CORPORATION

A. Definition and Attributes

Corporation: An artificial being created by operation of law having the right of succession, and
the powers, attributes and properties expressly authorized by law and incident to its existence.

1. Artificial Beings

i. Corporate Entity Theory/ Doctrine of Separate Personality

It is well-settled doctrine that a corporation has a personality distinct and

separate from its individual stockholders or members.

Significance of the doctrine of separate personality:

1. Liability for acts or contracts – the acts of the stockholders do not bind the
corporation unless they are properly authorized. The obligations incurred by
a corporation, acting through its authorized agents are its sole liabilities. The
obligations of the corporation are not the obligations of its shareholders and
members and vice-versa.

2. Rights to bring actions – may bring civil and criminal actions in its own name
in the same manner as natural persons.

3. Rights to acquire and possess property – property conveyed to or acquired

by the corporation is in law the property of the corporation itself as a
distinct legal entity and not that of the stockholders or members.

Note: The interest of the shareholder in the properties of the corporation is

inchoate only. The interest of the shareholder on a particular property
becomes actual, direct and existing only upon the liquidation of the assets
of the corporation and the same property is assigned to the shareholder
concerned.

4. Acquisition of court of jurisdiction – service of summons may be made on

the president, general manager, corporate secretary, treasure or in- house
counsel.

5. Changes in individual membership – corporation remains unchanged and

unaffected in its identity by changes in its individual membership.

ii. Piercing the veil of corporate entity/ fiction

It is the doctrine that allows the State to disregard the notion of separate
personality of a corporation for justifiable reason/s.

Note: This is an exception to the Doctrine of Separate Corporate Entity.

Effects of piercing the veil:

 Courts will look at the corporation as an aggregation of persons undertaking the
business as a group.

Note: When the veil of corporate fiction is pierced in proper cases, the
corporate character is not necessarily abrogated. It continues for legitimate
objectives. The decision applies only for that particular case.

2. Created by operation of Law

i. Concession theory

Means that a corporation was conceived as an artificial person owing existence

through creation by a foreign power. It has without any existence until it has
received the imprimatur of the state acting according to law, through the SEC.

Note: Philippine jurisprudence adopted this theory as the underlying basis for
the existence and powers of corporate entities.

ii. Commencement of corporate existence

3. Right of succession

4. Corporate powers

B. Advantage and Disadvantage of forming a corporation

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

Disadvantages of corporate form of business:

1. Complicated formation

2. High cost of formation

3. Limited liability of stockholders

4. Lack of personal element in view of the transferability of shares

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

6. The business transactions of a corporation are 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.

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

8. 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.

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

10. 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.

11. Double taxation may be imposed on corporate income.

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

C. Classes of corporation

1. Kinds of corporation as to control or ownership

D. Organization and incorporation

1. Formation of private stock corporation or incorporation

i. 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.

ii. 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

2. Contents of 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

NaP‐ PlaTINum‐ASONO

1. Name of corporation

2. Purpose/s, indicating the primary and secondary purposes

3. Place of principal office Note: To determine proper venue in filing of an action

4. Term of existence

5. Names, nationalities and residences of Incorporators

6.Number of directors or trustees, which shall not be less than 5 nor more than
15, except for corporation sole

7.Names, nationalities, and residences of the persons who shall Act as directors
or trustees until the first regular ones are elected and qualified

8.If a Stock corporation, the amount of its authorized capital stock, number of
shares and in case the shares are par value shares, the par value of each share;
9.Names, nationalities, number of shares, and the amounts subscribed and paid
by each of the Original subscribers which shall not be less than 25% of
authorized capital stock;

10.If Nonstock, the amount of capital, the names, residences, and amount paid by
each contributor, which shall not be less than 25% of total subscription; name of
treasurer elected by subscribers; and

11.Other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient. (Sec. 14)