Title 1 40 Filipino-Alien equity ownership is NOT in
doubt (SEC opinion dated 6 November 1989;
GENERAL PROVISIONS
Definitions and Classifications
Section 1
 This Code shall be known as “The Corporation
Code of the Philippines.”
Section 2
Statutory definition of corporation
 A corporation is an artificial being created by
operation of law, having the right of succession
and the powers, attributes and properties
expressly authorized by law or incident to its
existence.
Attributes of a corporation.
 It is an artificial being – a juridical person
capable of having rights and obligations with a
personality separate and distinct from its
members/stockholders;
 Created by operation of law - mere consent of
the parties to form a corporation is not
sufficient. State must give consent through (a)
special law, (b) general enabling act;
 With right of succession - existence cannot be
affected by change in members/stockholders;
and
 Has the powers, attributes, and properties as
expressly authorized by law or incident to its
existence.
Corporation as an artificial personality.
 A corporation has a personality separate and
distinct from the persons composing it.
Piercing the veil of corporate entity.
 When the veil of corporate fiction is used as a
shield to perpetuate fraud, to defeat public
convenience, justify wrong or defend crime, this
fiction shall be disregarded and the individuals
composing it will be treated identically.
Nationality of corporations
- Serves as a legal basis for subjecting the
enterprise or its activities to the laws, the
economic and fiscal powers, and various
social and financial policies of the state to
which it is supposed to belong.
 Tests:
1. Place of Incorporation
- Principal doctrine on the test of the
nationality of a corporate identity in the
Philippines
- A corporation is a national of the country
under whose laws has been organized and
registered
2. Control Test
- A corporation shall be considered a Filipino
corporation if the Filipino ownership of its
capital stock is at least 60%, and where the 60-
DOJ Opinion No. 18, s. 1989).
- Therefore, its shareholdings in another
corporation shall be considered to be Filipino
nationality when computing the percentage of
Filipino equity of the second corporation (SEC
Opinion dated 23 November 1993).
3. Grandfather Rule
- It is a method of determining the nationality
of a corporation which in turn is owned in part
by another corporation by breaking down the
equity structure of the shareholder
corporation.
- It involves the computation of Filipino
ownership of a corporation in which another
corporation of partly Filipino and partly
foreign equity owns capital stock. The
percentage of shares held by the second
corporation in the first is multiplied by the
latter’s own Filipino equity, and the product of
these percentages is determined to be the
ultimate Filipino ownership of the subsidiary
corporation (SEC Opinion re: Silahis)
Note: the application of the test is limited to
the issues of investment. Only when the
corporation is less than 60% owned shall the
grandfather rule be applied.
Corporation VS Partnership
CORPORATION PARTNERSHIP
1. Created by law or 1. Created by mere
operation of law agreement of the parties
2. Generally there must be at 2. May be formed by 2 or
least 5 incorporators more natural persons
3. Can exercise only such 3. Can do anything by
powers and functions agreement of the parties
expressly granted to it by provided only that it is not
law and those necessary or contrary to law, morals, good
incident to its existence customs, public policy and
public order
4. Unless validly delegated 4. In absence of agreement to
expressly or impliedly, must the contrary, any one of the
transact its business through partners may validly bind the
the board of directors partnership
5. Has the right of succession 5. Based on mutual trust and
which presupposes that it confidence such that the
continues to exist despite death, incapacity, insolvency,
the death, withdrawal, civil interdiction or mere
incapacity or civil withdrawal of one partner
interdiction of the would result in its dissolution
stockholders or members
6. Any stockholder can 6. A partner cannot transfer
ordinarily transfer, sell or his rights or interest in the
assign his shares of stock partnership so as to make the
without the consent of the transferee a partner without
other stockholders the consent of the other
partners
7. The liability of the 7. All partners are liable pro
stockholders or members in rata with all their property
is limited to the extent of and after all the partnership
their subscription or their property has been exhausted,
promised contribution for all partnership liability
8. Term of existence is 8. May exist for an indefinite
limited only to 50 years period
unless extended
9. Consent of the State is 9. Partners may dissolve at
necessary for its dissolution will
Private corporation can only be created by
Corporation Code
 Special authority or grant by the State is
required.
 The Congress shall not, except by general law,
provide for the formation, organization, or
regulation of private corporations.
Special law can only create:
1. Public Corporation
2. Government-owned or controlled corporations
provided:
a. In the interest of common goods
b. Subject to test of economic viability
Section 3
Classification of corporations under the Code.
 Stock Corporation
- One which has a capital stock divided
into shares and is authorized to
distribute to the holders of such share’s
dividends or allotments of the surplus
profits (Sec. 3).
 Non-stock Corporation
- no part of their income is distributable as
dividends to its members, trustees or
officers subject to the provisions on
dissolution.
Other classifications of corporations
 As to number of persons who compose them:
 Corporation Aggregate- more than one
 Corporation Sole- only one
 As to whether they are for religious purpose or
not:
 Ecclesiastical corporation- religious
 Lay Corporation- other than religious
 As to whether they are for charitable purpose or
not:
 Eleemosynary corporation- charitable
 Civil corporation- for business or profit
 As to the state or country under by whose laws
they have been created:
 Domestic corporation- under Philippine law
 Foreign corporation- under foreign law
 As to their legal right to corporate existence:
 De jure corporation- in fact and in law
 De facto corporation- in fact but not in law
 As to whether they are open for public or not:
 Close Corporation- limited to selected
persons
 Open Corporation- open to any person
 As to their relation to another corporation
 Parent or holding corporation- related to
another corporation that it has the power to
elect the majority of directors of such other
corporation.
 Subsidiary Corporation- related to another
corporation that majority of its directors are
elected by such other corporation.
 As to whether they are corporations in a true
sense or only in a limited sense:
 True corporation- exists by statutory
authority
 Quasi-corporation- exists without legislative
grant
o Corporation by prescription- exercised
corporate powers over indefinite period
without interference from sovereign
power.
o Corporation by estoppel- a corporation
only to those only who, by reason of their
acts or admissions, are precluded from
asserting that it is not a corporation.
 As to whether they are public or private
 Public Corporation- formed or organized for
the government or a portion of the state
 Private Corporation- those formed for
private purposes, benefit, or end
Test of distinction between public and private
 Public- those created, formed or organized for
political or governmental purposes with political
powers to be exercised for purposes connected
with the public good in the administration of civil
government.
 Private- those formed for some private purpose,
benefit, aim or end.
Includes:
1. Government-owned or controlled corporations
- directly created by special law
2. Quasi-public corporations
- Accepted from the State the grant of
franchise or contract involving the
rendition or performance of some public
duties or service, but which are
organized for profit.
Section 4
Incorporation of a private corporation by a special
act.
 Subject to constitutional limitation that such
corporation shall be owned or controlled by the
government or any subdivision or
instrumentality thereof.
 Reasons for restriction:
 To prevent the granting of special
privileges to one body of men without
giving all others the right to obtain the
in the same conditions; and
 To prevent bribery and corruption of the
legislature.
Governing law
 Corporation created by a special law or charter
is primarily governed by such law and
suppletorily, by the provisions of the Code
“insofar as they are applicable.”
 Under the constitution, officers and employees
of government-owned or controlled
 corporations with original charter are placed c) Outstanding capital stock
under the Civil Service and thus, subject to Civil - The total shares of stock issued to
Service Law. subscribers or stockholders, whether
 A government-owned or controlled corporation fully or partially paid except treasury
may be organized under the provisions of the shares.
Corporation Code and not by special law. d) Paid-up capital stock
- Portion of the subscribed or outstanding
Section 5
capital stock that is paid.
Components of a corporation
 Corporators e) Unissued capital stock
- are those who compose a corporation, - Portion of the capital stock that is not
whether as stockholders or as members. issued or subscribed.
 Incorporators  Capital
- are those stockholders or members - The entire property or assets of the
mentioned in the articles of corporation.
incorporation as originally forming and 1. Legal capital
composing the corporation and who are - The amount equal to the aggregate par
signatories thereof. value and/or issued value of the
 Stockholders outstanding capital stock.
- Owners of shares of stock in a stock
Capital VS Capital Stock
corporation, also called shareholders. Capital Capital stock
 Members Actual corporate Merely an amount;
- Corporators of a corporation which has property abstract
no capital stock. Fluctuates or varies Fixed in the Articles
Three other classes. from day to day of Incorporation and
accordingly as there is unaffected by
 Promoters
are profits or losses profits and losses.
- Persons who bring about the formation or changes in
and organization of a corporation by corporate assets’
bringing in together the incorporators. values.
 Subscribers Belongs to the If issued, belongs to
corporation; real or stockholders; always
- Persons who have agreed to take and personal personal
pay for original, unissued shares of a
corporation formed or to be formed. Capital VS Legal Capital
 Underwriter Capital Legal Capital
- A person, usually an investment banker, Actual corporate Merely an amount
property
who has agreed, alone or with others, to
Fluctuates or varies Changes only when
buy at stated terms an entire issue of from day to day outstanding shares
securities or a substantial part thereof. accordingly as there are increase or decrease
profits or losses or in number or amount.
changes in corporate
Section 6 assets’ values.
Capital Stock and Capital
 Capital stock Capital Stock VS Legal Capital
- The amount fixed in the articles of Capital stock Legal Capital
incorporation, to be subscribed and paid Merely an amount; Merely an amount
in by the shareholders of a corporation, abstract
Fixed in the Articles of Changes only when
either in money or property, labor or Incorporation and is outstanding shares
services, at the organization of the unaffected by profits increase or decrease
corporation or afterwards and upon and losses. in number or amount.
Limits the maximum Sets the minimum
which it is to conduct its operation.
amount or number of amount of the
a) Authorized capital stock shares that may be corporate assets
- Synonymous with capital stock where issued (without which for the
the shares of the corporation have par amendment of the AOI) protection of
corporate creditors
value.
b) Subscribed capital stock
Stock or share of stock
- Amount of capital stock subscribed
- One of the units into which the capital
whether fully paid or not.
stock is divided.
Certificate of stock
- Written acknowledgement by the
corporation of the interest, right, and
participation of a person in the
management, profits, and assets of a
corporation.
Classes of shares
1. Par value shares
- One with specific money value fixed in
the articles of incorporation and
appearing in the certificate of stock for
each share of stock of the same issue.
2. No par value shares
- One without any stated or par value
appearing on the face of the certificate
of stock.
Limitation:
A. Cannot be issued by the following
corporations: (BPI-TB)
1. Bank
2. Public Utilities
3. Insurance Company
4. Trust Company
5. Building and Loan association
B. Preferred shares are not allowed
C. Cannot be issued for a consideration less
than five peso (P5)
D. Deemed fully paid and non-assessable
E. Entire consideration received shall be
treated as capital and not available for
dividend distribution.
3. Voting shares
- That
4. Non-voting share
5. Common stock
6. Preferred stock
7. Promotion stock
8. Share in Escrow
9. Convertible Stock
10. Founder’s share
11. Redeemable share
12. Treasury stock