NOTES

Partnership and Corporation, Distinguished

Characteristic Partnership Corporation (a) How created voluntary agreement of parties created by the state in the form of

a special charter or by a general enabling law

(b) Term of existence no time limit except by agreement of the parties

not more than 50 years

(c) As to liability to strangers

May be liable with their private property beyond their contribution to the firm

liable only for payment of their subscribed capital stock

(d) Transferability of interest

transferee does not become a partner unless all other partners consent

transferee becomes a stockholder even without the consent of the others.

(e) Ability to bind the firm Generally, partners act as agents of the partnership thus, they can bind the firm and the partners

it is the board of directors or its duly authorized representative who can bind the corporation

(f) Mismanagement a partner can sue a partner who mismanages

a stockholder cannot sue a member of the board of directors who mismanages; it is the corporation itself which must file the action

(g) Nationality a partnership is a national of the country where it was created

national of the country under whose laws it was incorporated with exceptions

(h) Attainment of legal personality

the firm becomes a juridical person from the time the contract begins

the firm becomes a juridical person from the time issuance of its certificate of incorporation by the SEC

(i) Dissolution a partner may dissolve the partnership by his act or withdrawal

cannot be dissolved without the approval of the board of directors and stockholders, and the consent of the state

Constitutional rights of a Corporation

The rights of a corporation under the 1987 Constitution are:

1. due process, 2. equal protection, and 3. protection against unreasonable searches and seizures.

A corporation is created by operation of law (Sec.2) and it can exist only with the consent of the State or sovereign power. It may be created under the general law called the Corporation Code of the Philippines or by Special Law enacted by Congress.

Advantages in forming a corporation

1. A corporation may sue, enter into contracts and acquire properties in its name and in its own right.

2. It has a continuity of existence. 3. Its credit is strengthened by such continuity of existence. 4. Its management is centralized in the board of directors. 5. The shareholders have limited liability. 6. Shares are transferable even without the consent of the other stockholders. 7. Stockholders are not general agents of the business. 8. Its creation, management, and dissolution are standardized as they governed under one

general incorporation law. 9. It makes gigantic financial undertakings since it enables many individuals to invest their

separate funds in the enterprise in order to furnish large amounts of capital.

Classification of Corporations 1. According to the State under whose laws they have been created:

a. Domestic corporation - one incorporated under the laws of the Philippines b. Foreign corporation - one formed, organized or existing under any laws other than those of the

Philippines. 2. According to whether or not there is issuance of shares

a. Stock corporation - a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held. Stock corporations sell stock to generate capital. A stock corporation is generally a for-profit corporation.

b. Non-stock corporation - a corporation that does not have owners represented by shares of stock. It typically has members, who are the functional equivalent of stockholders in a stock corporation (they have the right to vote, etc.) Most non-stock corporations are not-for-profit corporations - organized principally for public purposes such as charitable, educational, cultural or similar purposes. While rare, it is possible for a for-profit corporation to be a non-stock corporation.

3. According to whether the shares are available to the public or not.

a. Close corporation - one which is limited to selected persons or members of a family b. Open corporation - one which is open to any person who may wish to become a stockholder or

member thereto.

Corporation which are vested with public interest are not allowed to be incorporated as a close corporation.

4. According to relation to another corporation.

a. Parent or holding corporation - one which is so related to another corporation that it has the power either directly or indirectly to elect the majority of the directors of such other corporation in short it exercises control over the other corporation

b. Subsidiary corporation - one which is so related to another corporation that the majority of its directors can be elected either directly or indirectly, by such other corporation. It is one in which another corporation owns at least a majority of the shares and thus has control

c. Affiliated corporation - one related to another by owning or being owned by common management or by a long term lease of its properties or other control device. An affiliation exists

between a holding or parent company and its subsidiary, or between two corporations owned or controlled by a third.

5. According to purpose

a. Public corporation - those formed or organized for the government or a portion of the State for the general good and welfare.

b. Private corporation - those formed for some private purpose, benefit or end.

The true test is the purpose of a corporation. If the corporation is created for public or political purpose connected with the administration of government, then it is a public corporation. If not, it is a private corporation although the whole or substantially the whole interest in the corporation belongs to the State. In the Philippines, the public corporations are the provinces, cities, municipalities, and barangays, and the autonomous regions in Muslim Mindanao and the Cordilleras. These local units are also called municipal corporations or local governments. The provisions of the Corporation Code apply only to Private Corporations. Private corporations include GOCCs and quasi-public corporations. GOCCs (Government Owned or Controlled Corporations) are those corporations created or organized by the government or of which the government is the majority stockholder. Where the government engages in a particular business through the instrumentality of a corporation, it divests itself of its sovereign character, so as to subject itself to the rules governing private corporations. Examples are the GSIS, National Power Corporation, Philippine National Bank. QUASI-PUBLIC Corporations are private corporations which have accepted from the State the grant of franchise or contract involving the performance of public duties but which are organized for profit. These corporations are also known as public utilities or public service corporations. Examples of these corporations are those organized as electric, water, telephone, and transportation companies. Because the business in which they are engaged are impressed with a public interest, they may not engage in that business without the authority of the State in the form of franchise. Neither may they cease engaging in that business unless the State permits them to do so.

Components of a corporation

1. Corporators 2. Incorporators 3. Stockholders 4. Members

Corporators are those who compose a corporation whether as stockholders or as members. Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation are called members. Incorporators are those stockholders or members mentioned in the Articles of Incorporation as originally forming and composing the corporation and who are signatories thereof. Incorporators must be natural persons. It is noteworthy to remember that all incorporators are corporators but not all corporators are incorporators.

Authorized capital, Subscribed capital, Outstanding capital and Paid-up capital, defined Authorized capital is the total amount of the capital stock of the corporation as stated in its Articles of Incorporation which it can raise. Subscribed capital is the amount of the authorized capital which has actually been subscribed to or undertaken to be paid by the subscriber.

Outstanding capital is the portion of the capital stock which issued and held by persons other than the corporation itself.

Paid-up capital is the amount of subscription that has been actually paid.