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CORPORATION LAW

Sec2:CORPORATION -Bill of rights are universal in application and applies to juridical


person also
- An artificial being created by operation of law, having rights of
succession and powers, attributes and properties expressly
authorized by law or incident to its existence
3. Unreasonable searches and seizure
-Judicial entity with personality separate and distinct from its
-Legality of seizure can be contested only be the party whose rights
members/ stockholders
has been impaired. Objection is a personal act and cannot be availed
by 3rd parties

THEORIES ON THE FORMATION OF CORPORATION -Officer of corp from which the documents were seized have no COA
to assail the legality of seizure regardless of the amnt of
1. Theory of concession
stocks/interest (Stonehill v Diokno)
-Corporation as simply as creature of the State thru granting by
-Corp is entitled to immunity agsnt unreasonable searches bcus it
franchise
waives no constitutional right
-Owes it’s life from the state and within the control of the State

4. No right against self incrimination


2. Theory of Enterprise entity
- Invoke only by natural person. Corp has no soul
-Corporation exist upon state grant.
-Corp can be compelled to be subjected to a visitorial power of the
-Once legal fiction is granted, entity acquires judicial personality State

-Corp cannot also exist without person composing it since it is an


association of person
ADVANTAGEOUS FEATURE OF CORPORATE MEDIUM

1. Advantage over unregistered association/ partnership


ATTRIBUTES OF CORPORATION
-Enjoy perpetual succession
1. Artificial being
-Contract obligation
-Before corporation acquire juridical personality State must give its
-can sue and be sued
consent either in the form of special law or general enabling at
-Take property

-Stockholders have no personal liability


2. Created by law

-Juridical existence of corporation depends upon state consent.


There must be a law granting it. 2. Centralized management

-Power is vested to BOD

3. Right of Succession -Shareholders are not agents of corporation and cannot bind corp.
They are bound by the management of BOD
-Capacity for continuous existence. Separate and distinct personality

3. Free transferability of shares of stocks


4. Creature of limited power, authorities and properties
-Even without the consent of other stockholders can transfer it
-Only act thru BOD
anytime
-Only those expressly authorized by law or incidental to its existence

4. Limited liability
ENTITLEMENT OF CONSTITUTIONAL GUARANTEE
-Liable only to their shares
1. Due process and equal protection close
CORPORATION LAW

-Except that officer/ person who participated with shall be liable and
cannot invoke corporate veil to avoid penalty
5. Strong juridical personality

-Corporation not affected of death, incapacity, withdrawal of any


stockholders MORAL DAMAGES

-Gr: cannot be granted because it is an artificial being and cannot


experience physical pain
DISADVANTAGEOUS FEATURES OF CORP MEDIUM
-Ex: Cases of slander, defamation, libel and has a good reputation
1. Complicated and costly

-Subject to strict supervision and control of the state\


NATIONALITY OF CORPORATION

-Sec123:Place of incorporation rule


2. Double taxation
-Except: control test
-MCIT/ IAet

-Final tax on cash and property dividens


But control test cannot overcome nationality test rule. Even
when 100% of its equity is owned by Filipino citizen continues to be
3. Limited liability hits innocent victim considered a foreign corporation

4. Lack of personal element and abuse of corpo management


Exploitation of Natural resources; Public utilities

DOCTRINE OF CORPORATE SOCIAL RESPONSIBILITY -60-40%

-When the corporation operates an enterprise which is vested with -Participation of foriegners is limited to proportionate share only
public interest (operating a hospital) it assumes certain legal
-Management is lodge Filipinos
relationship with member of the public.

-Responsible for negligent act of contractors (doctors)


Mass Media
-3 relationship: docto- hosp; hosp-patient; patient- doctor
-100% FIlipino

LIABILITY OF CORPORATION FOR TORTS


Ad Industry
- Civil liability of corporation for all that arise within the scope of
authority of agent -70-30

-Agent is solidarily liable

-Principle of master-agent CLASSIFICATION OF CORPORATION

1. Public- by charter, created by political purpose

Act of BOD is act of corporation 2. Private- created under corporation code

3. Domestic- incorporated under Ph law

Tort liability of corporation is without prejudice to suit filed by 4. Foreign - Int’l law
stockholders agnst BOD/ officer responsible
5. Quasi-corp

6. De jure-
CRIMINAL LIABILITY OF CORPORATION
7. De facto- colorable title
-Criminal suit cannot lie agnst corporation
CORPORATION LAW

8. Corporation by estoppel 3. Manner of keeping corporate books and records

9. Stock 4. Stock ownership by one or more common ownership of both


corporation
10. Nonstock
-absence of these prevents piercing

Parent Company
CLASSIFICATION OF PIERCING APPLICATION CASES
- Controls one or more entities
1. Alter-ego piercing case

3. Fraud
Subsidiary company
4. Defeat public convenience
- entity controlled by another

Elements of Fraud piercing case


Holding Company
1. There must be fraud or civil motive which affected the
- One that holds stocks in another companies for purposes of transaction
control and investment
2. Corp entity has been used

3. Main action should seek for enforcement of pecuniary claims


Affiliate pertaining to the corporation agsnt corporate officers

- Corporation subject to a common control and operated as part of - Clear and convincing proof; detailed circumstances
the system

ARTICLES OF INCORPORATION
INTRA-CORPORATE DISPUTE
-A contract between state and corporation. Defines powers, duties
-One that arises from intracorporate relations and capacities of corporation

1. Relationship between/ among stockholders

2. Stockholder and corporation CONTRACT LAW PRINCIPLE


1. Consensuality

2. Mutuality
DOCTRINE OF PIERCING CORPORATE VEIL
3. Obligatory force
- The law will regard a corporation as an association of person when
corporate legal entity is used as a cloak of fraud/ illegality or merge - Every member of the public who deals with in GF with a
corporation into one corporation must be protected in his contractual expectations

- Remedy of last resort -Lack of consent makes contract void

-Applies to prevent wrong/ injustice / achieve equitable ends

- Applies only when corporation personality was the efficient PROMOTER


cause/means. Must be necessary and factual
-Person who is acting alone or with others takes initiative in
-Party invoking the doctrine must have a ‘victim standing’ organizing and founding business enterprise of the issuer and
receive consideration thereof
FACTORS OF IDENTITY THAT WILL JUSTIFY APPLICATION OF
DOCTRINE OF PIERCING CORP VEIL

1. Identity of directors/ officers PROMOTERS CONTRACT

2. Method of conducting business - Contract entered into in behalf of a corporation which is still in the
process of incorporation
CORPORATION LAW

- Governed by law on agency 2. Colorable compliance

-But other party is fully aware that the corporate entity does not 3. Valid law
exist yet
4. Issuance of certificate of AIC
-Ratification is essential in making every promoters contract valid
amd binding agnst corporation
Absence of formal issuance of SEC of AOI would not qualifiy
application of de facto corporation
Every promoter bind himself to ensure that the incorporation
once formed will ratify the contracr entered into in its name;
otherwise, become personally liable CORPORATION BY ESTOPPEL

-When any person acting for in behalf of a corporation which has no


valid existence assume and become personally liable because
PRE-INCORPORATION CONTRACT
element of consent is lacking
-Agent/rep of would be corporation expressly engages other party
-Liable as general partners
both of them fully aware that the corporation is yet to be registered

ULTRA VIRES DOTRINE


SUBSCRIPTION AGREEMENT
-Acts beyond the corporate powers except: incidental of impliedly
- Any contract that for the acquisition of unisued stock in an existing necessary
corporation/ corporation yet to be formed

-Irrevocable for atleasr 6 mns unless all other subscriber consent to


2 Principle of Ultra Vires Doctrine
its revocation
1. Corporation is a creature of a limited power

-any act entered into by corporation outside its corporate power is


OFFER THEORY
void
-subscription agreement as only a continuing offer which does not
2. Centralized management
ripen into contract until accepted by corporation
- Corporation can act ojnly thru BOD. Any act entered into not thre
-Allowed to be withdraw before corp comes into existence
BOD is void

CONTRACT THEORY
3 TYPES OF ULTRA VIRES CASES
-a subscription agreement, to take shares ij a proposed
1. Done beyond corporate power
corporations becomes binding and irrevocable from the time of
subscription unless cancelled by all parties before acceptance by 2. Done in behalf of corporate power but not thru BOD
corp
3. Act/contracts which are per se illegal

DE-FACTO CORPORATION
AIC
-Can only be assailed in a direct suit- quo-warranto proceedings
-highest form of contract. Defines charter of corporation
-Prevents party from raising the defect of authority as means avoid
fulfillment of contract
CONTENTS OF IAC

Req of De facto corporation 1. Name of corporartion

1. Assumption of corporate power 2. Place of business

3. Purpose clause
CORPORATION LAW

4. Term of existence -allowed provided approved by majority vote of BOD, ratified by 2/3
votes of stockholders
5. Name, address, nationality of directors/officers

6. Name, address, nationality of incorporators


PLACE OF BUSINESS
7. Number of Director/ incorporators
-Place of principal office of corporation state in AOI
8. Amnt of paid up capital
-Sue in the main office
-In duly language, signed and acknowledged by all incoporators

-Binding only when filed and registered with SE


CORPORATE TERM

-25 yrs plus another 25 yrs extendible. However corporation cannot


GROUNDS FOR DISAPPOVAL OF AIC exend its corporate term within 5years prior to its original or
subsequent expiry date
1. AOI/Amendment does not comply with the formalities prescribed
by law

2. Amnt of paid up capital is false INCORPORATING STOCKHOLDERS


-5-15 only natural persons- to answer liability if any
3. Purpose is patently illegal
-But other partnership can be come a incorporating stockholders
4. Percentage ownership of capital stock to owned by FIlipino is not
complied with
CAPITAL STRUCTURE
- AOI must state the amnt of its authorized capital stock and number
CORPORATE NAME of shares. Should not be lower than 5k
-Essential to corporations existence

-Have a right of succession, can sue and be sued, acquire properties SUBSCRIPTION AND PAID UP CAPITAL
-Corporation code does not allow to adopt a name identical or -atleast 25% is stated in AOI and paid up to give assurance to the
deceptively/ confusingly similar to any other name already dealing public
protected

-Corporation may change its name by amendment of AIC


AMENDMENT/REVISION OF AOI

-Sec16: by majority vote od BOD/T, ratification of2/3 votes of


Used of Corporate name of dissolved corporation] stockholders without prejudice of appraisal right of dissenting
stockholders
-if after 3 yrs no renewal of corporate name, may use it for
registration -Take effet upon approval of SEC/ 6mns after inaction of SEC

PURPOSE CLAUSE MATTERS BEYOND AMENTMENT IN AOI


-Must be lawful 1. Name of incorporators
-It limits the powers of corporation. 2. Name of incorporating bod/t
-There must be primary - necessary for administrative supervision 3. Name of original subscribers to capital stock
and secondary purpose- does not necessarily related to the primary
purpose 4. Treasurer-in-trust elected by original subscribers

5. Witness and acknowledgement

Investment in non-primary purpose 6. Members who contributed to initial paid up capital


CORPORATION LAW

BY-LAWS

-Intramural document/covenant which governs the relationship of


members of corporation and not of 3rd person unless they have
knowledge

-Prescribes regulation but not restriction. Cannot create rights

-Subordinate to: AIC, Existing laws, must be reasonable and


nondiscriminatory To organize a corporation that could claim a juridical
personality of its own and transact business is not a matter of
absolute right but a privilege as state may deem to impose (Ang Pue
POWER TI ADOPT BY-LAWS v Sec of Commerce)
-Inherent power of corporation to enable it to accomplish its
purpose
Corporation is an association of individuals allowed to transact
under assumed name and with distinct personality. Waives no
BY-LAWS PROVISION CANNOT CONTRAVENE THE LAW constitutional immunities (Ph stock exchange)

-Sec36: Being mere creature of the state, by laws must be lawful

Power of corporation to sue and be sued is lodge with BOD

BY LAWS CANNOT CONTRAVENE THE CHARTER

-Sec47 While an individual may lawfully refuse to answer incriminating


question unless protected by immunity stature, it does not follow
that a corp may refuse to show that its hand when charged with an
PROCEDURE OF ADOPTION OF BY-LAW abuse of such privilege (Bataan shipyard)
-Sec46: W/in 1 mn after receipt of certificate of incorporation allows
adoption of by laws
Stockholders cannot be made personally liable for crimes
-May adopt by laws even prior to incorporation
committed on behalf of the corporation unless personally
-Failure to file, merely a ground for forfeiture of SEC participated

-How:

A. affirmative vote of majority of stockholder, Under Trust Receipt: Corp officer are liable for estafa even if
acting on behalf of the corporation
B. signed by them,

C. certified by majority of directors/trustees


A corporation may be charged and prosecuted for a crime if
D. Countersigned by corp Secretary imposable penalty is fine
E. FIled with SEC

Reacquisition of PH citizenship by former FIlipino who had


been naturalized as American had the legal effect of re-classifying
his equity in domestic corporation as FiIipino

Stockholders right in the corporate property is merely inchoate


and will not entitle them to interfere in the litigation involving
corporate property
CORPORATION LAW

Piercing application has a res judicata effect. It does not affect


the person of corporation but merely on equity remedy that
pertains to the transaction in controversy

Re: CONTRACT LAW

When a corporation has not yet been constituted by law, there


is yet no juridical person which can validly entered into contract

No pre-incorporation subscription may be revoked after


submission of the articles of incorportion with SEC

When there is no attempt in GF to create a de jure corporation


there can be no de facto crorporation

Until AIC should be recorded, corp should not transact business

Corp who fails submit its by-laws on time maybe considered de


facto