Section 2. stockholders the debts of the corporation.

Corporation defined- A corporation is an 2.) The stockholders are not the owners of the
artificial being created by operation of law, assets of the corporation but have only an
having the right of succession and the powers, indirect interest therein.
attributes and properties expressly authorized 3.) It connection with corporation property or
by law or affairs, stockholders cannot maintain actions in
incident to its existence. their own name and they have no right to
1. Corporation; statutory definition and recover possessions of property belonging to
attributes the
A corporation is an artificial being created by corporation or to recover damages for injury
operation of law, having the right if succession thereto.4.) In taxation, the income of the
and the corporation is not the income of the
powers, attributes and properties expressly stockholders who may
authorized by law or incident to its existence. still be required to pay taxes of the dividends
The foregoing definition provides for the they may derive from such income.
attributes of a corporation, namely; b. Doctrine of piercing the veil of corporate
A. It is an artificial being. entity
B. It is created by operation of law. The separate personality of a corporation is
C. It has the right of succession. intended to protect its stockholders from
D. It has only the powers, attributes and liability for
properties expressly authorized by law or corporates acts. Nonetheless, in order to
incident to its promote justice and prevent inequity, the
existence. courts will not
2. Corporation as an artificial being or hesitate to pierce the corporate veil.
person Piercing the corporate veil based on the alter
There are two kinds of persons under the law: ego theory requires the concurrence of three
natural persons or human beings, and elements:
artificial persons. A corporation is a juridical 1) Control of the corporation by the stockholder
entity with a legal personality separate and or parent corporation:
distinct from 2) Fraud or fundamental unfairness imposed
the people comprising it (Situs Development on the plaintiff; and
Corporation vs. Asiatrust Bank, G.R. No. 3) Harm or damage caused to the plaintiff by
180036, July 25, the fraudulent or unfair act of the corporation.
2012), whether stockholders (or members, in 3. Corporation is created by operation of
the case of non-stock corporations) and which law.
juridical Unlike partnerships, corporations do not come
personality commences upon the issue of the into existence by the mere agreement of the
certificates of incorporation by the Securities parties.
and They require special authority from the
Exchange Commission. sovereign power.
a. Consequences of a separate juridical 4. Corporation has the right of succession
personality A corporations continue to exist for the period
As a juridical entity, a corporation is separated for which was formed regardless of the
by a law by a dividing line from its stockholders changes in the
(or ownership of it shares of stock or in its
members, on case of non-stock corporations). membership.
Prof. Ballantine has these to say as the 5. Corporation has the powers, attributes
consequences of and properties expressly authorized by law
such separate juridical personality: or incident
1.) The debts of the corporation are not the to its existence.
debts of its stockholders, nor are the debts of
the
A corporation being a mere creation of the law, Classes of corporations- corporations under
operates under the doctrine of limited formed or organized under this code may be
capacity. stock or non
6. Similarities and distinctions between stock corporations.
partnership and corporation Stock corporation- one that has capital stock
a. similarities- both have a separate juridical divided into share and is authorized to
personality distribute dividends
b. Distinction or allotment of surplus profits on the basis of
1. Manner of creation- a corporation is the shares held.
created by operation of law, while a partnership Non-stock corporation- one no part or the
is income of which is distributable as dividends to
created by the mere agreement of the partners. its member’s
2. Number of Organizers- a corporation, trustees or officers.
except a corporation sole, is formed by 5 or Domestic corporation- one incorporated
more under Philippine laws (or one operating within
persons but not exceeding 15. the country
3. Right of succession- a corporation has the under whose laws it was incorporated).
right of succession, while a partnership has Foreign corporation- one formed, organized
no such right. and existing under any laws other than those of
4. Powers- a corporation can excise only the the
powers expressly authorized by law, those Philippines and whose laws allow Filipino
implied from the exercise of such express citizens and corporations to do business in its
powers, and those incident to its existence. own country.
5. Management- a corporation acts through its Incorporation test- the nationality of a
board of directors, while a partnership acts corporation follows that of the country under
through all the general partners.6. Liability of whose laws it was
members for debts- the stockholders or incorporated.
members are not liable for the Control test- the nationality of a corporation
obligations of the corporation, while the general follows that of the stockholders owning the
partners of a partnership are liable with controlling
their separate property for partnership debts. interest.
7. Commencement of existence- a Business domiciliary test- the nationality of a
corporation commences to have juridical corporation is that of the country where its
personality on principal
the date of the issuance of its certificate of business is conducted.
incorporation/ Corporation aggregate- one that is composed
8. Transferability of interest- in a corporation, of more than one corporator.
a stockholder can transfer his shares to Corporation sole- one composed of only one
another person without the consent of the other person, like a bishop or a rabbi.
stockholders. Public corporation- one that is organized for
9. Term of existence- a corporation may exist the government of a portion of the state, like
for a period not exceeding 50 years, provinces,
although the same may be extended provided cities, municipalities and barangays.Private
each extension does not exceed 50 years. Corporation- one that is formed for a private
10. Dissolution- a corporation cannot be purpose or end, like San Miguel Corporation.
dissolved without the consent of the State, Government-owned or controlled
while a corporations- these refer to corporations
partnership may be dissolved by the partners. created by special law
7. Advantages and disadvantages of a other than those for the government of a
corporation portion of the State.
a. Advantages
b. Disadvantages
Quasi-public corporations- those organized respect to those who are precluded by their
for profit which are granted a franchise by the admission or conduct from denying its
State to existence.
perform public services, such as Meralco. Corporator’s- those who compose a
Ecclesiastic or religious corporation- one corporation whether a stockholders or
formed for a religious purpose. members.
Lay corporation- one formed for purpose Stockholders- Corporators of a stock
other than ecclesiastical or religious. corporation
Eleemosynary corporation- one organized Members- corporators of a non-stock
for public charity. corporation
Civil corporation- one organized for business Incorporators- those stockholders or
or profit. members mentioned in the articles of
De jure Corporation- one that has been incorporation as originally
created in strict compliance with all the legal forming and composing the corporation and
requirements and are signatories of such document.
whose’ right to exist as a corporation cannot be Concept- a promoter is a person, natural or
successfully attacked in a direct proceeding for juridical, who usually discovers a prospective
that business and
purpose by the State. brings persons interested to invest in it through
De facto corporation- one that is defectively the formation of a corporation.Promoter’s
created but there is an actual exercise of liability on contracts- a promoter is
corporate rights personally liable for contracts made for the
and franchise resulting from an attempt in good benefit of
faith to incorporate on the part of the members. the proposed corporation.
Parent or holding corporation- one which Corporation’s liability on contracts entered
owns the shares of another corporation and into by a promoter- a newly-formed
having the corporation is not
power, directly or indirectly, over the latter automatically liable for pre-incorporation
including the election of the directors. contracts entered into by a promoter in its
Subsidiary corporation- one whose’ shares behalf.
of stock are owned by another corporation, Classification of shares- the shares of stock
called the corporations may divided into classes or series
parent corporation, which has the power to of shares, or
elect its directors. both, any of which classes or series of any
Close corporation- ones whose shares are shares may have such rights, privileges or
limited to a few, restricted as to their transfer, restrictions as may
and not listed be stated in the article of incorporation.
in any stock exchanged. Preferred shares of stock- issued by any
Open corporation- one whose shares are corporation may be given preference in the
open to the public, such as those whose distribution of
shares are listed in assets of the corporation in case of liquidation
the stock exchanges. and in the distribution of dividends, or such
Corporation by prescription- one which has other
exercised corporate powers for such as a preferences as may be stated in the articles of
length of time incorporation.
without interference from the state and which, Shares of capital stock- issued without par
by fiction of law. value shall be deemed fully paid and non-
Corporation by estoppel- one which is not in assessable and the
the reality a corporation but is considered as holder of such shares shall not be liable to the
one with corporation or to its creditors.
Capital stock- the amount specified in the Cumulative preferred stock- those which
articles of incorporation paid in, or procured to entitle the holder to payment not only of current
be paid in for dividends
the carrying on of the business of the but also those in arrears, when dividends are
corporation. declared, to the extent stipulated, before
Authorized capital stock- the total amount of holders of
shares which a corporation is allowed to issue common shares are paid.
if the Non-Cumulative preferred stock- those that
shares have par value. entitle the holder to payment of current
Subscribed capital stock- this the part of the dividends but not
capital stock which is subscribed, whether paid those in arrears, before holders of common
or unpaid. shares are paid.
Outstanding capital stock- this refers to the Participating preferred stock- those that
total shares of stock issued to subscribers or entitle the holder to participate with the holders
stockholders, of common
whether or not fully or partially paid (as long as shares in the surplus profits after the amount
there is a binding subscription agreement), stipulated has been pait to the holders of
except preferred
treasury shares. shares.
Paid-up capital stock- the part of the Non-Participating preferred stock-those that
subscribed capital stock paid to the entitle the holders only to the stipulated
corporation. preferred
Unissued capital stock- that part of the capital dividend.
stock which is not issued or subscribed. Par value stock- one the nominal value of
Legal capital- refers to the total par value of all which appears on the stock certificate.
issued par value shares, or the total cash or No par value stock- one without any nominal
consideration received for all issued nor-par or par value appearing on the stock certificate.
value shares. Redeemable shares- those that grant the
Stated capital- the capital with which the issuing corporation the power to redeem or
corporation issuing shares without par value purchase them
begins business, after a certain period.
increased by any additions thereto, or Founder’s shares- those that grant the
admonished by any deductions therefrom. founders certain rights and privileges not
Capital- refers to the actual property of the enjoyed by other
corporation in money and other property. shares.
Share of stock- represent the rights and Treasury shares- those that have been issued
interest of a stockholder in a corporation. and fully paid for, but subsequently required by
Common stock- the ordinary stock of a the
corporation that entitles the holder to a pro rata issuing corporation by purchase, redemption,
division of the donation or through some other lawful means.
dividends, without any preference or Watered stock- those issued without
advantage over other stockholders. consideration or adequate consideration.
Preferred stock- one that entitles the holder to Voting stock- those entitled to vote in
certain preferences over other stockholders. meetings of the corporation.
Preferred stock as to asset- one that entitles Non-voting stock- those without voting rights,
the holder to preference in the distribution of except in certain cases.
assets over Number and qualifications of incorporators-
common stock upon liquidation of the any number of natural persons not less than 5
corporation.Preferred stock as to dividends- but not
one that entitles the holder to preference in the more than fifteen, all legal age and a majority
distribution of of whom are resident of the Philippines may
dividends over common stock. form a
private corporation for any lawful purpose or and which must therefore be presumed to have
purposes. been the intention in the grant of the franchise.
Primary franchise- it is also known as Incidental powers- powers that a corporation
corporate franchise. may exercise by reason of its very existence as
Secondary franchise- this refers to different a
rights, privileges and powers which are corporation.
obtained by the Power to extend or shorten corporate term-
corporation, which are not a prerequisite to a private corporation may extend or shorten its
corporate existence such as the right to occupy term as
and use stated in the articles of incorporation when
public places. approved by a majority vote of the Board of
Corporate term- a corporation shall exist for a Directors.
period not exceeding fifty years from the date Power to increase or decrease capital stock
of incur, create or increase bonded
incorporation unless sooner dissolved or indebtedness- no
unless such period is extended. corporation shall increase or decrease its
Minimum capital stock required of stock capital stock or incur, create or increase any
corporations- stock corporations incorporated bonded
under this code indebtedness unless approved by a majority
shall not be required to have any minimum vote of the Board of Directors and, at
authorized capital stock except as otherwise stockholders’
specifically meeting.
provided for by special law.Amount of capital Power to deny pre-emptive right- all
stock to be subscribed and paid for stockholders of a stock corporation shall enjoy
purposes of incorporation- at least twenty pre-emptive right
five to subscribe to all issues or disposition of
percent of the authorized capital stock as shares of any class, in proportion to their
stated in the article of incorporation must be respective
subscribed at the stockholdings.
time of incorporation. Sale or other disposition of assets- subject
Minimum paid-up capital for certain to the provision of existing laws on illegal
corporations- the Securities and Exchange combinations and
Commission, under its monopolies, a corporation may, by a majority
broad powers of supervision. vote of its board of directors or trustees.
Contents of articles of incorporation- all Power to acquire own shares- a stock
corporations organized under this code shall corporation shall have the power to purchase
file with the or acquires its own
Securities and Exchange Commission articles shares for a legitimate corporate purposes
of incorporation in any of the official languages including but not limited to the following cases.
duly signed Power to invest corporate funds in anther
and acknowledged by all incorporators. corporation or business or for any other
Form of article of incorporation- unless purpose- subject to
otherwise prescribed by special law, articles of the provision of this code, a private corporation
incorporation of may invest its funds in any other corporation or
all domestic corporations shall comply business or for any purpose other than the
substantially with the following form. primary purpose for which it was organized
Express powers- powers expressly granted to when approved
a corporation by its character. by a majority of the board of directors or
Implied powers- powers which are necessary trustees.
to carry into effect the powers that are Power to declare dividends- the board of
expressly granted, directors of a stock corporation may declare
dividends out of
the unrestricted retained earnings which shall every year as determined by the board of
be payable in cash, in property, or in stock to directors or trustees.
all Place and time of meetings of stockholders
stockholders. or member- stockholders’ or members’
Cash dividends- dividends payable in meeting, whether
cashProperty dividends- dividends payable in regular or special, shall be held in the city or
property, whether real or personal. This may municipality where the principal office of the
include the corporation is
shares of stock of, or the bonds issued by, located.
another corporation. Notice and contents- written notice stating the
Stock dividends- dividends payable in the place and time of meeting must be sent to all
corporations own stock from its new or stockholders or members at least two weeks
unissued shares. prior to the meeting, unless a different period
Bond dividends- dividends payable in bonds sis stated by
of the corporation issuing them. the by-laws.
Scrip dividends- dividends in the form of Quorum in meetings of stockholders or
certificates issued by the corporation to its members- the quorum in the meetings of
stockholders stockholders or
entitling them to receive cash or other property members is majority of the outstanding capital
at some future time, in the meantime that the stock or majority of the members, unless a
corporation does not have cash or its cash is greater
insufficient. majority is provided for in the corporation code
Liquidating dividends- these are distributions or in the by-laws.
of the assets of the corporation to its Presiding officer in meetings of
stockholders upon stockholders or members- the president shall
its dissolution. preside at all meeting of
Composite dividends- dividends payable stockholders or members, unless by-laws
party in cash and partly in stocks. provide otherwise.
Power to enter into management contract- Who shall preside at meetings- the president
no corporation shall conclude a management shall preside at all meetings of the directors or
contract with trustees as
another corporation unless such contract shall well as of the stockholders or members, unless
have been approved by the board of directors by the by-laws provide otherwise.
and by Right to vote of pledgers, mortgagors, and
stockholders owning at least the majority of the administrators- in case of pledge or
outstanding capital stock. mortgaged shares in
Ultra-vires act- an ultra-vires act or contract stock corporations, the pledge or mortgagor
which is beyond the powers that a corporation shall have the right to attend and vote at the
can lawfully meetings of
exercise. In other words, an ultra-vires act is an stockholders.Voting is case of joint
act performed outside the express, implied and ownership of stock- in case of shares of
incidental powers of a corporation. stock owned by two or more persons, in
Kinds of meetings- meetings of directors, order to vote the same, the consent of all the
trustees, stockholders, or members may be co-owners shall be necessary, unless there is
regular or special. a written
Regular and special meetings of proxy, signed by all the co-owners, authorizing
stockholders or members- regular meetings one or some of any other person to vote such
of stockholders or share or
members shall be held annually on a date fixed shares.
in the by-laws or of not so fixed, on any date in Voting right for treasury shares- treasury
April of shares shall have no voting right as long as
such stocks
remains in the treasury.
Proxies- stockholders and members may vote
in person or by proxy in all meetings of
stockholders or
members.
Voting trusts- one or more stockholders of a
stock corporation may create a voting trust for
the purpose
of conferring upon a trustee or trustees the
right to vote and other rights pertaining to the
shares for a
period not exceeding five years in at any one
time.
Derivative suit- the wrong sought to be
redressed is committed against the corporation
itself.