THE REVISED CORPORATION CODE OF THE PHILIPPINES

Corpora&on Defined
• A corpora(on is an ar(ficial being created by opera(on of law, having the right of
succession and the powers, a:ributes and proper(es expressly authorized by law or
incident to its existence. (Sec. 2 RCCP)

A.ributes of a Corpora&on
1. Ar(ficial being
2. Created by opera(on of law
3. Has the right of succession
4. Has the powers, a:ributes and proper(es expressly authorized by law or incident to
its existence

Corpora&on as an ar&ficial being

• As an ar(ficial being, a corpora(on is possessed of a personality separate and dis(nct
from that of a stockholder. Under Ar(cle 46 of the Civil Code, it is a juridical person
who may acquire and possess property of all kinds, as well as incur obliga(ons and
bring civil or criminal ac(on, in conformity with the laws and regula(ons of its
organiza(on.

Doctrine of separate en&ty explained

• A corpora(on has a personality separate and dis(nct from that of each shareholder.
This has been generally considered as the privilege or a:ribute most characteris(c of
the corpora(on. It means that the stockholders of a corpora(on are not the same as
the corpora(on itself. (A. Agbayani, Commercial Law Volume III).

Consequences of the Doctrine of legal en&ty

1. Corporate property is owned by the corpora(on as a dis(nct legal fic(on, and the
shareholders have only an indirect interest in the assets and business.
2. Shareholders cannot maintain ac(ons in their own name and right, to recover
possession of property belonging to the corpora(on, or to recover the damages for
its injury. The right of ac(on is in the corpora(on, and must be brought in the
corporate name by its authorized agent.
3. The right to object to the admission in evidence of documents, papers and things
illegally seized from the offices and premises of the corpora(on belongs exclusively
to the corpora(on and may not be invoked by the corporate officers or stockholders
in the proceeding against them. (Ballan(ne 288-292; Fletcher 103-132; Stonehill et
al. vs. Diokno et. al. L-19550)

Disregard of legal fic&on or ”Piercing the veil of corporate en&ty.”

• When valid grounds exist the legal fic(on that a corpora(on is an en(ty separate and
dis(nct from its members or stockholders may be disregarded. In such cases, the
corpora(on will be considered a mere associa(on of persons. The members or
 stockholders of the corpora(on will be considered the same as the corpora(on. This
is referred to by some courts as piercing the veil of corporate en(ty, or disregarding
the fic(on of corporate en(ty or looking at the substance rather than the form.
Before the doctrine of separate en(ty may be disregarded, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. (Del Rosario vs. NLRC,
187 SCRA).

A corpora&on is created by opera&on of law

• A corpora(on is created and organized under a general law and is considered a legal
body with rights and powers. It is not created by agreement of persons.

Corpora&on has a right of succession

• The corpora(on shall con(nue to exist for the period stated in the Ar(cles of
Incorpora(on, and the death of any stockholder or director shall not dissolve the
corpora(on. The corporate life of a corpora(on under the RCCP shall be perpetual or
unless sooner dissolved for other causes in accordance with law
• By succession is not meant that the corpora(on is immortal. It simply means that a
corpora(on has a con(nuity of existence independent of that of its members or
shareholders. This con(nued existence of a corpora(on is, however, limited to the
period stated in its Ar(cles of Incorpora(on or in the act crea(ng it. Subject only to
this limita(on, the death or withdrawal of the members or stockholders of a
corpora(on does not affect its corporate existence. (Campus Rueda Co. vs. Pacific
Commercial Co. 44 Phil. 916)

Tests of na&onality or ci&zenship of a corpora&on

1. Incorpora(on test - As a general rule, a corpora(on is a ci(zen of the state or
country by or under the laws of which it was created and exists without regard to the
ci(zenship of its stockholders or members. (18 C.J.SS. 388)
2. Control test - The na(onality of a private corpora(on is determined by the
character or ci(zenship of its controlling stockholders. (89 Phil. 54)
3. Center of Management test or Business domicile test - A corpora(on has
the na(onality of the state where it has its business domicile.

Residen&al and jurisdic&onal requirement of a Corpora&on

• A corpora(on is, for jurisdic(onal purposes, a resident of the place where its
principal office or place of business is situated. (1 Fletcher 54)
• A corpora(on can have no legal existence out of the boundaries of the sovereignty by
which it is created. It exists only in contempla(on of law, and by force of the law; and
where that law ceases to operate, and is no longer obligatory, the corpora(on can
have no existence. Hence, it cannot, through its agents, enter into contracts outside
the jurisdic(on in which it was created, without the sanc(on, express or implied, of
the laws of the sovereignty where such contracts are entered into. (Bank of Augusta
vs. Earle, 13 Pet. 519)
Corpora&on and partnership compared
a. Similari(es
1. With the excep(on of a corpora(on sole, both are composed of a group of
persons.
2. Both are ar(ficial persons.
3. Both are devoid of physical bodily existence and as such can only act through
their respec(ve agents.
4. Both have juridical personali(es separate and dis(nct from the members or
stockholders.

b. Dis(nc(ons
1. A partnership is created by mere agreement of the partners; while
corpora(on cannot be created by mere agreement of the par(es but requires
authority from the sovereign power, express or implied.
2. A partnership cannot be formed by one person; while a corpora(on sole and
One-Person Corpora(on is formed by one person.
3. A partnership may by agreement of the partners do any lawful act; while a
corpora(on can exercise only the powers expressly granted it by the law or
incident to its existence.
4. In a partnership all the general partners are liable with their separate
property for partnership debts; while the members of a corpora(on are not
so liable.
5. A partnership may be dissolved by the partners at any (me; while the
corpora(on cannot be dissolved without the consent and authority of the
state. (1 Fletcher 18-19)
6. A partnership can be formed for an indefinite period; while the corpora(on
under the Revised Corpora(on Code of the Philippines have perpetual
existence, unless license to do business is revoked based on the law.
7. In a partnership, a partner cannot transfer his interests to another without
the consent of the other partners; while a stockholder in a corpora(on can
transfer his share to another without the consent of the other stockholders.
(18 C.J.S. 918)
8. A partnership begins from the moment of the execu(on of the contract of
partnership; while a corpora(on begins to have corporate existence and its
juridical personality acquired from the date of the issuance of the cer(ficate
of incorpora(on by the SEC.
9. A partnership has no right of succession; while a corpora(on has a right of
succession. (Sec. 2 RCCP)
10. In a partnership, all the general partners are, unless otherwise agreed, agents
of the firm; while a corpora(on acts through its Board of Directors. (Art.
1803, N.C.C.)
Advantages of a Corpora&on
1. Capacity to act as a legal en(ty.
2. Con(nuity of life.
3. The liability of the stockholders for the debts of the corpora(on is limited to their
fully paid investment in the corpora(on.
4. There is be:er management as the best service may be extracted from the bigger
membership of a corpora(on.
5. There is more unified form of control which is reposed in the Board of Directors.
6. Transferability of shares even without the consent of the other stockholders.
7. There is a greater source of capital.

Disadvantages of a Corpora&on
1. A corpora(on is subject to greater governmental control.
2. Frequent and varied reports are required of corpora(ons.
3. A corpora(on may not engage in any other business other than the business
specified in the Ar(cles of Incorpora(on.
4. Minority stockholders may be at the mercy of majority stockholders.
5. A corpora(on cannot transact business in another state unless it obtains a license for
that purpose.
6. It involves double taxa(on.
7. Outstanding stock cannot be more than the authorized capital stock.
8. Credit corpora(on is limited on account of limited liability of stockholders.
9. There is a greater possibility of abuse of power.

Component parts of a Corpora-on

1. Incorporators - stockholders or members men(oned in the Ar(cles of Incorpora(on
as originally forming and composing the corpora(on and who are signatories thereof.
2. Corporators - those who compose the corpora(on whether stockholders or
members.
3. Stockholders - owners of shares in a corpora(on which has capital stock.
4. Members - Corporators of a corpora(on which has no capital stock.
5. Promoter - one who alone or with others undertakes to form a corpora(on and to
procure for it the rights, instrumentali(es, and capital by which it is to carry out the
purposes, set forth in its charter and to establish it as fully able to do its business.
6. Subscriber - one who has agreed to take stock from the corpora(on on the original
issue of such stock. (Jones vs. Rankin, 140 P. 1120, 19 N.M. 56)
7. Underwriter - one who, under an agreement, made before corporate shares are
bought before the public, and in the event the public will not take them, the
underwriter will be the one to take them. (B. Paulino, Law on Business Organiza(ons)
Different kinds of Corpora&ons
A. Aggregate and sole
1. Corpora:on aggregate – one which is or may be composed of more than one
member (18 C.J.S. 393), such as the San Miguel Corpora(on.
2. Corpora:on sole – one which is composed of a single member and his successors
in office. (18 C.J.S. 393) Thus, for the administra(on of the temporali(es of any
religious denomina(on, society, or church, and the management of the estate
and proper(es thereof, it shall be lawful for the bishop, chief priest or presiding
elder of any such religious denomina(on, society or church to become a
corpora(on sole, unless inconsistent with the rules, regula(ons or discipline of
his religious denomina(on , society or church or forbidden by competent
authority thereof.

B. Ecclesias(cal and lay

1. Ecclesias:cal corpora:on - one created to secure the public worship of God (1
Bouvier Law Dict. 683), such as the Roman Catholic Church.
2. Lay corpora:on - one established for temporal purposes and is comprised of
laymen (18 C.J.S. 393), such as the Toyota Motor Corpora(on.

C. Stock and Non-stock

1. Stock corpora:ons - those which have a capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments of
the surplus profits on the basis of the shares held, such as the San Miguel Corp.
2. Non-stock corpora:on - one in which there is no such stock, but the membership
therein is otherwise represented (18 C.J.S. 399), such as the Manila Lions Club.

D. De jure and De facto

1. De jure corpora:on - one created in strict or substan(al conformity to the
governing corpora(on statutes, and whose right to exist and act as such cannot
be successfully a:acked in a direct proceeding for that purpose by the estate. (8
Fletcher 62)
2. De facto corpora:on - one so defec(vely created as not to be a de jure
corpora(on, but nevertheless the result of a bona fide a:empt to incorporate
under exis(ng statutory, authority, coupled with the exercise of corporate
powers. (8 Fletcher 69)

E. Eleemosynary and civil

1. Eleemosynary corpora:ons - those which are created for purposes of chari(es,
such as hospitals, schools, and the like. (1 Bouvier’s Law Dict. 683)
2. Civil corpora:ons - those which are created to facilitate the transac(on of
business (1 Bouvier’s Law Dict. 688), such as the Atlas Consolidated Mining and
Development Corpora(on.
F. Public and Private
1. Public Corpora:ons - those formed or organized for the government of a por(on
of the state, such as the City of Manila.
2. Private Corpora:ons - those which are created wholly or in part, for purposes of
private emolument (1 Ruvier’s Law Dict. 683), such as the Amon Trading
Corpora(on.

G. Domes(c and Foreign

1. Domes:c Corpora:on - a domes(c corpora(on with respect to a par(cular state
or country is one created by or exis(ng under the laws of that state or country.
(18 C.J.S. 399)
2. Foreign Corpora:on - one created by or exis(ng under the laws of some other
state or country. (18 C.J.S. 399)

H. Open and Close

1. Open Corpora:on - one in which the general public may become stockholders or
members thereof.
2. Close Corpora:on - one in which the stockholders or members are limited to a
few persons such as members of a family.

I. Parent and Subsidiary

1. Parent or holding Corpora:on - one which is so related to another corpora(on
that it has the power either directly or indirectly through another corpora(on, to
elect a majority of the directors of such other corpora(on.
2. Was:ng assets corpora:on - one the sole purpose of which is to invest its capital
in a specific property and aherward to consume that property or extract its value
at a profit, such as mining property, oil or gas well. (Ballan(ne, 0. 587)

J. Subsidiary Corpora(on - one which is so related to another that a majority of its

directors can be elected directly or indirectly, by such other corpora(on.
K. Affiliated corpora(on - one related to another by owning or being owned by
common management or by a long-term lease of its proper(es or other control
device. An affilia(on exists between a holding or parent company and its subsidiary,
or between two corpora(ons owned or controlled by a third. (Kohler, Dic(onary for
Accountants, p. 26).
L. Government owned or controlled corpora(ons - those organized by the
government or corpora(ons of which the government is the majority stockholder,
such as the Philippine Air Lines, Philippine Na(onal Bank, Philippine Na(onal
Railways, Metro Manila Transit Corpora(on, Na(onal Power Corpora(on, etc..
M. Corpora(on by Prescrip(on - one where corporate powers have been exercised
by a body of men for such a length of (me as to raise a presump(on of the grant of
an ancient charter to their predecessor. (18 C.J.S. 406), such as the Roman Catholic
Church).
Effect of ownership of stock by government
• The fact that the government happens to be a stockholder of a corpora(on does not
make it a public corpora(on.
• Thus, the following corpora(ons, Philippine Air Lines, Philippine Na(onal Bank,
Philippine Na(onal Railways, Metro Manila Transit Corpora(on, Na(onal Power
Corpora(on, Na(onal Coal Company, although owned and controlled by the
government, are private corpora(ons they have no greater powers, rights, or
privileges than any other corpora(on which might be organized for the same
purpose under the Corpora(on Law. (Na(onal Coal Co. vs. Collector of Internal
Revenue, 46 Phil. 583)

Effect of public nature or character of corporate undertaking

• The mere fact that the undertaking of the corpora(on is one which the state itself
might enter as part of its public works, does not make the corpora(on a public one.
• Educa(on is a public or governmental func(on. Ar(cle II, Sec(on 17 of the Philippine
Cons(tu(on of 1986 provides that the State shall give priority to educa(on, science
and technology, arts, culture, and sports to foster patrio(sm and na(onalism,
accelerate social progress and promote total human libera(on and development.
• Thus, U.P., P.U.P., P.N.C. and the Philippine Science High School are public
corpora(ons. But s(ll many colleges and universi(es are private corpora(ons, such
as PSBA, U.E., F.E.U., N.U., N.C.B.A., and the University of Manila. (B. Paulino, Law on
Business Organiza(on)

Test in determining whether corpora-on is public or private

• The test for determining whether a corpora(on is public or private is dependent
upon the purpose of its crea(on.
• If a corpora(on is created as an agency or instrumentality of the state for poli(cal or
public purpose connected with the administra(on of government, then it is a public
corpora(on.
• If not, the corpora(on is private although the government is a stockholder or the
owner of all its capital stock.

Dis-nc-ons between public and private corpora-ons

1. A public corpora+on is an agency or instrumentality of the state; while a private
corpora+on is an agency or instrumentality of private persons.
2. A public corpora+on is organized for poli(cal or public purpose; while a private
corpora+on is organized for private purpose, benefit, aim and end.
3. The officers of public corpora+ons are appointed by the state and are subject to
removal by the state; while the officers of private corpora+ons are elected by the
stockholders and are subject to removal by the stockholders.

BOARD OF DIRECTORS/TRUSTEES/OFFICERS METHODS OF VOTING - Elec-on of

Directors (Sec. 23 RCCP)
Stockholders have the op(on to adopt any of the following:
1. Straight Vo:ng – every stockholder may vote such number of shares as many
persons as there are directors= to be elected.
 2. Cumula:ve Vo:ng for One Candidate – a stockholder is allowed to concentrate his
votes and give one candidate as many votes as the number of directors to be elected
mul(plied by the number of his shares shall equal.
3. Cumula:ve Vo:ng by Distribu:on – a stockholder may cumulate his shares by
mul(plying also the number of his shares by the number of directors to be elected
and distribute the same among as many candidates as he shall see fit.
Notes:
• Cumula(ve vo(ng is not available in non-stock corpora(ons.
• When so authorized in the bylaws or by a majority of the board of directors, the
stockholders or members may also vote through remote communica(on or in
absen(a:
• That the right to vote through such modes may be exercised in corpora(ons
vested with public interest, notwithstanding the absence of a provision in the by-
laws of such corpora(ons.

REMOVAL AND VACANCIES IN THE BOARD

1. It must take place either at a regular mee(ng or special mee(ng of the stockholders
or members called for the purpose;
2. There must be previous no(ce to the stockholders or members of the inten(on to
remove;
3. The removal must be by vote of the stockholders represen(ng 2/3 of Outstanding
Capital Stock or 2/3 of members.
4. Removal without cause may not be used to deprive minority stockholders or
members of the right of representa(on to which they may be en(tled under Sec(on
23 of RCCP.
5. The removal of a disqualified director shall be without prejudice to other sanc(ons
that the Commission may impose on the board of directors or trustees who, with
knowledge of the disqualifica(on, failed to remove such director or trustee.

Filling-Up of vacancies in the Board

1. By stockholders or members - If vacancy results because of: (i) removal; (ii)
expira(on of term; (iii) the ground is other than removal or expira(on of term (e.g.,
death, resigna(on, abandonment) where the remaining directors do not cons(tute a
quorum; (iv) increase in the number of directors.
2. By the board - if remaining directors cons(tute a quorum – on cases not reserved to
stockholders or members.

Liability of Directors, Trustees or Officers (Sec. 30 RCCP)

• Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corpora(on or who are guilty of gross negligence or bad faith in
direc(ng the affairs of the corpora(on or acquire any personal or pecuniary interest
in conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resul(ng therefrom suffered by the corpora(on, its
stockholders or members and other persons.
Dealings of Directors, Trustees or Officers with the Corpora-on (Sec. 31 RCCP)
A contract of the corpora(on with (1) one or more of its directors, trustees, officers or their
spouses and rela(ves within the fourth civil degree of consanguinity or affinity is voidable, at
the op(on of such corpora(on, unless all the following condi(ons are present:
a. The presence of such director or trustee in the board mee(ng when the contract was
approved was not necessary to cons(tute a quorum;
b. The vote of such director or trustee was not necessary for the approval of the
contract;
c. The contract is fair and reasonable under the circumstances;
d. In case of corpora(ons vested with public interest, material contracts are approved
by at least two-thirds (2/3) of the en(re membership of the board, with at least a
majority of the independent directors vo(ng to approve the material contract;
e. In case of an officer, the contract has been previously authorized by the board of
directors.

Disloyalty of a Director (Sec. 33 RCCP)

Where a director, by virtue of such office, acquires a business opportunity which should
belong to the corpora(on, thereby obtaining profits to the prejudice of such corpora(on:
1. he director must account for and refund to the la:er all such profits, unless the act
has been ra(fied by a vote of the stockholders owning or represen(ng at least two-
thirds (2/3) of the outstanding capital stock.
2. Applicable even when the director risked one’s own funds in the venture.

KINDS OF POWERS OF CORPORATION

1. Express Powers – those expressly authorized by the Corpora(on Code and other
laws, and its Ar(cles of Incorpora(on or Charter.
2. Implied Powers – those can be inferred from or necessary for the exercise of the
express powers.
3. Incidental Powers – those that are incidental to the existence of the corpora(on.
Note: There are express powers that are incidental powers like the power to acquire
proper(es.

GENERAL POWERS (Sec. 35, RCCP)

a. sue and be sued in its corporate name;
b. succession
c. have perpetual existences unless the cer(ficate of incorpora(on provides otherwise;
d. adopt and use a corporate seal;
e. amend Ar(cles of Incorpora(on;
f. adopt, amend or repeal by-laws;
g. for stock corpora(ons – issue stocks to subscribers and to sell treasury stocks; for
non-stock corpora(ons – admit members;
h. purchase, receive, take, or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise, deal with real and personal property, pursuant to its lawful business;
i. enter into partnership, joint-venture, merger or consolida(on;
 j. to make reasonable dona(ons for public welfare, hospital, charitable, cultural,
scien(fic, civil or similar purposed, provided That no foreign corpora(on shall give
dona(ons in aid of any poli(cal party or candidate or for purposes of par(san
poli(cal ac(vity;
k. to establish pension, re(rement and other plans for the benefit of directors, trustees,
officers and employees; and
l. to exercise other powers essen(al or necessary to carry out its purposes as stated in
Art. of Incorpora(on.

SPECIFIC POWERS (Sec. 36 to Sec. 43 RCCP)

a. Extend or shorten corporate term
b. Increase/decrease Corporate Stock
c. Declare dividends
d. Incur or create Bonded Indebtedness
e. Deny pre-emp(ve right
f. Sell or other disposi(on of corporate assets
g. Purchase or acquire own shares
h. Invest in another corpora(on, business or any other purpose
i. Declare dividends
j. Enter into management contract
k. Amend the ar(cles of incorpora(on
l.