AQUILA LEGIS FRATERNITY Corporation Law Reviewer PDF

Preview

Summary

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 1 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C CHAPTER 2: DEFINITION AND ATTRIBUTES  A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expres...

Description

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 1 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C

CHAPTER 2: DEFINITION AND ATTRIBUTES 

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.



Attributes: 1.

Artificial being;

2.

Created by operation of law;

3.

Right of succession; and

4.

Powers, attributes and properties expressly authorized by law or incident to its existence.



A corporation may claim for moral damages under Art. 2219 (7) of the Civil Code in cases of libel, slander or any form of defamation. (Filipinas Broadcasting Network vs. Ago Medical and Educational Center)



Advantages of corporate form of business:



1.

Capacity to act as a single unit;

2.

Limited shareholder‟s liability;

3.

Continuity in existence;

4.

Feasibility of greater undertaking;

5.

Transferability of shares;

6.

Centralized management; and

7.

Standardized method of organization, management and finance

Disadvantage of corporate form of business: 1.

To have valid and binding corporate act, formal proceedings, such as board meetings are required.

2.

The business transactions of a corporation is limited to the State of its incorporation and may not act as such corporation in other jurisdiction unless it has obtained a license or authority from the foreign state.

3.

The shareholders‟ limited liability tends to limit the credit available to the corporation as a separate legal entity.

4.

By the very nature of shares of stock which are personal properties, transferable at will by the owners thereof, transfers of share may result to uniting incompatible and conflicting interests.

5.

The minority shareholders have practically no say in the conduct of corporate affairs.

6.

In large scale enterprises, stockholders‟ voting rights may become merely fictitious and theoretical because of disinterest in management, wide-scale ownership and inaccessible place of meeting.

7.

Double taxation may be imposed on corporate income.

8.

Corporations are subject to governmental regulations supervision and control including submission of reportorial requirements not otherwise imposed in other business form.

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 2 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C



Distinctions between a corporation and a partnership CORPORATION 1. Created by law or operation of law 2. Generally there must be at least 5 incorporators 3. Can exercise only such powers and functions expressly granted to it by law and those necessary or incident to its existence 4. Unless validly delegated expressly or impliedly, must transact its business through the board of directors 5. Has the right of succession which presupposes that it continues to exist despite the death, withdrawal, incapacity or civil interdiction of the stockholders or members 6. Any stockholder can ordinarily transfer, sell or assign his shares of stock without the consent of the other stockholders 7. The liability of the stockholders or members in is limited to the extend of their subscription or their promised contribution 8. Term of existence is limited only to 50 years unless extended 9. Consent of the State is necessary for its dissolution

PARTNERSHIP 1. Created by mere agreement of the parties 2. May be formed by 2 or more natural persons 3. Can do anything by agreement of the parties provided only that it is not contrary to law, morals, good customs, public policy and public order 4. In absence of agreement to the contrary, any one of the partners may validly bind the partnership 5. Based on mutual trust and confidence such that the death, incapacity, insolvency, civil interdiction or mere withdrawal of one partner would result in it dissolution 6. A partner cannot transfer his rights or interest in the partnership so as to make the transferee a partner without the consent of the other partners 7. All partners are liable pro rata with all their property and after all the partnership property has been exhausted, for all partnership liability 8. May exist for an indefinite period 9. Partners may dissolve at will

CHAPTER 3: CLASSIFICATION OF CORPORATIONS 



Classes of corporations: 1.

Stock

2.

Non-stock

Requisites to be classified as a stock corporation: 1.

That they have a capital stock divided into shares; and

2.

That they are authorized to distribute dividends or allotments as surplus profits to its stockholders on the basis of the shares held by them



Non-stock corporations – no part of their income is distributable as dividends to its members, trustees or officers subject to the provisions on dissolution. (Sec. 87)



The plain and ordinary meaning of a business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood. (CIR vs. Club Filipino, Inc.)



The test in determining whether a government owned or controlled corporation is subject to the Civil Service Law is the manner of its creation, such that government corporations created by special charter are subject to its provisions while those incorporated under the General Corporation Law are not within its coverage. (PNOC-EDC vs. NLRC)

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 3 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C



Other classes of corporations: 1.

2.

3.

4.

5.

6.

7.

Public and Private. a.

Public corporations – those created, formed or organized for political or governmental purposes with political powers to be exercised for purposes connected with the public good in the administration of civil government.

b.

Private corporations – those formed for some private purpose, benefit, aim or end.

Ecclesiastical (religious societies or corporation sole) and Lay (eleemosynary or civil). a.

Ecclesiastical or religious corporations – those composed exclusively of ecclesiastics organized for spiritual purposes or for administering properties held for religious ones. They are further classified as religious societies or corporation sole.

b.

Lay corporations – those established for the purposes other than religion. They are further classified as eleemosynary or civil. Eleemosynary corporations are created for charitable and benevolent purposes. Civil corporations are organized not for the purpose of public charity but for the benefit, pecuniary or otherwise, of its members.

Aggregate and Sole. a.

Aggregate corporations – those composed of a number of individuals vested with corporate powers.

b.

Corporations sole – those that consist of one person or individual only and who are made as bodies corporate and politic in order to give them some legal capacity and advantage which, as natural persons, they cannot have.

Close and Open. a.

Close corporations – those whose shares of stock are held by limited number of persons.

b.

Open corporations – those formed to openly accept outsiders as stockholders or investors.

Domestic and Foreign. a.

Domestic corporations – those that are organized or created under or by virtue of the Philippine laws. Note: issues of intra-corporate nature are governed by Philippine law.

b.

Foreign corporations – those formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state.

Parent or Holding Companies and Subsidiaries and Affiliates. a.

Holding corporations – corporations that confine their activities to owning stock in, and supervising management of other companies.

b.

Subsidiary corporations – those which another corporation owns at least a majority of the shares, and thus have control.

c.

Affiliates – those corporations which are subject to common control and operated as part of a system.

Quasi-public. a.

Quasi-public corporations – private corporations which have accepted from the State the grant of a franchise or contract involving the performance of public duties (public service corporations).

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 4 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C

8.

Quasi corporations. a.

9.

Quasi corporations – public bodies or municipal societies such as townships, counties, school districts, road or highway districts which, though not vested with the general powers of corporations, are organized by statutes or immemorial usage, as persons or aggregate corporations with precise duties which may be enforced, and privileges which may be maintained, by suits of law.

De jure corporations. a.

De jure corporations – juridical entities created or organized in strict or substantial compliance with the statutory requirements of incorporation and whose right to exist as such cannot be successfully attacked even by the State in a quo warranto proceeding.

10. De facto corporations. a.

De facto corporations – those which exist by virtue of an irregularity or defect in the organization or constitution or from some other omission to comply with the conditions precedent by which corporations de jure are created, but there was colorable compliance with the requirements of the law under which they might be lawfully incorporated for the purposes and powers assumed, and user of the rights claimed to be conferred by law.

11. Corporations by estoppel. a.



Corporations by estoppel – those which are so defectively formed as not to be either de jure or de facto corporations but which are considered as corporations in relation only to those who cannot deny their corporate existence due to their agreement, admission or conduct.

The mere fact that the government happens to be a majority stockholder does not make it a public corporation. (National Coal vs. CIR)

CHAPTER 4: FORMATION AND ORGANIZATION 



Stages in the life of a corporation: 1.

Creation

2.

Reorganization or quasi-reorganization

3.

Dissolution and winding up

Steps in creation: 1.

Promotional stage

2.

Process of incorporation

3.

Organization and commencement of business

PROMOTIONAL STAGE 

A promoter acting for a proposed corporation has 3 options: 1.

He may make a continuing offer on behalf of the corporation, which, if accepted after incorporation, will become a contract. In this case, the promoter does not assume any personal liability, whether or not the corporation will accept the offer.

2.

The promoter may make a contract at the time binding himself, with the understanding that if the corporation, once formed, accepts or adopts the contract, he will be relieved of responsibility.

3.

The promoter may bind himself personally and assume the responsibility of looking to the proposed corporation, when formed, for reimbursement.

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 5 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C

PROCESS OF INCORPORATION 



Process of incorporation: 1.

Drafting the articles of incorporation

2.

Preparation and submission of additional and supporting documents

3.

Filing with the SEC

4.

Subsequent issuance of certificate of incorporation

Contents of the articles of incorporation 1.

Name

2.

Purpose

3.

Principal office

4.

Term

5.

Incorporators

6.

Number of directors/trustees

7.

Names, nationalities and residences of directors/trustees

8.

If a stock corporation, amount of authorized capital stock, number of shares, par value, original subscribers

9.

If a non-stock corporation, amount of capital, contributors

10. Such other matters not inconsistent with law and which the incorporator may deem necessary and convenient 11. Treasurer‟s certificate CORPORATE NAME 

A corporation cannot use a name which is: 1.

identical or deceptively or confusingly similar to that of any existing corporation or to any other name protected by law; or

2.

patently deceptive, confusing or contrary to law.



The law gives a corporation no express or implied authority to assume another name that is unappropriated; still less that of another corporation, which is expressly set apart from it and protected by law. (Red Line Transportation Co. vs. Rural Transit Co.)



A word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product. (Doctrine of secondary meaning, Lyceum of the Philippines, Inc. vs.CA)



A corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another corporation in the same field. (Philips Export B.V. vs. CA)



To come within the scope of the prohibition of Sec. 18, two requisites must be proven, namely: 1.

That the complainant corporation acquired a prior right over the use of such corporate name; and

2.

The proposed name is either: (a) identical or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law. (Philips Export B.V. vs. CA)

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 6 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C



In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination. Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur. (Philips Export B.V. vs. CA)



A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames. (Philips Export B.V. vs. CA)



A mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under legislative authority, does not, generally speaking, affect the identity of the corporation, nor in any way affect the rights, privileges or obligations previously acquired or incurred by it.

PURPOSE CLAUSE 

A corporation has only such powers as are expressly granted to it by law and by its articles of incorporation including those which are incidental to such conferred powers, those reasonably necessary to accomplish its purpose and those which may be incidental to its existence.



Reasons for requiring a statement of purposes or objects: 1.

In order that the stockholder who contemplates on an investment in a business enterprise shall know within what lines of business his money is to be put at risk.

2.

So that the board of directors and management may know within what lines of business they are authorized to act.

3.

So that anyone who deals with the company may ascertain whether a contract or transaction into which he contemplates entering is one within the general authority of the management.



If the corporate purpose or objective includes any purpose under the supervision of another government agency, prior clearance and/or approval of the concerned government agencies or instrumentalities will be required.



General limitations on the purpose clause: 1.

The purpose must be lawful.

2.

The purpose must be specific or stated concisely although in broad or general terms.

3.

If there is more than one purpose, the primary as well as the secondary ones must be specified.

4.

The purpose must be capable of being lawfully combined.

THE PRINCIPAL OFFICE 

The residence of the corporation is the place of its principal office as may be indicated in its articles of incorporation and may, therefore, be sued only at that place. (CRS vs. Antillon)

TERM OF EXISTENCE 

Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission.

INCORPORATORS 

Sec. 10. Number and qualifications of incorporators. - Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.

AQUILA LEGIS FRATERNITY Corporation Law Reviewer Page 7 of 87 Darren L. Salipsip 98B & Ronald Patrick Rubin 06C



General rule: Only natural persons can be incorporators.



Exception: Cooperatives and corporations primarily organized to hold equities in rural banks.



Minors are not qualified to become incorpora...