Number of directors or trustees 7. Names, nationalities and residences of directors or trustees 8. Amount of authorized capital stock 9. Non-stock corporation 10. Inclusions of other matters (Sworn statement of treasurer, Property as subscription payment; SEC policy, Papers to accompany articles with SEC)

7. Registration data sheet SECTION 16 1. Amendment of articles of incorporation Change of corporate name 2. Extension of term of the corporation 3. Change in classes or series of shares 4. Change in rights, privileges or restrictions in share ownership 5. Increase or decrease in the number of directors’ 6. Change in purpose or purposes and other necessary changes SECTION 17 - Grounds When Articles Of Incorporation Or Amendment May Be Rejected Or Disapproved - AOI or any amendment is not substantially in accordance with the form prescribed - Purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to the government rules and regulations - Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or paid is false –Required % of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution SECTION 18

Papers to accompany articles with SEC

a.) Corporate name - No corporate name may be allowed by the SEC if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or it’s patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.

1. A verification slip 2. Written undertaking to change corporate name 3. Sworn statement of assets and liabilities 4. Bank certificate of deposit 5. Written authority to verify bank deposit 6. Taxpayer account number of the incorporators

SECTION 19 Commencement of corporate existence - A private corporation formed or organized under this Code commences to have corporate

existence and juridical personality and is deemed incorporated from the date the SEC issues a certificate of incorporation under its official seal; SECTION 20 A.) De Facto corporations - The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding. SECTION 21 - Corporation by estoppel All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. SECTION 22 Effects of non-use of corporate charter and continuous in operation of a corporation -

If a corporation does not formally organize and commence the transaction of its business or the construction of its works within 2 years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of 5 years, the same shall be ground for suspension or revocation of its corporate franchise or certificate of incorporation.