A.

Corporations
1. General Principles
a. Nature and Attributes
1. It is an artificial being
2. It is created by operation of law
3. It has the right of succession
4. It has the powers, attributes and properties expressly authorized by law or incidental to its
existence
b. Nationality of Corporations
i. Control Test
It is the prevailing mode of determining the nationality of corporations engaged in
nationalized activities. However, when in the mind of the Court there is doubt as to where
beneficial ownership and control reside, based on the attendant facts and circumstances
of the case, then it may apply the grandfather rule.

ii. Grandfather Rule

Under the Grandfather Rule Proper, if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality.

c. Doctrine of Separate Juridical Personality

The corporation has a legal personality separate and distinct from the stockholders,
directors, and officers composing it. This means that the corporators are not entitled to
the possession of any definite portion of its property or assets. Similarly, properties that
the corporators own do not belong to, and cannot be used by, the corporation without the
former’s consent.

d. Doctrine of Piercing the Corporate Veil

It is the doctrine that allows the State to disregard, for certain justifiable reasons, the
notion or fiction that the corporation has a separate and legal personality from those
composing it. It applies in three basic areas, namely: (1) defeat of public convenience as
when the corporate fiction is used as a vehicle for the evasion of an existing obligation;
(2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or (3) alter ego cases, where a corporation is merely a farce.

e. Trust Fund Doctrine

It provides that subscriptions to the capital stock of a corporation constitute a fund to
which the creditors have a right to look for the satisfaction of their claims. It must be
noted that the trust fund doctrine is not limited to the stockholders’ subscriptions. The
scope of the doctrine encompasses not only the capital stock but also other property and
assets generally regarded in equity as a trust fund for the payment of corporate debts.
2. Kinds of Corporation
a. Stock Corporation

b. Non-Stock Corporation
A nonstock corporation is one without a capital stock and/or where no part of its income
is distributable as dividends to its members, trustees, or officers, subject to the provision
on dissolution. Any profit which a nonstock corporation may obtain incidental to its
operations shall, whenever necessary or proper, be used for the furtherance of the purpose
or purposes for which the corporation was organized.

c. Close Corporation
A close corporation is one whose articles of incorporation provides that: (1) all the
corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding 20; (2) all the
issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and (3) the corporation shall not list in any stock exchange or
make any public offering of its stocks of any class.

d. Educational Corporations
Educational corporations are those organized for educational purposes, particularly the
establishment and maintenance of a school, college or university. They may be organized
as a stock or non-stock corporation.

e. Religious Corporation
Religious corporations may be incorporated by one or more persons. Such corporations
may be classified as corporations sole or religious societies. A corporation sole is one
which is formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding
elder of a religious denomination, sect or church for the purpose of administering and
managing, as trustee, the affairs, property and temporalities of such religious
denomination, sect or church.

f. One Person Corporation

3. Incorporation and Organization

a. Number and Qualifications of Incorporators
Any person, partnership, association or corporation, singly or jointly with others but not
more than 15 in number, may organize a corporation for any lawful purpose or purposes.
Natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be allowed to
organize as a corporation unless otherwise provided under special laws. Incorporators
who are natural persons must be of legal age. Ecah incorporator of a stock corporation
must own or be a subscriber to at least one (1) share of the capital stock or be a member
in a nonstock corporation.

b. Capitalization
c. Corporate Term
It is the time or period the corporation is allowed to exercise its corporate powers to attain
the purpose of its incorporation. Under the Revised Corporation Code of the Philippines,
a corporation shall have perpetual existence unless its articles of incorporation provides
otherwise. The corporation continues to exist until the corporation decides to end it, or it
may have a fixed term if specified in the articles of incorporation.

d. Classification of Shares
a. Common shares
Common shares of stock are the basic class of stock ordinarily and usually listed
without privileges or advantages except that they cannot be denied the right to
vote. Owners are entitled to a pro-rata share in the profits of the corporation and
in its assets upon dissolution and liquidation and, in the management of its affairs.

b. Preferred Shares

c. Voting shares
These are shares which can vote on all corporate acts requiring stockholder’s
approval. The corporation should always have voting shares.

d. Non-voting shares
e. Founder’s shares
Founders’ shares are shares classified as such in the articles of incorporation
which may be given certain rights and privileges not enjoyed by the owners of
other stocks.
f. Treasury shares
g. Redeemable shares
Are shares classified as such in the articles of incorporation which may be issued
by the corporation which may be purchased by the corporation from the holders
of such shares upon the expiration of a fixed period, regardless of the unrestricted
retained earnings in the books of the corporation.
h. Watered shares
Watered stock is a stock issued for a consideration less than the par or issued price
thereof or for a consideration in any form other than cash, valued in excess of its
fair value.

e. Articles of Incorporation, Corporate Name, and

Commencement of Corporate Existence
It is the document prepared by the incorporators organizing a corporation containing the
matters required by the RCC and filed with the SEC. It offers the ultimate evidence of the
nature and purpose of a corporation and defines the contractual relationships between the
State and the corporation, the stockholders and the State, and the corporation and the
stockholders.
 Under Section 17 of the RCC, any corporate name is allowed, provided that none of the
following disqualifications are present, to wit:
(1) Not distinguishable from that already reserved or registered for the use of another
corporation;
(2) Name is already protected by law;
(3) Use is contrary to existing law, rules and regulations.

A private corporation organized under the RCC commences its corporate existence and
juridical personality from the date the SEC issues the certificate of incorporation under its
official seal and thereupon the incorporations, stockholders/members and their successors
shall constitute a body corporate under the name stated in the articles of incorporation for
the period od time mentioned therein.

f. By-Laws
g. Corporate Officers
h. De Facto Corporation
1. A de facto corporation is one that is organized with colorable compliance with the
requirements of incorporation under the law and allowed to exist and exercise the powers
of a corporation until its corporate existence is assailed by the State in a quo warranto
proceeding.
It has all the powers and authority of a de jure corporation until it is ousted of its
corporate existence.

i. Corporation by Estoppel
A corporation by estoppel is one that exists when two or more persons assume to act as a
corporation knowing it to be without authority to do so. A person acting or purporting to
act on behalf of a corporation that has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent.

4. Directors, Trustees, and Officers

a. Qualifications and Disqualifications
Qualifications:
1. Directors or trustees need not be natural persons. However, juridical persons,
as directors, need to be represented by their nominees;
2. If the director or trustee is a natural person, he must be of legal age;
3. The director must own at least one (1) share of stock of the corporation and
the trustee must be a member of the corporation;
4. The number of the directors shall not be more than 15 while the number of
trustees may be more than 15;
5. Only a member of the corporation shall be elected as trustee;
 Disqualifications:
1. Within five (5) years prior to the election, or within the tenure, the director,
trustee, or officer was convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years.
2. The director, trustee or officer was convicted by final judgment for violation
of the RCC;
3. The director, trustee or officer was convicted by final judgment for violation
of the SRC;
4. The director, trustee or officer was convicted for any offense involving
fraudulent acts punishable under the RCCP, SRC and other laws;
5. Was found administratively liable, by final judgment, for refusal to allow the
inspection and/or reproduction of corporate records.
b. Elections
GR: Every stockholder or member has the right to nominate the director or trustee to be
elected.
XPN: When the exclusive right to be voted as directors is reserved for holders of
founders’ shares under Section 7 of the RCC.

There must be notice of a meeting sent to the stockholders in accordance with the form
and mode under the bylaws.

c. Independent Directors
An independent director is a person who, apart from shareholdings and fees received
from the corporation, is independent of management and free from any business or other
relationship which could or could reasonably be perceived to materially interfere with the
exercise of independent judgment in carrying out the responsibilities as a director.
d. Term, Holdover, and Removal
Term

Holdover

Removal
a. There must be a previous notice of the meeting to stockholders or members,
and the procedures prescribed by the RCC and bylaws must be followed;
b. The notice of the meeting must specify the intention to propose the removal of
the director;
c. The removal must be approved by stockholders representing at least two-
thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of
the members entitled to vote for non-corporation.
d. The removal may be with or without just cause. If the removal is intended to
deprive the minority of their representative, the removal has to be with cause.
e. The vacancy brought about by the removal of the director may b filled at the
same stockholders’ meeting where the removal was effected.
e. Vacancy
f. Voting Requirements
g. Duties, Liability, and Dealings of Directors
h. Doctrine of Centralized Management
It means that corporate powers are vested in a body, called board of directors for a stock
corporation and board of trustees for a nonstock corporation. The stockholders or
members, regardless of number, will have to delegate the power to manage the
corporation to the board. The concentration in the board of the powers of control of the
corporate business and appointment of corporate officers and managers is necessary for
efficiency in any large organization.

i. Business Judgment Rule

Questions of policy and management are left to the sound discretion and honest decision
of the officers and directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors. The board is the
business manager of the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts. Courts are barred from intruding into the business judgments of
the corporation when the same are made in good faith.

j. Doctrine of Apparent Authority

It provides that a corporation will be estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent to act within the scope of
apparent authority, and it holds him out to the public as possessing the power to do those
acts.

k. Doctrine of Ratification or Estoppel

5. Powers of Corporations; Incidental Powers; Ultra Vires Doctrine

Powers of the Corporation: General Powers

1. To sue and be sued in its corporate name;

2. To have perpetual existence unless the certificate of
incorporation provides otherwise;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of the RCC;
5. To adopt bylaws, not contrary to law. Morals, public policy,
and to amend the same in accordance with the RCC;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with the
provisions of the RCC;
7. To purchase, receive, take or grand, hold, convey, sell, lease,
pledge, mortgage, and otherwise deal with such real and
personal property;
8. To enter into partnership, joint venture, merger, consolidation,
or any other commercial agreement with natural and juridical
persons;
9. To make reasonable donations;
10. To establish pension, retirement, and other plans for the benefit
of its directors, trustees, officers, and employees; and
11. To exercise such other powers.
 6. Stockholders and Members

a. Doctrine of Equality of Shares

It means that all stocks issued by the corporation are presumed equal, with the same
privileges and liabilities, provided that the articles of incorporation is silent on such
differences. Each share shall be equal in all respects to every other share, except as
otherwise provided by the articles of incorporation and the certificate of stock.

b. Participation in Management; Voting Requirements

c. Proprietary Rights
i. Right to Dividends

ii. Right to Inspection

Every stockholder has the right to inspect the records of a corporation. The stockholders’
right of inspection of the corporation’s books and records is based upon their ownership
of the assets and property of the corporation.

iii. Pre-emptive Right

Pre-emptive rights are a right of stockholders to purchase new shares of a company
before they are offered to the public. This right is intended to protect current shareholders
from a dilution of their ownership or control in the company.

iv. Appraisal Right

It is the right of the stockholder to demand the payment of the fair value of his shares
after dissenting against a proposed corporate act in the cases specified by law. In practical
terms, it means the right to get out of the corporation and get back his equity investment.
Section 80, RCC – Instances when stockholders can exercise their appraisal rights:
 When the articles of incorporation are amended to change or restrict stockholder
rights, or to extend or shorten the corporation's term
 When the corporation sells, leases, exchanges, transfers, mortgages, pledges, or
disposes of all or most of its assets
 When the corporation merges or consolidates
 When the corporation invests its funds for a purpose other than its primary
purpose

d. Derivative Suit; Intra-corporate Suit

A derivative suit is an action filed by stockholder in the name and on behalf of the
corporation to enforce a corporate right or cause of action to set aside the wrongful acts
of the corporation’s directors and officers.
e. Delinquency
f. Certificate of Stock
It is a written instrument signed by the proper officer of a corporation stating or
acknowledging that the person named therein is the owner of a designated number of
shares of its stock. It indicates the name of the holder, the number, kind and class of
 shares represented, and the date of issuance. Simply put, it is the paper representative or
tangible evidence of the stock itself and of the various interests therein.

7. Mergers, Consolidations, and Acquisitions

a. Asset Only Transfer
b. Business Enterprise Transfer

8. Corporate Dissolution and Liquidation

9. Foreign Corporations
a. Personality to Sue and Suability
b. Republic Act (R.A.) No. 7042, as amended by R.A. Nos. 8179
and 11647 or the Foreign Investments Act
i. “Doing Business in the Philippines”
ii. Registration Requirement
iii. Nationalized Activities and the Negative List

B. Partnerships
1. General Provisions
a. Definition and Separate Juridical Personality
Partnership is a contract where two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.
b. Rules to Determine Existence
c. Separate Juridical Personality
d. Partnership by Estoppel
e. Kinds of Partnership
As to object:
 Universal Partnership
 Particular Partnership
As to liability:
 General Partnership
 Limited Partnership

2. Obligations of Partners among Themselves

 Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.
 A partner who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages from the time he should have
complied with his obligation.
  He becomes a debtor to the partnership when he takes any amount from the
partnership coffers for his personal use.

3. Property Rights of Partners

4. Obligations of Partnership; Obligations of Partners to Third

Persons

5. Dissolution and Winding Up