Rules in The Determination of Corporate Nationality

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RFBT – CORPORATIONS

GENERAL PROVISIONS a. Natural persons can do anything not


forbidden by law.
Section 1 b. Corporations can do only what is
expressly or impliedly allowed by law or
3. Title of the Code its charter.
This Code shall be known as the “Revised ***
Corporation Code of the Philippines.”
Rules in the Determination of Corporate Nationality
Section 2
12. Incorporation Test (Generally Used)
5. Corporation It is a recognized doctrine of corporate law
A corporation is an artificial being created that a private corporation is a national, citizen,
by operation of law, having the right of succession resident, or inhabitant of the country or state, by or
and the powers, attributes, and properties expressly under the laws of which it was created or
authorized by law or incidental to its existence. organized.

Attributes of a Corporation 13. Control Test


Under this, the citizenship or nationality of a
7. Artificial Being corporation is determined by the citizenship or
A corporation is actually a device by which nationality of its controlling stockholders. This test
individuals may concentrate their efforts, capital or is applied in times of war.
properties for common gain. A corporation is given
by law with rights, powers and properties usually 14. Domiciliary Test
accorded to a natural person. As an artificial Under this, the citizenship or nationality of a
person, it can only act through its directors who are corporation is determined by the principal place of
chosen by stockholders. business of the corporation.

8. Created by Operation of Law 15. Grandfather Rule


A corporation comes into being by authority Under this, the citizenship or nationality of a
of the state. Unlike a business partnership, it corporation is attributed to the percentage of equity
cannot arise by voluntary agreement of the in the corporation used in nationalized or partly
partners. The right to exist as a corporation is a nationalized area.
primary franchise and is often referred to as ***
charter.
16. Doctrine of Piercing the Veil of Corporate
9. Right of Succession Entity or Corporate Fiction
A private corporation may continue It asserts that the separate personality of a
regardless of the death, insolvency, or incapacity of corporation may be disregarded if such entity is
any of its directors, officers or employees, and used to defeat public convenience, justify a wrong
regardless of the transfer of shares from one protect fraud, or defend crime.
stockholder to another.
17. Identical Features of Partnerships and
10. Powers, Attributes and Properties Corporations
A corporation, being a mere creature of law, Partnerships and corporations:
has such powers only as are expressly or impliedly
conferred upon it by the Charter or act of a. Are organizations composed of an
incorporation. aggregate of individuals;
RFBT – CORPORATIONS

b. Have juridical personalities distinct from d. Transferability of shares;


that of their respective component e. Centralized management under a board
members; and of directors; and
c. Can act only through their respective f. Standardized methods of organization,
agents. management and finance for the
protection of shareholders and creditors
18. Distinctions Between a Partnership and a
Corporation 20. Disadvantages of a Corporate Form of
Business Organization
Partnership Corporation
Created by mere Cannot be created a. The limited liability of the stockholders
agreement among the without the consent of serves to limit the credit available to the
partners the state corporation;
May be organized by May be organized by b. The transferability of shares permits the
two or more persons one or more persons uniting of incompatible and conflicting
A partner is generally The power to bind the interests in one enterprise;
considered an agent of corporation, unless c. The minority stockholders are usually
the partnership. delegated, rests in the subservient to the wishes of the
board of directors. majority;
General partners are Shareholders are liable d. Corporations are subject to
liable to third persons only to the extent of the governmental restrictions, controls, and
even with their
shares subscribed by reporting requirements not imposed on
separate property. them. other forms of business organizations;
Does not have the Has the power of and
power of succession succession (i.e., death e. The corporate form involves "double
(i.e., death of general of a stockholder does taxation" on corporation income.
partner causesnot affect its
Section 3
dissolution) existence)
Partner’s interest
A stockholder may
Classes of Corporations as to Corporation Code
cannot be transferred transfer his share even
to another without the without the consent of
23. Stock Corporation
consent of the other the other stockholders.
It is one which have capital stock divided
partners (delectus
into shares and are authorized to distribute to the
personae).
holders of such share dividends or allotments or
Governed by the Civil Governed by the
the surplus profits on the basis of the shares held
Code Revised Corporation
Code
24. Non-Stock Corporation
It is one which do not issue shares and are
19. Advantages of Corporate Form of Organization
created not for profit but for public good and
welfare and where no part of its income is
a. The capacity to hold property, to
distributable as dividends to its members, trustees,
contract, to sue and be sued as a legal
or officers.
or distinct entity;
b. Exemption of shareholders from
Classification of Corporations as to Nationality
individual liability;
c. Continuity of business in spite of death
26. Domestic Corporation
or change of members;
It is one incorporated under Philippine laws.
RFBT – CORPORATIONS

27. Foreign Corporation Classification of Corporations as to Compliance


It is one formed, organized, or existing with Statutory Requirements
under any laws other than those of the Philippines.
41. De Jure Corporation
Classification of Corporations as to Number of It is one created in strict or substantial
Corporators conformity with the statutory requirements for
incorporation and whose right to exist as a
29. Corporation Aggregate corporation cannot be successfully attacked even
It is one formed by several individual in a direct proceeding for that purpose by the state.
persons.
42. De Facto Corporation
30. One Person Corporation (OPC) It is a legal recognition of a corporation,
It is one formed by a single individual alone. even if the articles of incorporation for such
corporation are not properly filed. (See Section 20
Classification of Corporations as to Being for further information.)
Organized for Religious Purposes or Not
Other Kinds of Corporation
32. Ecclesiastical Corporation
It is one organized for religious purposes. 44. Quasi-Corporations
It is an entity that exercises some functions
33. Lay Corporation of a corporation, but has not been granted
It is one composed of laymen and organized complete autonomy by the government to function
for other than spiritual purposes. as an independent corporation. This definition
especially applies to school districts or municipal
Classification of Corporations as to Being divisions like counties.
Organized for Charitable Purposes or Not 45. Quasi-Public Corporations
It is one engaged in rendering basic services
35. Eleemosynary Corporation of such public importance as to entitle it to certain
It is one organized for charitable purposes. privileges like equivalent domain or use of public
property (e.g., common carriers, electric, gas, water,
36. Civil Corporation and telephone companies).
It is one organized for purposes other than
charity, whether public or private. 46. Government-Owned and/or -Controlled
Corporation
Classification of Corporations as to Existence of These are corporations created or
Public Ownership established by a special charter or law in the
interest of the common good and subject to the
38. Close or Privately-Held Corporation test of economic viability (e.g., Lung Center of the
It is one wherein all the outstanding stock Philippines, Ninoy Aquino International Airport,
are held by a select few individuals (e.g., family Philippine Amusement and Gaming Corporation,
members) who are usually closely associated with etc.)
the business.
47. Multi-National Corporation
39. Open or Publicly-Held Corporation It is one having been created or organized in
It is one whose ownership shares are one state conducts its business or activities across
available for exchange on a public market.
RFBT – CORPORATIONS

national boundaries but subject to the legal It is the act of procuring the initial finances
sanctions of the countries in which it operates. and the making of all preparations necessary to
launch a corporation.
Section 4
58. Promoter
49. Special Corporations Governed by Charters He or she is the one who undertakes the
When a corporation is created by a special promotion. Moreover, he or she is a self-constituted
law or given a distinct charter by the law-making organizer who funds an enterprise or venture and
body, it shall be governed primarily by the helps to attract investors, form a corporation and
provisions of such special law or charter (e.g., launch it in business, all with a view to promotion
government-owned and/or -controlled corporations profits.
such as the Boy Scouts of the Philippines).
59. Effects of Promoter's Contracts
Section 5 A corporation is not bound by any
agreement made by a promoter on its behalf,
Components of a Corporation unless and until the corporation approves the
agreement.
52. Corporators
They are those who compose a corporation, Section 6
whether as stockholders or members.
61. Stock or Shares of Stock
53. Incorporators Ir is one of the units into which the capital
They are those stockholders or members stock has been divided. It represents the interest or
mentioned in the articles of incorporation as right that the holder of the stock or stockholder has
originally forming and composing the corporation in the corporation.
and who are signatories thereof.
62. Share Certificate
54. Stockholders or Shareholders It certifies that one is a holder or owner of a
They are what the corporators of a stock certain number of shares of stock in a corporation.
corporation are called. An incorporator may be
considered a corporator for as long as he continues Classes or Series of Shares Classified According to
to be a stockholder or member although not all Voting Rights
corporators are incorporators.
64. Voting Shares
55. Members These are shares whose holders have the
They are what the corporators of a non- right to be present and vote at all corporate
stock corporation are called. meetings.
***
65. Non-Voting Shares
56. Capacity Required to Become an Incorporator These are shares whose holders do not
The incorporation of a corporation is in legal have full voting rights (see no. for further
effect a contract between the organizers information).
(incorporators) and the state. It is for this reason ***
that the incorporators must have the capacity to
enter into a valid and enforceable contract. 66. Par Value
It indicates the amount which the original
57. Promotion subscribers are supposed to contribute to capital.
RFBT – CORPORATIONS

Its purpose is to fix a minimum subscription or


original issue price of the shares. 75. Preference as to Assets
Preferred shareholders are entitled to
Classes or Series of Shares Classified According to receive assets first in the distribution of capital of
Being Assigned with a Par Value or Not the corporation in case of liquidation.

68. Par-Value Shares 76. Preference as to Dividends


These are shares that are given a fixed or Preferred shareholders are entitled to
definite value in the articles of incorporation (par receive dividends on their shares to the extent
value). agreed upon before any dividends at all are paid to
the holders of common stock.
69. No-Par Value Shares
These are share not assigned with a par Kinds of Preferred Shares
value.
*** 78. Cumulative Preferred Share
It is a preferred stock whose annual fixed-
70. No-Par Value Shares Deemed Fully Paid rate dividend, if cannot be paid in any year, accrues
Shares of capital stock issued without par until it can and is paid before common dividends.
value shall be deemed fully paid and non-
assessable and the holder of such shares shall not 79. Non-Cumulative Preferred Share
be liable to the corporation or to its creditors in It provides the shareholder fixed dividend
respect thereto: Provided, amount each year from the company's net profit
a. That shares without par value may not be but in case the company fails to pay the dividend
issued for a consideration less than the value of on such preference share to the shareholder in any
five (P5.00) pesos per share; and year then such dividend cannot be claimed by the
b. That the entire consideration received by shareholder in future.
the corporation for its no-par value shares shall be
treated as capital and shall not be available for 80. Participating Preferred Share
distribution as dividends. It entitles the holder to participate
Classes or Series of Shares Classified as to Being proportionately in the excess of the profits set
Preferred or Not aside for dividends after the common shares have
been granted to share in the dividends equal in rate
72. Common Shares to that already allowed the preferred shares based
This type of shares entitles its owner an on their preferred rate.
equal pro rata division of the profits, if there are
any, without having any preference or advantage 81. Non-Participating Preferred Share
over other stockholders or classes of stockholders. Its holder is entitled only to receive the rate
It is also considered as a voting share. of dividend stated or granted in the articles and in
the certificate of stock; beyond that, such holder is
73. Preferred Shares not entitled to receive more, even if the profits set
This type of shares gives its stockholders aside for dividends be such that the common
certain preferences or advantages over common shares will receive a greater rate of dividend than
stockholders. It is also considered as a non-voting the preferred ones.
share.
*** 82. Restrictions on the Issuance of Different
Classes or Series of Shares
Preferences Granted to Preferred Shareholders
RFBT – CORPORATIONS

a. Shares shall not be deprived of voting It is such stock issued to promoters, or


rights except preferred or redeemable shares but those in some way interested in the company or for
non-voting shares must still be entitled to vote on the services rendered in launching or promoting the
matters specified in the last paragraph of Section 6 welfare of the company such as advancing the fees
(see no. 83) like matters relating to amendment of for incorporation, attorney’s fees, surveying,
the articles of incorporation and dissolution of the advertising, etc.
corporation;
b. Where non-voting shares are provided for, 85. Shares in Escrow
there must always be a class or series of shares These are shares subject to an escrow
with complete voting rights; agreement, that is, an agreement under which the
c. Banks, trust, insurance, and preneed shares are deposited by the grantor or his agent
companies, public utilities, and building and loan with a third person, to be delivered by the
associations shall not be permitted to issue no-par depositary to the vendee or subscriber only upon
value shares of stock; the happening of certain conditions
d. Preferred shares of stock which may be
given preference in the distribution of assets in Section 7
case of liquidation and distribution of dividends or
other preferences may be issued inly with stated 87. Founder’s Shares
par value; These are, generally common stock, given
e. The terms and condition of preferred to the founders or promoters of a corporation in
shares or series thereof may be fixed by the board payment of money expended or services rendered
of directors only when authorized by the articles of in the promotion of it. Since this type of shares
incorporation the effectivity thereof shall be usually enjoy rights and privileges not enjoyed by
reckoned from the filing of a certificate with the other stockholders, the approval of the SEC is
SEC; required before its issuance.
f. Unless otherwise provided by the law, the
rights, privileges, or restrictions on classes or series 88. Right Granted to Holders of Founder’s Shares
of shares must be stated in the articles of It is the exclusive right to vote and be voted
incorporation and in the stock certificates. for in the election of directors for a limited period
83. Instances When Non-Voting Shares May Vote not exceeding five (5) years from the date of
a. Amendment of the articles of approval for issuance by the SEC.
incorporation;
b. Adoption and amendment of by-laws; Section 8
c. Sale, lease, exchange, mortgage, pledge
or other disposition of all or substantially all of the 89. Redeemable or Callable Shares
corporate property; These are shares of stock which are usually
d. Incurring, creating or increasing bonded preferred and subject to redemption (repurchase)
indebtedness; at the option of either the corporation, the
e. Increase or decrease of capital stock; stockholder, or both, at a definite price representing
f. Merger or consolidation of the corporation premium above the amount originally paid.
with another corporation or other corporations;
g. Investment of corporate funds in another 90. Rules on the Redemption of Callable Shares
corporation of business in accordance with the a. Such shares may be redeemed even if
Corporation Code; and there are no unrestricted retained earnings on the
h. Dissolution of the corporation. books of the corporation.
84. Promotion Stock b. Retired or redeemed preferred shares
cannot be reclassified into common shares
RFBT – CORPORATIONS

considering that upon redemption, they lose their


status as outstanding capital stock.

91. Reclassification of Preferred Shares


The reclassification of unissued and
unredeemed preferred shares is done by amending
the articles of incorporation in accordance with
Section 16 of the Revised Corporation Code.

92. Sinking Fund


It 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.

Section 9

94. Treasury Shares


These are the shares which are bought back
by the issuing company, reducing the number of
shares outstanding on the open market.
Subsequent Actions After the Acquisition of
Treasury Shares
a. Disposal at a reasonable price fixed by
the board of directors; or
b. Retirement.
INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS

96. Incorporation
It means the act of creating a corporation
upon compliance with the law regulating its
incorporation which is the Revised Corporation
Code.

97. Certificate of Incorporation


Required Number of Incorporators
Qualifications of Incorporators
Secondary Franchise
It is given to the corporation such as the
right to expropriate private property for use as
railroad, public highways, gas, electric services, etc.

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