Professional Documents
Culture Documents
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Attributes of a Corporation:
1.
2.
3.
4.
Artificial being;
Created by operation of law;
Enjoys the right to succession;
Has the powers, attributes and properties expressly
authorized by law or incident to its existence.
3.
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2.
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3.
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4.
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5.
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6.
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As a person
Persons are divided into natural and artificial
persons. The term person prima facie includes both
and, therefore as a general rule, includes
corporations but in a figurative sense only.
As a resident or nonresident
It is deemed a resident or a nonresident of a
particular state or country within the meaning of a
statute, if it is within the purpose and intent of the
statute such as those defining the jurisdiction of the
courts, or relating to venue, taxation, etc.
As a citizen
Citizenship is the status of a citizen with its rights
and privileges and corresponding duties and
obligations.
In corporation, it is in the sense of indicating the
country under whose laws the corporations were
organized.
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3.
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3.
4.
5.
6.
2.
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3.
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Code
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2.
3.
4.
5.
6.
7.
8.
9.
Corporation as a partner
Disadvantage
1.
2.
3.
4.
Reason:
1
2
3
Exception:
1
5.
6.
7.
8.
Non-stock Corporation
Do not issue stock and
distribute dividends to
their
members
and
created for public good
and welfare
No capital stock
Sources
contribution
donation
Other Classifications of corporations
Reason:
1.
Number of person
a. Corporation aggregate - is a corporation consisting
of more than one member or corporator
b. Corporation sole or a special form of corporation
- is usually associated with the clergy. Consist of one
member or corporator only and his successors, such as
bishop.
2.
from
and
4.
5.
9.
7.
8.
Created
without
the
consent of the locality to
be effected
Private
Charter
of
private
corporation is a contract
between the state and
the corporation which,
under
constitution
prohibiting
laws
impairing the obligation
of contract, renders not
subject
to
visitation
control and change by
the state except exercise
of the police power
Consent
of
the
incorporators
is
necessary to the creation
of
the
private
corporation
Proprietary or private
Corporate
legal
individual
Liable for damages
Other classes
Power to classify
4.
Incurring,
indebtedness;
creating
or
increasing
bonded
Ex: Class A and Class B. Class A for Filipino and Class B for
Filipino and Foreigner
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Capital
Actual corporate property,
concrete thing
Fluctuates or varies from day
to day
Belongs to the corporation
Real or personal
when par value shares are issued above par, the premium
or excess is not to be considered as part of the legal
capital.
if no par value shares, the entire consideration received
forms part of legal capital and shall not be available for
distribution
Capital stock
Collective sense, signify the
whole body of shares of stock
in the corporation
Ans:
the
An amount fixed in
articles of incorporation
Belongs to stockholders
Always personal
Capital stock
Legal capital
Merely an amount and remains unchanged except as
outstanding shares are increased or reduced in number or
amount
Limits the maximum or Sets the minimum amount of
number of shares that may the corporate assets which
be issued without formal for
the
protection
of
amendment of the articles of corporate creditors, may not
incorporation
be lawfully distributed to
stockholders
Capital stock
An amount, abstract
Shares of stock
Incorporeal
or
intangible
property
Right or interest of a person
Issued
even
if
the
subscription is not fully paid
except in no par share
Situs is deemed to be the
state where the corporation
has its domicile
Certificate of stock
Tangible property
2. Voting or non-voting
3. Common or preferred, and preferred shares maybe voting,
convertible, or redeemable
Preferred maybe
a. Cumulative or non-cumulative
b. Participating or non-participating
4. Promote share
5. Share in escrow
8. Redeemable share
9. Treasury Share
Par value share - one with a specific money value fixed in
the articles of incorporation and appearing in the certificate of
stock
6. Convertible share
7. Founders share
Convertibility of share
Disadvantage
1. Subscribers are liable to
corporate creditors foe their
unpaid subscription
2. Stated face value of the
shares is not an accurate
criterion of its true value
2.
3.
Disadvantage
1. Legalize large issue
stock for property
2. Conceal the money
property represented by
shares
3.
Promote
issuance
watered stock
4.
Lesser
protection
creditors
4.
of
or
the
of
to
1.
2.
3.
4.
Concept of
association
Possession
of juridical
personality
Governing
law
Capacity to
act in its
name
Powers,
rights, and
privileges
Policy of
juridical
noninterference
Validity and
enforcemen
t of acts
corporations
defined by Sec.
2 of the Code
A legal entity
deriving its
existence from
franchise
Private
corporations are
governed by
Corporation
code
Art. 46 CC.
juridical persons
may acquire and
possess property
of all kinds as
well as incur
obligations and
bring civil or
criminal actions
in conformity
with the laws
and regulations
of their
organization.
An unregistered
organization,
however, cant
exercise the
powers, rights
and privileges
incident to
incorporation
and expressly
granted to
registered
corporations
under Sec.36 of
the corporation
Code
The GR is that courts will not interfere
with the internal affairs of an
unincorporated association so as to
settle disputes between the members
on questions of policy, discipline, or
internal government.
The fact, that group of persons adopt
a name operate without first being
organized as a legal entity, does not
make their acts necessarily void.
Their acts may be valid, although
Concept of franchise
Franchise- includes any special privilege or right affected
with public interest, conferred by the State on corporations or
persons and which does not belong to the citizens of the
country, generally as a matter of common right.
As a privilege, a franchise is not exercised by private
individuals at their mere will and pleasure only but under such
conditions, regulations, and restrictions as the government
may deem necessary to impose in the public interest, security
and safety.
Primary franchise and secondary franchise
(1) Primary or corporate franchise- the right or privilege
granted to individuals by the State to be and act as a
corporation after its incorporation.
The primary franchise (also known as general
franchise) is granted to and vests in the individuals who
compose the corporation and not in the corporation itself.
(2) Secondary franchise- franchise to exercise powers and
privileges granted to such corporation to the business for
which it was created, including those conferred for
purposes of public benefit such as the power of eminent
domain and other powers and privileges enjoyed by
public utilities.
The secondary franchise is conferred upon the
corporation after its incorporation and not upon the
individuals who compose the corporation.
Transferability of franchise
franchise is generic, covering all the rights granted by
the State. It may mean either the corporate or primary
franchise which is the right granted to a group of
individuals to exist and act as a corporation, or the
secondary or special franchise which is the right granted
to a corporation to exercise certain powers and privileges.
(1) Primary franchise- in its nature is inalienable. It is
part of the corporation and cannot be sold or
assigned; otherwise, a corporation would be created
without the consent of the legislature. It may be
conveyed provided there is express legislative
authority to do so.
(2) Secondary franchise- which is vested in the
corporation itself, may ordinarily be conveyed or
mortgaged under a general power granted to a
corporation to dispose of its property, except such
franchises as are charged with a public use. Thus, if
the corporation is a public utility, its franchise can
only be sold subject to the prior approval and
authorization of the Public Service Commission. A
secondary franchise is subject to levy and sale on
execution, together with all the property necessary
for the enjoyment thereof.
Steps in the creation of a corporation
(1) Promotion;
(2) Incorporation (Sec.10);
promoters
for
failure
to
organize
Underwriting Agreements
There are four (4) general types of underwriting
contract.
(1) the syndicate may make a firm commitment under which
the members severally but not jointly agree to purchase
the whole issue outright at a particular price for resale at
a price differential to the public, or to dealers who sell at
another differential to the public.
(2)
the underwriters may make an all-or-nothing
commitment under which they agree to accept liability for
the purchase of an issue at a given price only if the entire
issue is not sold usually within a 30-day period.
(3) the syndicate may make a standby commitment or rights
offering under which it will purchase and distribute at
predetermined prices to the public any amount of the
issue not taken by stockholders in exercising their preemptive rights.
(4) this merely means that the syndicate will use its best
efforts to distribute the issue to the public.
Incorporation distinguished from creation
Scope
Incorporation
Narrower
Refers to the
performance of
conditions, acts,
deeds, and writings
by incorporators,
creation
Not that narrow
Understood in its
broadest sense,
includes all of the acts
and doing from the
enactment of the
general incorporation
law by the legislature
through the promotion,
underwriting,
preparation and
execution and filing of
the incorporation
papers obtaining the
certificate or charter, to
the organization and
first meeting and
election which set the
corporation in motion
full-pledged.
Corporation
Legal or juridical institution
Corporator
May or not be signatory of
the AOI
Cease to be a corporator by
sale of his shares in case of
stock corporation. In case of
non-stock corporation, when
the corporator ceases to be a
member
No limit
Not necessarily
Depending on the nature of
business of the corporation. If
it is nationalized, the
citizenship becomes material.
Steps in incorporation
Incorporation includes the following:
(1) Drafting and execution of the articles of incorporation by
the incorporators and other documents required for
registration of the corporation. In this connection, the
person chosen as temporary treasurer pending
incorporation must also execute:
(a) An affidavit certifying compliance with subscription
and paid-up requirements as to capital stock.
(2) Filing with the Securities and Exchange Commission of
the articles of incorporation together with the following:
(a) Treasurers affidavit in the form prescribed in Section
15 showing at least 25% of the entire authorized
shares has been subscribed and at least 25% of the
subscription has been paid in cash and/or property to
the corporation (Ibid); and
Requirement
regarding
incorporators mandatory
minimum
number
of
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
_______________________ _______________________
(Notarial Acknowledgment)
TREASURER'S AFFIDAVIT
PROVINCE OF )
CITY/MUNICIPALITY OF ) S.S.
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary
Public,
for
and
in
the
City/Municipality
of
___________________ Province of _____________________, this
_______ day of ___________, 19 _____; by __________________
with
Res.
Cert.
No.
___________
issued
at
_______________________ on ____________, 19 ______
NOTARY PUBLIC
My commission expires on
_________, 19 _____
Articles of incorporation
_______________________ _______________________
_______________________ _______________________
________________________________
(Names and signatures of the incorporators)
Corporate charter
Applies to the instrument
bestowing such right and
privilege.
companies
and
other
financial
intermediaries,
insurance companies, public utilities, educational
institutions, and other corporations governed by
special laws shall be accepted or approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency to the effect that such articles or amendment is
in accordance with law. (n)
Grounds for rejection of AOI or amendment thereto
Sec. 17 enumerate the grounds. The grounds are not
exclusive.
(1) The SEC is required to give the incorporators reasonable
time within which to correct or modify the objectionable
portions of the AOI or amendment when the same is
rejected or disapproved for non-compliance with the
requirements of the Code.
(2) Any decision of the Commission rejecting the AOI or
disapproving any amendment thereto is appealable by
petition for review in accordance with the pertinent
provisions of the rules of court.
(3) In case of corporations governed by special laws, the AOI
or amendment shall not be accepted or approved by the
SEC unless accompanied by a favorable recommendation
of the appropriate government agency.
(4) Before a foreign corporation can lawfully transact
business in the Phil it must first secure a license in
accordance with the code and a certificate of authority
from the appropriate government authority.
(5) The SEC shall not also accept the AOI of any stock
corporations unless accompanied by a sworn statement
of the treasurer elected by the subscribers showing the
amount of the capital stock subscribed and paid.
(6) The action of the commission in approving or rejecting
the AOI or any amendment thereto is not a ministerial
function but involves the exercise of discretionary power.
Suspension or revocation of certificate of registration
of corporations
(1) Grounds- under PD 902-A, SEC may suspend or revoke,
after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships, or
associations upon any of the grounds provided by law,
including the ff.:
(a) Fraud in procuring its certificate of incorporation;
(b) Serious misinterpretation as to what the corporation
can do or is doing to the great prejudice of, or
damage to, the general public;
(c) Refusal to comply with or defiance of a lawful order
of the Commission restraining he commission of acts
which would amount to a grave violation of its
franchise;
(d) Continuous inoperation for a period of at least 5
years;
(e) Failure to file by laws within the required period; and
(f) Failure to file required reports in appropriate forms as
determined by the Commission within the prescribed
period.
(2) Effectivity- a SEC order of revocation is immediately
effective. Once the revocation order is issued, the subject
corporations existence is terminated at that very instant
and is deemed terminated until the particular revocation
order is lifted.
(a) It may not continue to operate its business and issue
shares;
(b) It may sell its assets pursuant to Sec 122 but it may
only purchase property if such purchase will be
consistent with liquidation;
(c) It may sue for purposes of recovering its property.
The capacity of a corporation to institute an
ejectment suit is not affected by the subsequent
suspension and revocation of certificate of
registration.
(3) Lifting of order of revocation- the lifting restores the
corporation to its original status as if there was no
revocation order issued against it, with the capacity to
exercise all the powers of a duly registered corporation
under the Corporation Code.
Section 18. Corporate name. - No corporate name may
be allowed by the Securities and Exchange Commission
if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation
or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
approved, the Commission shall issue an amended
certificate of incorporation under the amended name.
(n)
Limitations upon use of corporate name
(1) Similarity with another trade nameThe incorporators may choose and use any name they
may see fit, provided it is one not identical with or
prejudicially similar to a name which was previously
adopted and which is being used by another existing
corporation or unincorporated association or a natural
person as trade name or is contrary to existing law.
(a) It acquires its name by choice and need not select a
name identical with or similar to one already
appropriated by a senior corporation while an
individuals name is a thrust upon him.
(b) If any corporation could adopt at pleasure the name
of another corporation, the practice would cause
confusion and unfair and fraudulent competitions,
open the door to frauds upon the public, promote the
evasion of legal obligations and duties, and result in
difficulties of administration and supervision over
corporations.
(2) Test of infringementThe right to exclusive use of a corporate name with
freedom from infringement is determined by priority of
adoption. The test is whether the similarity is such as to
misled a person using ordinary care and discrimination
and the court must look to the record as well as the
names themselves.
It is settled that proof of actual confusion need not be
shown. It suffices that confusion is probably or likely to
occur.
(3) Part of nameThe corporate name shall contain the word corporation
or incorporated, or the abbreviations corp. or inc.,
respectively. The corporate name of a foundation shall
use the word foundation.
(4) Prohibited use of certain wordsIn addition to the limitation provided by Sec.18, special
laws prohibit the use of certain words as part of the
corporate name such as those which imply that a
corporation is engaged in an activity in which it is not
allowed by law to engage in.
(5) Use of generic, geographical, and descriptive
terms and names-
(2) Liability to
taxation- de facto is subject to
taxation in the same manner to je jure.
(3) Binding effects of the contract- similarly, a
transfer of property to or by a corporation de facto is
valid and binding against all persons except the
State; bonds, deeds, and mortgage executed by such
a corporation are valid, not only as against the
corporation itself, but also against anyone making a
a claim against its assets, whether as a creditor
directly of the corporation or as a creditor of its
creditors or stockholders.
(4) Protecting against unauthorized acts- whether
de facto or de jure, it is entitled to protect itself from
unauthorized acts.
Liabilities of officers and members of a de facto
corporation
(1) In general- subject to all the liabilities and penalties
attending to officers and directors duly chosen by a
corporation de jure, including liability under the
criminal law, and their acts are binding when such
acts would be within the power of such officers if the
corporation were one de jure.
(2) Liability as partners to third persons- members
cannot be held liable to third persons who deal with
them in their supposed corporate capacity, merely on
account of technical defect in the formation of the
corporation. On the other hand, where an attempt to
organize a corporation fails by omission of some
substantial step or proceeding required by the law,
its members or stockholders are liable as partners.
(3) Liability among themselves- in actions among
themselves for advances, commissions, etc. the test
of whether the corporation is de jure or de facto has
been disregarded. When persons associate together
and do business as a corporation and the latter is
defectively organized, their rights, duties and
liabilities, as between themselves, should be
deermined and governed by the express or implied
terms, conditions, and limitations contemplated by
their agreement. They are not partners unless they
have agreed to be such.
Section 21. Corporation by estoppel. - All persons who
assume to act as a corporation knowing it to be
without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.
(n)
Estoppel to deny corporate existence
An unincorporated association which represented itself to be a
corporation, will be estopped from denying its corporate
capacity in a suit against it by third person who relied in good
faith on such representation. It cannot alleged lack of
personality to be sued to evade its responsibility for a contract
it entered into and by virtue of which it received advantages
and benefits.
3)
2)
3)
-a corp. achieves its legal existence from the date SEC issues
the cert. of incorp. under its official seal, but formal
organization brings a corporation to life.
1)
2)
3)
Business judgment ruleGR: Courts will not interfere in the decisions made by the BOD
as regards the internal affairs of the corporation
3)
7)
8)
Transferee at the time of assumption of officequalified even if not the legal owner of the stock at
the time of election.
Co-owners of shares- as co-owners of the shares,
the husband and wife shall be considered as 1
stockholder. Hence, either of them and not both of
them may be voted as director.