Post on 06-Apr-2018
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CORPORATION CODE
B. P. Blg. 68
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Brief History of the Code
Passed by the Batasan Pambansa andapproved by the president on May 1,1980, the date of its effectivity
It supplanted the old corporation law (Act1459) which was enacted by the PhilippineCommission on March 1, 1906 and took
effect on April 1, 1906
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Brief History of the Code
Prior to 1906
Spanish Code of Commerce of 1885
Entities were referred to as sociedades
Act No. 1459 of 1906
Aimed at replacing sociedades with the concept of
corporations
Sociedades were given the option to continue as
such or reform or reorganize under the provisions ofthe new law
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Significant Changes introduced
by the Code
Eliminated the classification of corporations intopublic and private
Expressly provides for the creation of
corporations through special laws or charters New classes of shares are provided
It required that where a corporation has more
than one purpose, the AoI must state which isthe primary purpose and which are secondarypurposes
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Corporation defined
Corporation is defined as one of the forms
of association having the rights andrelations, and the characteristic attributes
of a legal entity distinct from that of thepersons who compose it or act for it inexercising its functions. (SEC opinion
dated July 8, 1992)
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Attributes of a Corporation
It is an artificial being
It is created by operation of law
It enjoys the right of succession It has the powers, attributes and properties
expressly authorized by law or incident to
its existence (Doctrine of Special orLimited Capacity)
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1. Artificial Being
A corporation registered under the Code isconsidered a juridical person with apersonality separate and distinct from that
of each stockholder A corporation may not be made to answer
for acts or liabilities of its stockholders orthose of legal entities to which it may beconnected or vice versa (Palay Inc. vsClave, et al, 124 SCRA 638)
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Artificial Being; Practical
Applications
SH are not personally liable for debts of thecorporation either at law or equity, unless fictionof corporate entity is disregarded
SH are not owners of corporate properties or
assets SH cannot maintain action/s in their own name
in connection with corporate affairs, business orproperty
Corp is a taxable entity separate and distinctfrom its SH who are separately taxed on theirdividends
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When is corporate fiction
disregarded?
DOCTRINE OF PIERCING THECORPORATE VEIL
For purposes of applying this doctrine, acorporation is perceived not as a legal orartificial entity separate and distinct fromthe persons composing it, but is seen as a
mere collection of individuals andconsidered as an association of persons.
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When applied
The corporate fiction of the notion of legalentity may be disregarded when it is usedto defeat public convenience, justify
wrong, protect fraud, or defend crime, inwhich instances the law will regard thecorporation as an association of persons,
or in case of two corporations, will mergethem into one. (Remo vs. IAC, 172 SCRA406)
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Probative factors of identity that will
justify application of the doctrine:
Stock ownership by one or commonownership of both corporations
Identity of directors and officers
The manner of keeping corporate booksand records
Methods of conducting the business
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Applicable cases:
Corp is used as a shield to further an endsubversive of justice (Cagayan ValleyEnterprises Inc. vs. CA, 179 SCRA 230)
Corp is used to perpetuate fraud orconfuse legitimate issues (Indino vs.NLRC, 178 SCRA 176; TelephoneEngineering & Service Co. Inc. vsWorkmens Compensation Commission,104 SCRA 354 )
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Applicable cases:
Corp is used as an alter ego or businessconduit for the sole benefit of thestockholders (Collector vs. Univ. of
Visayas, 12 SCRA 193)
One corporation is a mere subsidiary,instrumentality or department of another
corporation (Claparols vs. CIR, 65 SCRA613)
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Applicable cases:
Notion of legal entity is used to defeatpublic convenience, justify wrong, protectfraud or defend crime;
When SH created the corporation to evadetaxes, violate laws, commit fraud, evadejust obligations;
When the corp is owned by the SH and hisdummies, and/or immediate familymembers (Control Test)
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2. Creation of Law
The consent of the State to its creation is acondition precedent before a corporationacquires juridical personality
The power to create corporations is one ofthe attributes of sovereignty
Takes the form of a special law or a
general enabling act under which personswishing to act as a corporation mayincorporate
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3. Right of Succession
Denotes that a corporation continues toexist during the term stated (1) in itsarticles of incorporation; (2) in the law
authorizing the incorporation itself Its existence continues despite the death,
withdrawal, insolvency or incapacity of itsindividual stockholders or members andirrespective of the transfer of shares by astockholder to third persons
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Advantages of the corporate form
Enjoys perpetual succession
Independent juridical personality (own property,contract obligations, sue and be sued in its
name as an individual) SH shall have no personal liability beyond thevalue of their shares
Entitled to immunity against unreasonable
search and seizures Transfer of interest is easier and will not dissolve
the corporation
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Classes of Corporation
Stock Corporations
Non-stock corporations
Close corporations (Sec. 96) Educational corporations (Sec. 106)
Religious corporations (Sec. 109)
Foreign corporations (Sec. 123)
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Stock Corporations
Must have capital stock divided intoshares
Must be authorized to distribute to itsstockholders dividends out of its surplusprofits on the basis of the shares held
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Businesses required to organize as
stock corporations:
Banks (R.A. 720)
Finance companies (R. A. 5980, asamended)
Investment houses (P.D. 129)
Investment companies (R.A. 2629) Condominium corporations (R.A. 4726)
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Conversion Policies
Non-stock to stock: Dissolution under Title XIV of the code
Incorporation into a stock corporation
Stock to non-stock:
Amendment of its Articles of Incorporation
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Other corporations
Corporation sole
Religious or ecclesiastical corporation
Lay, charitable or eleemosynarycorporation
Public and private corporations
Domestic and foreign corporations
De jure and de facto corporations Close corporations
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Corporations created by special
law or charter
Owned and controlled by the governmentin the interest of the common good andsubject to the test of economic viability
Need not register with the SEC to acquirelegal personality
Does not divest these GOCCs withimmunity from suit
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Sec. 5
Corporators are those who compose acorporation whether as stockholders incase of a stock corporation or as members
in case of non-stock corporation
Must have the legal capacity to contract
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Sec. 5
INCORPORATORS those originally formingand composing the corporation, having signedthe articles and acknowledged the same beforea notary public
The name of an incorporator may not bechanged, deleted or amended for the reason
that the same is an accomplished fact at thetime of incorporation
Must be a natural person
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Stockholders or Shareholders
Are owners of shares in a stockcorporation.
May be natural or juridical persons
MEMBERS are corporators of a non-
stock corporation
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Classification of Shares
Applicable only to stock corporations
Initially determined by the incorporatorswhen they execute the articles ofincorporation and file the same with theSEC
Rights, privileges, preferences and
restrictions must be stated in the AoI to belegally effective
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Classification of Shares
Authority to classify shares, not absolute:
No share may be deprived of voting rightsexcept 1). those considered delinquent; 2). for
founders shares that are accorded completevoting rights; 3). Preferred or redeemableshares unless otherwise provided in the code.
Equality of shares
Preferred shares with stated par value
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Classification of Shares
Authority of the Board to fix terms andconditions of preferred stocks
Effective upon the filing with the SEC of a
Sec. Cert. under oath relative to the resolutionof the board fixing the terms of the preferredshares
Must be stated in the AoI (amend if needed)
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Classification of Shares
No par value shares consideration mustnot be less than P5.00
Banks, trust companies, insurancecompanies, public utilities and building andloan associations are not permitted by thecode to issue no-par value shares
Shares without par value deemed fullypaid
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CAPITAL:
Refers to the money, property or meanscontributed by the stockholders as theform or basis for the business
Used synonymously with capital stock, asmeaning the amount subscribed and paid-in and upon which the corporation is to
conduct its operations
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Classes of Shares:
Common shares
Preferred shares
Par value shares No-par value shares
Redeemable shares
Treasury shares Founders shares
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Distinction bet. Shares of stock and
Certificate of stock
Incorporeal orintangible property
Represents the
interest or right of aperson in thecorporation
May be issued even ifsubscription not fullypaid (Sec. 137)
Concrete and tangibleproperty
Written evidence of
that interest or right May be issued only of
subscription is fullypaid (Sec. 64)
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Sec. 8 Redeemable Shares
Device use to create more capital
2 classes of redeemable shares: Compulsory or obligatory
Directory or optional
Restriction: must not render thecorporation insolvent upon redemption
(Trust Fund Doctrine) Effect: shares considered as retired no
longer issuable, unless otherwise provided
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Sec. 9 Treasury Shares
Shares which have been earlier issued asfully paid and have thereafter beenacquired by the corporation, by purchase,
donation, redemption or through someother lawful means
Corporation must have surplus profits to
reacquire them
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Sec. 9 Treasury Shares
Not entitled to dividends
Cannot be reverted back to the status ofauthorized but unissued shares, but areregarded as property acquired by thecorporation which may be reissued andsold by it at a price to be fixed by the
board
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Sec. 9 Treasury Shares
Being unrealized income, not consideredas part of earned or surplus profits andtherefore not distributable as dividends
either in cash or stock
While in the corporationss treasury, it has
no voting rights
Being property, they may be resold for areasonable price or best price obtainable