2.

Classification of Corporations
Corporation Code CC
A.
1.

2.

3.

4.

IN RELATION TO THE STATE (Sec3)

Public those formed or organized FOR the
govt of a PORTION of the STATE. Possesses 3
inherent power - PTEd
e.g municipal corporations entirely subject
to legislature, but has 2-fold character
govtal & proprietary
Private those formed for some private
purpose, benefit or aim (private PBA)
3 Types of Public Corporation
a. Organized under Corp Code for private
ends
b. Organized under Corp Code as GOCC to
achieve certain purposes of the
government
c. GOCC organized with their own charter
Quasi-Public - a private corporation that
renders public service or supplies public
wants; cross between private & public
e.g. LWUA, school
Quasi-corporationpublic corporations
created as agencies of State for narrow and
limited purpose;
e.g. PNOC, GSIS, NFA

CASES:
National Coal co. vs. CIR (1924) - the mere fact
that the govt is the majority stock holder does
not make a corporation a public one, esp. when
its charter provides that it shall be subject to all
the provisions of the Corporation Law.
APPLICABILITY OF CSC
Davao Water district vs. CSC (1991)
(supplanted) DOCTRINE EE of GOCC, whether
created by special law or formed as subsidiaries
under the gen. corp law are governed by CSC
and not by LC.
1987 Constitution the test in determining
whether a GOCC is subject to CSC in the manner
of creation:
Those created by special law CSC applies
Those in corp under gen. Corp law LC
GOCC corp organized as stock or non-stock
corporation VESTED with FUNCTIONS relating to
PUBLIC NEEDS, whether govtal or proprietary in
nature, and owned by the G directly or through

its instrumentalities either wholly or, where

applicable as in the case of stock corp, to the
extent of at least 51% of its capital stock.
Includes financial institutions, owned or
controlled by Natl G, but EXCLUDES acquired
asset corporations.
Distinction: Public vs. Private
Public
Creation
Special charter

Legislative
intent
Purpose

Powers
SJP

Not made
subject to corp
law
Primarily for the
govt of a
portion of the
State
Inherent powers
of the State
With SJP

Private
Gen.
incorporation
law; at times
special charter
but it does not
mean they get
converted to
public corpo
Made subject to
corporation law
Public good or
profit
No inherent
powers
With SJP

B. AS TO PLACE OF INCORPORATION (Sec 123)

1. Domestic incorporated under the laws of
the PH
2. Foreign incorporated under laws other than
PH AND whose laws ALLOW FILIPINO citizens
and corporations to do business in its country
or state. PRINCIPLE OF RECIPROCITY
Section123. Definition and rights of foreign
corporations. For the purposes of this Code, a
foreign corporation is one 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. It shall have the right to
transact business in the Philippines after it shall
have obtained a license to transact business in
this country in accordance with this Code and a
certificate of authority from the appropriate
government agency. (n)
OBJECTIVES

a.
b.
c.

To place them equally with domestic

corporation
To subject them to inspection so that their
condition may be known
To protect the residents of the state doing
business with them by subjecting them to the
courts of the State.

GR foreign corp exists only in contemplation of

law of the state or sovereignty which created it.
EXC foreign corp may act in another state or
country WITH the latter countrys express or
implied consent.
C. CORPORATE NATIONALITY Sec 123, Corp
Code
Rationale for nationality: legal basis for
subjecting the enterprise or its activities to the
laws, economic and fiscal powers, and the
various social and financial policies, of the state
to which it is supposed to belong.
Test of nationality of corporate entity in PH
jurisdiction
GR Place of incorporation test: that a
corporation is a national of the country under
whose laws it has been oragnised and registered
EXCEPTIONS
1. Test of Controlling Ownership the
nationality of the majority of stock holders on
whom equity is vested, on the theory that
they would be able to elect the majority of
the BOD.
GR - Control test cannot overcome the place
of incorporation test
EXC (SEC Opinion No. 04-14, Mar 3, 2004)
on RA 7042, Foreign Investments Act of
1991: a corpo organised abroad and
registered as doing business in the PH
under Corp Code 100% of the capital stock
outstanding and entitled to vote is wholly
owned by Filipinos.
SEC Opinion No. 04-38, July 6, 2004 on
reacquisition of Fil citz from being a
naturalized US citz, converts his equity
holdings in a domestic corp to be reclassifies
as Fil investment
2. The place of business test a corpo is
subject to the jurisdiction of the place where
Corporate Law: Classification

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its principal office or center of management

(siege social) is located;
APPLICATION OF CONTROL TEST
a. Exploitation of NatRes (A&D public lands
and exploitation of natres)
Sec 2, Art 12, 1987 C
State may enter into CP, JV, PSA with Fil citz and
CORPORATIONS and associations 60 per centum
of its capital is owned by such citizens.
Sec 7, Art 12, 1987 C no priv land shall be
transferred or conveyed except to individuals,
corpo, or associations QUALIFIED to acquire or
hold lands of the public domain.
Rephrase:
Convey Priv lands to fil indiv, fil corp, fil assoc,
non-fil thru hereditary succession (testate or
intestate)
No conveyance to indiv, corp or assoc NOT
QUALIFIED to acquire or hold lands of the public
domain
* The provision does not contain incorporation
test, hence it necessarily follows that the
provision pertains to domestic corporation.
Foreign corporations, though 60% of its capital
stock is owned by Fil cannot acquire lands of the
public doman, consequently, neither can they
acquire private lands.
CASE: Register of Deeds vs. Ung Sui Si Temple
DOCTRINAL: the purpose of the 60% req is to
ensure that corp or assoc allowed to acquire
agricultural land or to exploit natres shall be
controlled by Fil, and in the absence of capital
stock, the controlling membership should be
composed of Fi citz.
Facts Chinese nationals who are trustees of a
non-incorporated religious organization are
seeking to register in the orgs name a piece of
land donated to it.
Held The organization is disqualified from
acquiring a piece of land, even though it may
have been donated.
b. Public Utilities
Sec 11, Art 12, 1987 C No FRANCHISE,
certificate, or any other form of authorization for

the OPERATION of a PUBLIC UTILITY shall be

granted except to citz of the PH or to
CORPORATIONS or asoc ORGANISED under the
laws of the PH at least 60% of whose capital is
owned by such citz, nor shall be it exclusive in
character or for a longer period than 50yrs.
CASES:
People vs. Quasha SC an alien is still not
allowed to acquire private agricultural land
unless through hereditary succession.
Facts - In 1974, Quasha, an American citz, asked
the court (CFI Rizal) whether he could continue to
own the land in Forbes Park, which he bought
after the PH Independence in 1946, even after
the Parity Rights shall have ceased to be in effect
by July 3, 1946.
Held Rights under the Parity Agreement
appended to the constitution are subject to a
definite resolutory, that parity right is in no case
to extend beyond July 3, 1974. As non-fil Quasha
is not qualified to own lands of the public domain
and consequenty he cannot own private lands as
well.
Tatad vs. Garcia A corporation formed for the
purpose of building a public utility does not
automatically mean that it is operating a public
utility. The moment for determining the requisite
Filipino nationality is when the entity applies for a
franchise, certificate or any other form of
authorization for that purpose.
Facts: The govt thru, DOTC entered into an
agreement with a foreign corporation organized
under HK laws, that under the terms of said
agreement, EDSA LRT Consortium shall build the
and provide the facilities for the railway transit;
the DOTC to operate it and pay the rents
therefor; that at the end of 25 years, the
Consortium shall sell the facilities to DOTC. Some
senators opposed, arguing that foreign
corporations are prohibited from owning public
utilities in the PH.
c. Mass Media
Sec 11, Art 16, 1987 C ownership of mass
media shall be limited to citz of the PH, or to
corp, etc WHOLLY OWNED and (WHOLLY)
managed such citz.

* incorporation test is deemed included

d. Advertising Industry
Sec 11, Art 16, 1987 C
Owners - Only Fil citz, (fil) corp or assoc
Controlling share they own 70%
Exec & Managing officers Fil
* Foreign investorss participation is limited
to their proportionate share in the capital
thereof
e. War-Time Test
CASE: Filipinas Compania de Seguros vs.
Christern (1951) in times of war, the nationality
of a private corporation is determined by the
character or citizenship of its controlling stock
holders. The place of incorporation test cannot
be applied during war time.
Facts: Christern is a company who bought an
insurance policy from Filipinas. During the
Japanese occupation, Christerns buildings were
burned. It then filed for a claim with Filipinas. In
view of the fact that majority of the stockholders
of Christern are Germans and that Filipinas is
organised under PH laws, the latter refused to
pay the insurance claims on the ground that the
policy was no longer in effect the moment the US
declared war with Germany.
Held A corporation is subject to enemy
legislation when it was controlled by enemies,
namely, under the influence of individuals or
corporations, themselves considered as enemies.
There being no dispute over the fact that
majority of Christerns stockholders are Germans,
it became an enemy corporation at the outbreak
of the war between US & Germany.

f.

Investment Test / Grandfather Rule provides that the nationality of the

stockholders is material or critical in
determining the nationality of a corporation
or its compliance with our laws on
permissible foreign investments.
Corporate Law: Classification

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Under this rule, the stocks owned by or

registered in the name of foreigners are
sorted out and added to determine if they
meet the allowable maximum percentage of
foreign ownership in nationalized businesses,
e.g., 30 percent for advertising companies,
25 percent for recruitment agencies and 60
percent for financing companies.
The past rulings of the SEC show that it
applies the control test in determining a
corporations nationality, unless there are
questions about the true character of such
ownership.
If there are, the corporation is
grandfathered, meaning, the nationality of
the owners of the stocks under question is
examined to determine if it meets the
nationality requirements.
With the PLDT ruling already in force, the SEC
may have to set aside the control test and
apply the grandfather rule to corporations
engaged in nationalized businesses.
Read more:
http://business.inquirer.net/103175/contr
ol-test-vs-grandfatherrule#ixzz2nMxlVZ5S
PLDT Case - Gamboa vs. Teves (2011)
G.R. No. 176579 interpretation of capital in
nationalized areas of investment and the
filipinization of public utilities
Abandoned fernandez vs. cojuangco ruling:
capital = both the preferred and common shares
in controlling interest
PLDT decision capital = only common
shares (entitled to vote)
Bayantel case (2012)
Facts: the case of In the Matter of the Corporate
Rehabilitation of Bayan Telecommunications Inc.
(G.R. Nos. 175418-20, December 5, 2012), which
was consolidated with other cases relating to the
rehabilitation of Bayan Telecommunications Inc.
(Bayantel). In this case, The Bank of New York
filed a creditor-initiated petition to rehabilitate
Bayantel. In due course, the receiver
recommended the rehabilitation of Bayantel by,
among others, converting part of the companys
debt into equity. However, the rehabilitation
receiver imposed, as a condition, that the
resulting equity ownership of foreign creditors

should not exceed the 40-percent foreign

ownership limit under the 1987 Constitution.
xxx
The control test deals with a situation where a
corporation and its non-Filipino stockholders own
stocks in an SEC-registered company. It provides
that, where at least 60 percent of the capital
stock outstanding and entitled to vote of each of
both corporations is owned and held by citizens
of the Philippines and at least 60 percent of the
members of the board of directors of each of
both corporations are Filipino citizens, the
investee company is considered a Philippine
national.
The grandfather rule, on the other hand,
requires that the citizenship of individuals or
natural persons who ultimately own or control
the shares of stock of the corporation must be
considered for purposes of determining
compliance with the Filipino ownership
requirement.
Read more:
http://business.inquirer.net/123231/g
randfather-rule-a-test-for-publicutilities#ixzz2nOybg05J
a. PH Nationals
b. Sec 3a & 3B, RA 7042 (Foreign
Investment Act) as amended - a. The
term Philippine national shall mean
a citizen of the Philippines; or a domestic
partnership or association wholly owned
by citizens of the Philippines; or a
corporation organized under the
laws of the Philippines of which at
least sixty percent (60%) of the
capital stock outstanding AND
entitled to vote is owned and held by
citizens of the Philippines; or a
corporation organized abroad and
registered as doing business in the
Philippines under the Corporation Code of
which one hundred percent (100%) of the
capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a
trustee of funds for pension or other
employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty percent (60%)
of the fund will accrue to the benefit of

Philippine nationals: Provided, That

where a corporation and its non-Filipino
stockholders own stocks in a Securities
and Exchange Commission (SEC)
registered enterprise, at least sixty
percent (60%) of the capital stock
outstanding and entitled to vote of
each of both corporations must be owned
and held by citizens of the Philippines
and at least sixty percent (60%) of
the members of the Board of
Directors of each of both
corporations must be citizens of the
Philippines, in order that the corporation,
shall be considered a Philippine
national. (Emphasis supplied)
IRR - Philippine national shall mean a
citizen of the Philippines or a domestic
partnership or association wholly owned
by the citizens of the Philippines; or a
corporation organized under the laws of
the Philippines of which at least sixty
percent [60%] of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
a trustee of funds for pension or other
employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty percent [60%]
of the fund will accrue to the benefit of
the Philippine nationals; Provided, that
where a corporation its non-Filipino
stockholders own stocks in a Securities
and Exchange Commission [SEC]
registered enterprise, at least sixty
percent [60%] of the capital stock
outstanding and entitled to vote of both
corporations must be owned and held by
citizens of the Philippines and at least
sixty percent [60%] of the members of
the Board of Directors of each of both
corporation must be citizens of the
Philippines, in order that the corporation
shall be considered a Philippine national.
The control test shall be applied for this
purpose.
Compliance with the required Filipino
ownership of a corporation shall be
determined on the basis of outstanding
capital stock whether fully paid or not,
Corporate Law: Classification

I.2

but only such stocks which are generally

entitled to vote are considered.
For stocks to be deemed owned and held
by Philippine citizens or Philippine
nationals, mere legal title is not enough
to meet the required Filipino equity. Full
beneficial ownership of the stocks,
coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights
of which have been assigned or
transferred to aliens cannot be
considered held by Philippine citizens or
Philippine nationals.

c.

Individuals or juridical entities not

meeting the aforementioned
qualifications are considered as nonPhilippine nationals. (Emphasis supplied)
Grandfather Rule Up to what level do
you apply this rule

CASE
Palting vs. San Jose Petroleum Inc. (1966)
Facts
Lessons Applicable:
Up to what level do you apply the grandfather
rule? (Corporation Law)
Pre-Corporation Code (Corporation Law)
FACTS:
September 7, 1956: San Jose Petroleum (SJP)
filed with the Philippine Securities and Exchange
Commission a sworn registration statement, for
the registration and licensing for sale in the
Philippines Voting Trust Certificates representing
2,000,000 shares of its capital stock of a par
value of $0.35 a share, at P1.00 per share
It was alleged that the entire proceeds of the sale
of said securities will be devoted or used
exclusively to finance the operations of San Jose
Oil Company, Inc. (Domestic Mining Oil
Company)
express condition of the sale that every
purchaser of the securities shall not receive a
stock certificate, but a registered or bearervoting-trust certificate from the voting trustees
James L. Buckley and Austin G.E. Taylor

June 20, 1958: SJP amended Statement

increasing 2,000,000 to 5,000,000, at a reduced
offering price of from P1.00 to P0.70 per share
Pedro R. Palting together with other investors in
the share of SJP filed with the SEC an opposing
the registration and licensing of the securities on
the grounds that:
tie-up between the issuer, SJP, a Panamanian
corp. and San Jose Oil (SJO), a domestic
corporation, violates the Constitution of the
Philippines, the Corporation Law and the
Petroleum Act of 1949
issuer has not been licensed to transact
business in the Philippines
sale of the shares of the issuer is fraudulent,
and works or tends to work a fraud upon
Philippine purchasers
issuer as an enterprise, as well as its
business, is based upon unsound business
principles
ISSUE: W/N the tie-up violates the Constitution
of the Philippines, the Corporation Law and the
Petroleum Act of 1949
HELD: Yes. SJO (domestic) - 90% is owned by
SJP (foreign), which is in turn wholly owned by
two US companies: Pantepec Oil Co. and
Pancoastel Petroleum, both organized and
existing under the laws of Venezuela
DOCTRINAL: Up to what level do you apply the
grandfather rule? It CANNOT go beyond the level
of what is reasonable
SEC Memo application of GFR
Publicly held corporations, or shares
traded in SEC 2 levels
Closely held corporations or shares NOT
traded in SEC 3 levels
CB Circ Banking institutions 4 levels
D. AS TO PURPOSE OF INCORPORATION
1. Municipal primarily for government of f
Two-fold characters (or dual nature)
a. Government - of a portion of state, not for
profit, remain entirely subjet to legislative

b.

control, possesses 3 inherent powers of a

state
Proprietary acts as a private or business
corporation, and stands for the community in
the administration of its local affairs wholly
beyond the sphere of public purpose for
which govtal powers are conferred; police
power by delegation of the legislature, they
can levy taxes for certain purposes subject to
limitations imposed by legislature; they may
mortgage their property, can sue or be sued,
and be held liable for damages for torts
committed by them in the exercise of
corporate functions

2. Religious (Sec 109 and 116, CC)

TITLE XIII
SPECIAL CORPORATIONS
CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious
corporations. Religious corporations may be
incorporated by one or more persons. Such
corporations may be classified into
corporations sole and religious
societies.
Religious corporations shall be governed by
this Chapter and by the general provisions on
non-stock corporations insofar as they
may be applicable. (n)
Section 110. Corporation sole. For the
purpose of administering and
managing, as trustee, the affairs,
property and temporalities of any
religious denomination, sect or church, a
corporation sole may be formed by the
chief archbishop, bishop, priest, minister,
rabbi or other presiding elder of such
religious denomination, sect or church.
(154a)
Section 116. Religious societies. Any
religious society or religious order, or any
diocese, synod, or district organization of any
religious denomination, sect or church,
unless forbidden by the constitution, rules,
regulations, or discipline of the religious
denomination, sect or church of which it is a
part, or by competent authority, may, upon
written consent and/or by an affirmative
Corporate Law: Classification

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vote at a meeting called for the purpose of

at least two-thirds (2/3) of its
membership, incorporate for the
administration of its temporalities or for
the management of its affairs,
properties and estate by filing with the
Securities and Exchange Commission
3. Educational (Sec 106 to 108, CC)
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL CORPORATIONS
Section 106. Incorporation. Educational
corporations shall be governed by special
laws and by the general provisions of this
Code. (n)
Section 107. Pre-requisites to
incorporation. Except upon favorable
recommendation of the Ministry of
Education and Culture (now DepEd,
CHED), the Securities and Exchange
Commission shall not accept or approve the
articles of incorporation and by-laws of any
educational institution. (168a)
Section 108. Board of trustees. Trustees of
educational institutions organized as nonstock corporations shall not be less than
five (5) nor more than fifteen (15):
Provided, however, That the number of
trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of
incorporation on the by-laws, the board of
trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as
organized, so classify themselves that the
term of office of one-fifth (1/5) of their
number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring
before the expiration of a particular term,
shall hold office only for the unexpired
period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall
hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the
transaction of business. The powers and
authority of trustees shall be defined in the
by-laws.

For institutions organized as stock

corporations, the number and term of
directors shall be governed by the
provisions on stock corporations. (169a)
4. Charitable, Scientific or Vocational
TITLE XI
NON-STOCK CORPORATIONS
Section 88. Purposes. Non-stock
corporations may be formed or organized for
charitable, religious, educational,
professional, cultural, fraternal, literary,
scientific, social, civic service, or similar
purposes, like trade, industry, agricultural
and like chambers, or any combination
thereof, subject to the special provisions of
this Title governing particular classes of nonstock corporations. (n)
5. Business Corporation
TITLE I
Section 3. Classes of corporations.
Corporations formed or organized under this
Code may be stock or non-stock
corporations. Corporations which have
capital stock divided into shares and are
authorized to distribute to the holders of
such shares dividends or allotments of
the surplus profits on the basis of the
shares held are stock corporations. All other
corporations are non-stock corporations. (3a)
E. AS TO NUMBER OF MEMBERS
Two types of corporations
1. Aggregate Corporation or Corporation
aggregate, one composed of several natural
persons. A corporation aggregate is a
corporation constituted by more than one
member.
2. Corporation Sole (Sec 110 to 115, CC) - A
corporation sole is a corporation constituted
by a single member; a legal entity consisting
of a single ("sole") incorporated office,
occupied by a single ("sole") man or woman;
there is perpetuity; usually for religious or
commonwealth government
Section 110. Corporation sole. For the
purpose of administering and managing,
as trustee, the affairs, property and
temporalities of any religious
denomination, sect or church, a
corporation sole may be formed by the

chief archbishop, bishop, priest,

minister, rabbi or other presiding elder
of such religious denomination, sect or
church.(154a)
CASES:
R. Catholic Admin vs. LRC (1957)
FACTS:
October 4, 1954: Mateo L. Rodis, a Filipino citizen
and resident of the City of Davao, executed
adeed of sale of a parcel of land in favor of the
Roman Catholic Apostolic Administrator of Davao
Inc.(Roman), a corporation sole organized and
existing in accordance with Philippine Laws, with
Msgr. Clovis Thibault, a Canadian citizen, as
actual incumbent. The RD had doubts as to the
registerability of the purchase by RC Davao. RD
raised it to LRC en consulta. LRCs view is that RC
Davao is not qualified to acquire private lands in
the absence of proof that at least 60% of its
capital is actually owned by Filipinos, and that RC
Davaos incumbent as corporation sole is
Canadian. RD denied the application for
regiatration
ISSUE: W/N Roman is qualified to acquire private
agricultural lands in the Philippines pursuant to
the provisions of Article XIII of the Constitution
HELD: YES.
1. RC Davao is a corporation sole which does
not have a nationality,
2. Every corporation sole then organized and
registered had by express provision of law
the necessary power and qualification to
purchase in its name private lands located in
the territory in which it exercised its
functions or ministry and for which it was
created, independently of the nationality of
its incumbent unique and single member and
head, the bishop of the dioceses
3. lands held in trust for specific purposes may
be subject of registration (section 69, Act
496), and the capacity of a corporation sole,
like petitioner herein, to register lands
belonging to it is acknowledged, and title
thereto may be issued in its name
4. corporations sole that might be in need of
acquiring lands for the erection of temples
where the faithful can pray, or schools and
cemeteries which they are expressly
authorized by law to acquire in connection
Corporate Law: Classification

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with the propagation or in furtherance of

their freedom of religion could register said
properties in their name
Iglesia Evangelica Metodista vs. Bishop
Nathanael Lazaro
Conversion from corporate sole to corporation
aggregate
IEM is a corporation sole, with Zamora as its
incumbent. 39 years from its incorporation, it
now seeks to convert itself to a corporation
aggregate by amending its by-laws. A faction of
the church did not approve of the conversion,
hence the case.
Issue: WON corporation sole (one-member) may
be converted to corporation aggregate by the
amendment of its by-laws.
Held: No. For non-stock corporations, the power
to amend its articles of incorporation lies in its
members. Even as the incumbent of a
corporation sole is all that composes it, 2/3 vote
of all its members is still necessary to amend its
articles of incorporatio, the sol being a mere
trustee of the corporations affairs (Sec 110), has
a distinct personality from its members.
F.
1.

AS TO EXISTENCE OF SHARES (Sec 3, Sec5,

CC)
Stock req - CAPITAL stock divided into
SHARES, and authorized to distribute to the
shareholders dividends.

Section 3. Classes of corporations. Corporations

formed or organized under this Code may be
stock or non-stock corporations. Corporations
which have capital stock divided into shares
AND are authorized to distribute to the
holders of such shares dividends or
allotments of the surplus profits on the basis
of the shares held are stock corporations. All
other corporations are non-stock corporations.
Section 43. Power to declare dividends. - The BOD of
a stock corporation may declare dividends out of
the unrestricted retained earnings which shall be
payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held
by them
Test to determine whether stock or non-stock in
the absence of an express provision in the AOI to
distribute dividents

Stock with express authorization to distribute

Non-Stock no express PROHIBITION NOT TO
DISTRIBUTE dividends (express prohibition to
distribute), or no express authorization, and the
practice shows that a corporation has NEVER
declared dividends, or that the purpose is
eleemosynary (charitable or dependent of
charity)

2. Non-Stock (Sec 87, Sec 88; Chap 17 of PCLV

TITLE XI : NON-STOCK CORPORATIONS
Section 87. Definition. For the purposes of this
Code, a non-stock corporation is one where no
part of its income is distributable as
dividends to its members, trustees, or
officers, subject to the provisions of this Code
on dissolution: Provided, That any profit which a
non-stock corporation may obtain as an incident
to its operations shall, whenever necessary or
proper, be used for the furtherance of the
purpose or purposes for which the
corporation was organized, subject to the
provisions of this Title.
The provisions governing stock corporation,
when pertinent, shall be applicable to nonstock corporations, except as may be covered by
specific provisions of this Title. (n)
Section 88. Purposes. Non-stock corporations
may be formed or organized for charitable,
religious, educational, professional,
cultural, fraternal, literary, scientific,
social, civic service, or similar purposes,
like trade, industry, agricultural and like
chambers, or any combination thereof,
subject to the special provisions of this Title
governing particular classes of non-stock
corporations. (n)

CHAPTER 17

Essence of NSC
1. Ellemosynary purpose Sec 88
2. GR Non-distribution of profits Sec 87 where no part of its income is distributable as
dividends to its members, trustees, or
officers profits shall be used for the
furtherance of the purpose or purposes for
which the corporation was organized,
EXC in the event of dissolution, after
payment of all liabilities and obligations shall
DISTRIBUTE or CONVEY:
Sec 94 (3) - Assets received and held to one
or more similar entities
Sec 94 (4) - Assets other than those
mentioned in 1-3 to members or classes
thereof to the extent allowed by AOI
Section 95. Plan of distribution of assets.
BOD by majority vote adopt a resolution
recommending such plan
CASES:
CIR vs. Club Filipino (1962)
FACTS: Club Filipino owns and operates a club
house, a sports complex, and a bar restaurant,
which is incident to the operation of the club and
its gold course. The club is operated mainly with
funds derived from membership fees and dues.
The BIR seeks to tax the said restaurant as a
business.
ISSUE: WON CFI is a stock corporation
HELD: No. CFI was organized to develop and
cultivate sports of all class and denomination for
the healthful recreation and entertainment of its
stockholders and members. Absent the requisite
on authorized distribution of dividends, CFI
cannot be categorized as stock C. There was in
fact, no cash dividend distribution to its
stockholders and whatever was derived on retail
from its bar and restaurants used were to defray
its overhead expenses and to improve its golf
course. As CFI is not an operator of the bar &
restaurant, it is not liable for the payment of
fixed and percentage taxes.
Long vs. basa (2001)
FACTS: A religious group organized and
registered as non-stock, non-profit corporation
Corporate Law: Classification

I.2

expelled certain members of the BOD on purely

spiritual or religious grounds since they refused
to follow its teachings and doctrines. In a board
resolution by majority of the BOD, the petitioners
were removed from the updated list of members.
Petitioners questioned the expulsion before the
SEC for lack of prior notice and due process.

Sta. Clara Homeowners vs. Gaston (2002)

Padcom vs. Ortigas Center (2002)

7.
8.
9.
10.

ISSUE: WON the expulsion of members of the is

in accordance with corporation law.
HELD: The peculiar nature of a religious
corporation in relation to a corporation organized
for profit is embodied in the relationship between
a religious corporation and its members. A
relationship which is based on the members
absolute adherence to a common religious or
spiritual belief, once this basis ceases,
membership in the religious corporation must
also cease. Thus, generally, there is no room for
dissension in a religious corporation. And where,
as here, any member of a religious corporation is
expelled from the membership for espousing
doctrines and teachings contrary to that of his
church, the established doctrine in this
jurisdiction is that such action from the church
authorities is conclusive upon the civil courts.
SEC. 91. Termination of membership.Membership shall be terminated in the manner
and for the causes provided in the articles of
incorporation or the by-laws. Termination of
membership shall have the effect of
extinguishing all rights of a member in the
corporation or in its property, unless otherwise
provided in the articles of incorporation or the
by-laws.

Corporations may be:

1. De jure corporation, one which has been
regularly created in compliance with all legal
requirements and the right of which to
exercise a corporate franchise is invulnerable
against attack by the state in quo warranto
proceedings.
2. De facto corporation, one organized as a
corporation but lacking in compliance with
certain requirements, now governed by
Section20 of the Corporation Code, infra..
3. Corporation by estoppel, one in which the
parties in a given transaction are estopped to
deny corporate existence to protect innocent
third persons, now governed by Section 21 of
this Corporation Code, infra..
4. Corporation by prescription, one which,
without formal incorporation, has claimed to
be a corporation, exercising corporate
powers for a long period of time, with the
tolerance of the State, example of which is
the Roman Catholic Church.
5. Corporation aggregate, one composed of
several natural persons.
6. Corporation sole, which exists when a
religious elder or leader incorporates himself
to manage the properties of his Church,
governed by Sections 110 to 115 of this
Corporation Code, infra.

11.

12.
13.
14.
15.

Eleemosynary corporation, one organized for

public charity.
Civil corporation, one organized on matters
or for purposes other than religious or
ecclesiastical.
Religious corporations, those organized for
ecclesiastical or religious purposes.
Close corporation, which have either of two
meanings: (a) one in which the stock is held
in few hands or in few families and wherein it
is not at all, or only rarely, dealt in; (b) one
where vacancies in the board of directors are
filled only by the remaining members of the
board.
Open corporation, one which may have
either of two meanings: (a) one where the
stock is available for subscription or purchase
by any person; or (b) one where the
members of the board are elected or the
vacancies thereof are filled by the
stockholders.
Domestic corporation, one organized
according to the laws of a particular State.
Foreign corporation, one organized in one
State and licensed to do business in another
State.
Subsidiary corporation, one the stocks of
which are controlled by another corporation
known as a parent or holding corporation.
Condominium corporation, one which may be
stock or non- stock organized by owners of
definite portions of a building for effective
management thereof.

Corporate Law: Classification

I.2