bus. org lesson 1

8/3/2019 Bus. Org Lesson 1

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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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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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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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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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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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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

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