Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:

Academic Year 2017-2018 Prof. Atty. Joanne L. Ranada

PART 1 Corporation having the rights of succession and

CORPORATION LAW OF THE PHILIPPINES
the powers, attributes and properties authorized
by law and incidental to its existence
I. INTRODUCTION
Based on the Doctrine of Limited Capacity, a
1. General corporation can only perform acts expressly
authorized by law and incidental to its existence.
2. Kinds of Business Organization
Section 36 of the Corporation Code confers the
 Sole Proprietorship
following powers and attributes to a corporation:
 Partnership
 Joint Venture
1. to sue and be sued in its corporate name;
 Corporation
2. of succession by its corporate name within the
3. Historical Background
term of its existence states in its articles of
II. DEFINITION & ATTRIBUTES incorporation and certificate of incorporation;

 Definition – A corporation is an artificial 3. to adopt and use a corporate seal;

being (juridical person) created by
operation of law, having the right of 4. to amend its articles of incorporation in
succession and the powers, attributes
accordance with the Corporation Code;
and properties expressly authorized by
law or incident to its existence.
5. to adopt by-laws, not contrary to law, morals, or
Corporation as an artificial being public policy, and to amend or repeal the same in
accordance with the Corporation Code;
 LBC Express vs. CA (236 SCRA 602)
- GENERAL RULE: A juridical person 6. for stock corporations, to issue or sell stocks
like a corporation is not allowed to
to its subscribers in accordance with the
recover Moral damages based on
Art. 2217 of the Civil Code because Corporation Code; for non-stock corporations, to
it only covers moral damages which admit members;
include physical and mental
injuries. 7. to trade or deal with real and personal
- A corporation has no feelings, no properties including securities and bonds of
emotions, and no senses; therefore, it
cannot experience physical suffering other corporations subject to the restrictions
and mental anguish. prescribed by its articles of incorporation, by-
laws, certificate of stock, the law and the
 Filipinas Broadcasting vs. Ago Medical Constitution;
Center (GR No. 141954, January 17,
2005) 8. to enter into merger or consolidation with
- EXCEPTION: A juridical person like a
corporation is allowed to recover other corporations;
Moral damages based Art. 2219(7)
of the Civil Code because it covers 9. to make reasonable donations except in aid of
moral damages on cases involving any political activity;
libel, slander or any other form of
defamation. 10. to establish retirement plans for the benefit of
- A corporation can validly complain for
its directors, trustees, officers and employees; and,
libel or any other form of defamation
to recover moral damages because
11. to exercise powers essential or necessary to
Art. 353 of the Revised Penal Code
define libel as public and malicious carry out its purpose(s) as stated in its articles of
imputations tending to cause incorporation.
dishonor, discredit, or contempt of a
natural or juridical person.

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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III. CLASSIFICATION OF CORPORATIONS

PNOC-EDC vs. NLRC (201
1. Stock vs. Non-Stock SCRA 487); Sec. 4 of the Corporation
Code – A corporation created by special
Collector vs. Club Filipino de law (or special charter) is governed by
the law creating it, and its employment
Cebu (5 SCRA 312); Sec. 3 of the
contracts are subject to the Civil
Corporation Code – A stock corporation Service Law. On the other hand, a
exists when its articles of incorporation corporation organized under the
provide that: (1) its capital stock is General Corporation Law is governed
by the Corporation Code, and its
divided into shares; and, (2) it is
employment contracts are subject to the
authorized to distribute dividends or provisions of the Labor Code.
surplus profits to the holders such shares.
All other corporations are non-stock. 3. Public vs. Private

Difference as to Stock Holders Meeting National Coal Corp. vs. CIR (146
SCRA 583) – A public corporation is one
A stock corporation is organized under a special law the
authorized to hold its stockholders purpose of which is to further the
meeting only within the city or general good and welfare; on the other
municipality where its principal office is hand, a private corporation is one
located; on the other hand, a non-stock organized either under a special law or the
corporation can hold its stockholders general corporation law the purpose of
meeting anywhere in the Philippines which is for some private purpose. The
provided it is expressed in their by-laws mere fact that the Government happens
(if not expressed, the provisions governing to be the majority stockholder of a
stock corporation applies per Sec. 87(2) of corporation does not make it a public
the Corporation Code). corporation. The law must express that
a corporation is not covered by the
Note: Metro Manila is
corporation law being a public
considered as one single City or
corporation.
Municipality per Sec. 51 of the
Corporation Code.
4. Ecclesiastical & Lay
Difference as to Manner of Voting
5. Aggregate & Sole
In a stock corporation, the
6. Close & Open
manner of voting is cumulative voting.
Neither its Articles of Incorporation nor 7. Domestic & Foreign
its By-Law cannot deny from its
stockholders the right to vote 8. Parent/Holding, Subsidiaries & Affiliates
cumulatively based the number of their 9. Public & Private
respective outstanding shares. Cumulative
Voting is a matter of right given to 10. Quasi-Public
stockholders by virtue of Sec. 24 of the
11. De jure vs. De facto – The reckoning
Corporation Code; on the other hand, in a point in determining whether a corporation
non-stock corporation, the manner of is De Jure or De Facto is the moment of
voting is straight voting. Its members are incorporation (that is, upon the issuance
entitled to cast only one vote per candidate of certificate of incorporation posing the
question: has the corporation
unless its articles of incorporation or by- substantially complied with the
laws allow cumulative voting. requirements of incorporation or not?
Whichever the answer, as long as it has
2. Created by special law
2

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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been incorporated in good faith (not court authorize a corporation to

being a corporation by estoppel, or one expressly or impliedly assume another
which has not intended to be duly name which was not appropriated to
incorporated prior to corporate it; more so if it was appropriated for
transactions) then its corporate another corporation because the latter
personality cannot be questioned and is expressly set apart for it and
necessarily will not be stripped of its protected by law as well. If any
corporate rights and privileges unless corporation could assume at its
the government does so, through a quo pleasure, as an unregistered trade
warranto (requiring a person, natural or name, a corporate name of another
juridical, to show, by what warrant, how corporation, such practice would result
come they are holding or exercising their in confusion, frauds and evasions, and
office or franchise) proceeding initiated by difficulties of administration and
the Solicitor General when they failed to supervision.
justify thereon the validity of their
incorporation. Universal Mills vs.
Universal Textile Mills (78 SCRA 62)
12. Corporations by Estoppel - Under the test of reasonable care
and observation, there is similarity
between corporate names if it arouses
any degree of confusion in the mind of
IV. FORMATION & ORGANIZATION the public which could mislead even
the customers, whether existing or
1. Process of Incorporation prospective.

2. Contents of the Articles of Incorporation Lyceum of the

Philippines vs. CA (219 SCRA 610)
a. Prefatory Paragraph - The corporate names of private
respondent institutions are not
b. Corporate Name "identical with or deceptively or
confusingly similar" to that of the
 Red Line Transport vs. Rural Transit (60 petitioner institution since the
Phil 549) circumstance involved has effectively
- A corporation cannot assume the precluded by the appending of
name of another corporation as its geographic names to the word
trade name. There is no law that "Lyceum."
empowers the Public Service
Commission or any court to - Taking up the etymological backdrop
authorize such usage. of the word "Lyceum", it has been
- The creation and continued associated with schools and other
existence of a corporation requires institutions providing public lectures
a certification of a distinctive name. and concerts and public discussions.
Section 11 of the Corporation Law Today, the word "Lyceum" generally
states that “the persons signing the refers to a school or an institution of
articles of incorporation and their learning. It is not unnatural to use this
associates and successors shall word to designate an entity which is
constitute a body politic and organized and operating as an
corporate, under the name stated in educational institution.
the certificate”. Moreover,
corporations can exercise its power of - It is claimed, however, by petitioner
succession only by its corporate name that the word "Lyceum" has acquired
(Sec. 13). This signifies that a a secondary meaning in relation to
corporate name is essential to the petitioner. For the application of the
existence of a corporation as it is only doctrine of secondary meaning,
authorized (by law) to transact there must be evidences to prove that
business only by its name. It cannot the business has continued for so long
change its name except in the manner a time that it acquired a good will of
provided by the Corporation Law. considerable value such that its
articles and produce have acquired a
- There is no law that nor may the well-known reputation, and confusion
Public Service Commission or any
3

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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will result by the use of the disputed residence at a time. The fact that it
name. maintains branch offices in some parts
of the country does not mean that it
Philipps Export B.V. vs. can be sued in any of these places.
CA (206 SCRA 457) To allow an action to be instituted in
- The statutory prohibition on identical any place where a corporate entity
or similar corporate names provided has its branch offices would create
by Section 18 of the Corporation Code confusion and work untold
requires two matters which must be inconvenience to the corporation.
proven, namely:
(1) that the complainant corporation
acquired a prior right over the use of SEC Memorandum
such corporate name; and Circular No. 6, Series of
(2) the proposed name is either: 2016
(a) Identical; or Omnibus Guidelines on
(b) Deceptively or confusingly Principal Office Address;
similar Address of each
to that of any existing corporation or to Incorporator, Director,
any other name already protected by Trustee or Partner
law; or , (c) patently deceptive,
confusing or contrary to existing f. Term of Existence
law.
- Proof of actual confusion or deception SEC Memorandum
of the public need not be shown. It Circular No. 21, Series of 2014
suffices that confusion is probably or Guidelines Governing
likely to occur. For example, proof of the Computation of Corporate Term
belonging to same or identical line of
business is enough. g. Incorporators

h. Directors/Trustees

SEC Memorandum i. Capitalization

Circular No. 21, Series
of 2013 i. Shares of stock and
Omnibus Guidelines and classification
Procedures on the Use
of Corporate and ii. Purpose of the
Partnership Names classification

SEC Memorandum Note: The capital of Non-

Circular No. 8, Series of Stock Corporations is called contributions.
2013 While Stock Corporation has authorized
Amendment on the capital stock, Non-Stock Corporation has
Guidelines and total contribution. As to voting rights,
Procedures on the Use while Stock Corporation derive it by
of Corporate and classification of shares under the condition
Partnership Names that there shall always be a class of
shares which have complete voting
c. Purpose Clause rights (but it is the general rule that no
share may be deprived of voting rights
e. Principal Office Address except "preferred" or "redeemable" shares,
unless otherwise provided in B.P. 68), on
Clavecilla Radio the other hand, Non-Stock Corporations
Systems vs. Antillon (19 SCRA 379) do not derive voting rights from
- The residence of a corporation is classification of shares since its capital
the place where its principal office is not divided into shares but it do so by
is established. It follows that the suit broadening, limiting or denying voting
against a corporation may properly be rights through its Articles of
filed in the place where its principal Incorporation or By-Laws (meaning it
office is located. A corporation, like a may allow cumulative voting through its
natural person cab only has one

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A.O.I. or By-Laws although it is not Voting

generally allowed by default of the same). Rights: No
share may
As to distribution of capital be deprived
and/or income to corporators, while of voting
Stock Corporations derive its authority to rights
do so by classifying its shares except
designating its par-value and, "preferred"
distributing its earnings by declaration of or
dividends (distribution of capital only "redeemabl
happens in cases of dissolution after e" shares.
payments of debts and liabilities, or when
the corporation resolved to decrease its  Founders'
capital stock, and in other cases which Shares
may be allowed [in the future in case of
amendment] by B.P. 68 – Do not be  Redeemabl
mistaken that distribution of capital is the e Shares
same as payment of fair value of shares
by virtue of exercising Appraisal Right  Treasury
since the latter does not involve Shares –
distribution of excess capital to all are
shareholders but involves reacquisition of reacquired
shares by the corporation from the shares of
shareholder(s) exercising said right, stocks
thereafter re-classifying it as Treasury issued and
Shares and thereafter be re-issued at its fully paid
option); on the other hand, Non-Stock for. To
Corporations derive its authority distribute reacquire
capital to its members (only since its means the
earnings are not allowed to be distributed stockholder
to members) by dissolution alone subject s owning
to rules on distribution and limitations such shares
provided by its Articles of Incorporation or of stock
By-Laws determining distributive rights transferred
and conditions requiring its return upon it back to
dissolution (do not confuse yourself that the
non-stock corporation may override the corporation
rules by a plan of distribution to distribute by means of
the total contribution back to the members purchase,
because it would be inconsistent with the redemption,
said rules of distribution provided by donation or
B.P.68 and because the purpose of a other lawful
distribution plan is not to return the means.
contributions but to determine whom shall Treasury
be the beneficiaries of its transfer by virtue shares have
of the purpose(s) for which the non-stock meaningful
corporation was organized). connection
with
 Common Appraisal
vs. Rights. The
Preferred corporation
Shares may re-
issue it at
 Par vs. No- their option.
par Shares Treasury
Shares are
 Voting vs. not required
Non-voting to be
Shares – classified in
the Articles
of
5

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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Incorporatio Chiang Kai Shiek vs. CA

n. (172 SCRA 389)
Asia Banking Corp. vs.
Standard Products (46 Phil 144)
Commissioner vs. Manning (66 International Express
SCRA 14) Travel vs. CA (343 SCRA 674)
Greorg Grotjahn vs.
iii. Capital requirements Isnani (235 SCRA 216)

Heirs of 6. Organization and Commencement of

Gamboa vs. Teves (GR No. 176579, Business
October 9, 2012)
a. Corporate organization
iv. Restrictions and
Preferences b. Commencement of Business
Transaction
Executive Order
No. 184 V. CORPORATE CHARTER AND ITS
Tenth Foreign AMENDMENTS
Investment Negative List
1. The Corporate Charter

j. No-transfer Clause a. Corporate Entity Theory

The corporation has a separate and
k. Treasurer distinct personality from its directors or
trustees and its corporate officers. Thus,
l. Undertaking to Change Name the latter group cannot be held personally
liable for acts done under the corporate
SEC Memorandum veil for and on behalf of the corporation
Circular No. 8, Series of 2012 and vice versa. Ownership of stock is not a
sufficient ground for disregarding the
m. Acknowledgment separate corporate personality.

n. Treasurer's Affidavit Neither is the corporation liable for the

personal acts of its directors, trustees and
3. Grounds for Disapproval corporate officers for acts done in their
own name except when third party
4. Commencement of Corporate transactions involve properties belonging
Existence to the corporation (in which the corporation
may cross-claim against its d/t/c.o).
Cagayan Fishing vs. Sandiko (65
Phil 233) Nor a corporation may bring an action for
and on behalf of its stockholders or
5. Defectively-formed corporations members for subject-matters belonging in
the personal capacities of the latter absent
a. De facto corporations any showing of interest by the former.

Municipality of Malabang Generally, the corporate veil may not be

vs. Benito (27 SCRA 452) pierced; however, under the following
Hall vs. Piccio (86 Phil exceptional circumstances coupled with
603) sufficient proof, the directors, trustees, and
the corporate officers may be held
b. Corporation by Estoppel personally liable for their acts solidarily
with the corporation and they cannot seek
Lozano vs. Delos Santos cover under the corporate veil:
(274 SCRA 452)
Albert vs. University 1. When the corporation is used
Publishing (13 SCRA 84) in the following badges of
Salvattierra vs. Garlitos fraud:
(103 Phil 757) a. as a shield to
further (any

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wrongdoings or) an corporate debt of such non-

end subversive of existent corporation);
justice; Provided that, the third party
b. for purposes not has no knowledge of the
intended by the law defect.
that created it;
c. to defeat public Corporation by Estoppel, does it have a
convenience, to veil? How about corporations in its
justify a wrong, to preparatory stage of incorporation? There
protect fraud, or to is no Veil when there is No Corporation.
defend a crime; All persons working together in the
d. to perpetuate fraud preparatory stage of a corporation is
or to confuse personally liable for its obligations.
legitimate issues;
e. to circumvent the A General partner is one who partakes in
law or to the control of the business of their
perpetuate partnership (company) who is bound by
deception; the obligations thereof (pro rata with all
f. to be an alter ego, their property after all partnership assets
to be an adjunct have been exhausted) for the contracts
business conduit the partnership has entered into or as
for the sole benefit represented by him on behalf of the
of the partnership.
stockholders. (like
a holding company
who has no purpose
but to hold the
profits of its
member-
corporations – but Sulo ng Bayan vs.
the law allows Araneta (72 SCRA 347)
holding companies
to a certain degree - Absent any showing of interest, a
[see corporation corporation has no personality to bring
code]). an action for and in behalf of its
stockholders or members for the
or in short, if the corporation purpose of recovering property which
is used for: (1) fraudulent, belongs to said stockholders or
unfair, or illegal purpose; members in their personal capacities.
and, (2) when the majority of
the directors took - It is a doctrine well-established and
advantage of the corporate obtains both at law and in equity that a
personality as a protective corporation is a distinct legal entity to
shield for any wrongdoing. be considered as separate and apart
from the individual stockholders or
2. When there is a stipulation in members who compose it, and is not
the third party contract to the affected by the personal rights,
effect that the d/t/c.o obligations and transactions of its
expressly binds itself stockholders or members. 4 The
(themselves) solidarily with property of the corporation is its
the corporation. property and not that of the
3. When the corporation is a stockholders, as owners, although
corporation by estoppel they have equities in it.
(wherein the persons acting
or purporting to act on behalf - Properties registered in the name of
of an ostensible corporate the corporation are owned by it as an
entity cannot deny the its entity separate and distinct from its
existence whether it is proven members. 5 Conversely, a corporation
or not and their personal ordinarily has no interest in the
properties may be made to individual property of its stockholders
answer for the purported unless transferred to the corporation,

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"even in the case of a one-man used to confuse legitimate issue of

corporation. 6  employer-employee relationship; or,
when necessary for the protection of
- The mere fact that one is president of creditors, in which case the veil of
a corporation does not render the corporate fiction may be pierced and
property which he owns or possesses the funds of the corporation may be
as property of the corporation, since garnished to satisfy the debts of a
the president, as individual, and the principal stockholder.
corporation are separate entities. 7 - The aforecited principle is resorted to
by the courts as a measure protection
- Similarly, stockholders in a for third parties to prevent fraud,
corporation engaged in buying and illegality or injustice. (this is the
dealing in real estate whose counterpart of IAET in Taxation Law).
certificates of stock entitled the holder
thereof to an allotment in the
distribution of the land of the
corporation upon surrender of their Caram vs. CA (151
stock certificates were considered not SCRA 372)
to have such legal or equitable title or - All persons who assume to act as a
interest in the land, as would support corporation shall be personally liable
a suit for title, especially against for any obligations contracted by the
parties other than the corporation. ostensible corporation (corporation by
estoppel). In contrast, a bona fide
- It must be noted, however, that the corporation shall have a separate and
juridical personality of the corporation, distinct personality from its
as separate and distinct from the (in)corporators.
persons composing it, is but a legal - Those who were involved in the initial
fiction introduced for the purpose of steps or preparatory stages of the
convenience and to subserve the incorporation of a corporation or those
ends of justice. 9 This separate who purported to act as a corporation
personality of the corporation may be shall be personally liable for the
disregarded, or the veil of corporate services it contracted with third parties
fiction pierced, in cases where it is for the benefit they obtained
used as a cloak or cover for fraud or therefrom.
illegality, or to work -an injustice, or
where necessary to achieve equity - Persons who promote and those have put
the pieces together in order to create a
- Thus, when "the notion of legal entity corporation or in order to purport an
is used to defeat public convenience, ostensible one are deemed to be persons
justify wrong, protect fraud, or defend who are involved in the initial steps of
crime, ... the law will regard the incorporation and has substantial control
corporation as an association of over its management. They are to be held
persons (the corporation will become personally liable during such preparatory
a partnership in this nature), or in the stage since the juridical entity has yet to be
case of two corporations, merge them born or has been purportedly born only.
into one, the one being merely
regarded as part or instrumentality of - Mere financiers or investors whose
the other. interest was to be invited and who were in
- The same is true where a corporation fact persuaded have no personal liability
is a dummy and serves no business as they do not have a control over the
purpose and is intended only as a management affairs (they are like limited
blind, or an alter ego or business partners).
conduit (like a holding company) for
the sole benefit of the stockholders. Rustan Pulp and Paper
- This doctrine of disregarding the Mills vs. CA (214 SCRA 665)
distinct personality of the corporation - the President and Manager of a
has been applied by the courts in corporation who entered into and
those cases when the corporate entity signed a contract in his official
is used for the evasion of taxes (as in capacity, cannot be made liable
the case of holding companies); or, thereunder in his individual capacity in
when the veil of corporate fiction is the absence of stipulation to that

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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effect due to the personality of the - Art. 1882. The limits of the agent's
corporation being separate and authority shall not be considered
distinct from the person composing it
exceeded should it have been
(Bangued Generale Belge vs. Walter
Bull and Co., Inc., 84 Phil. 164). And performed in a manner more
because of this precept, Vergara's advantageous to the principal than
supposed non-participation in the that specified by him
contract of sale although he signed - Art. 1883. If an agent acts in his
the letter dated September 30, 1968 is own name, the principal has no
completely immaterial. The two right of action against the persons
exceptions contemplated by Article
1897 of the New Civil Code where with whom the agent has
agents are directly responsible are contracted; neither have such
absent and wanting. persons against the principal.
- Art. 1897. The agent who acts as In such case the agent is the one
such is not personally liable to the directly bound in favor of the
party with whom he contracts, person with whom he has
unless he expressly binds himself or contracted, as if the transaction
exceeds the limits of his authority were his own, except when the
without giving such party sufficient contract involves things belonging
notice of his powers. (1725) to the principal.
- Art. 1898. If the agent contracts in The provisions of this article shall
the name of the principal, be understood to be without
exceeding the scope of his prejudice to the actions between
authority, and the principal does the principal and agent. (cross-
not ratify the contract, it shall be claims)
void if the party with whom the - Art. 1887. In the execution of the
agent contracted is aware of the agency, the agent shall act in
limits of the powers granted by the accordance with the instructions of
principal. In this case, however, the the principal.
agent is liable if he undertook to In default thereof, he shall do all
secure the principal's ratification. that a good father of a family would
(n) do, as required by the nature of the
- Art. 1899. If a duly authorized business
agent acts in accordance with the - Art. 1888. An agent shall not carry
orders of the principal, the latter out an agency if its execution would
cannot set up the ignorance of the manifestly result in loss or damage
agent as to circumstances whereof to the principal. (n)
he himself was, or ought to have - Art. 1889. The agent shall be liable
been, aware. (n) for damages if, there being a
- Art. 1900. So far as third persons conflict between his interests and
are concerned, an act is deemed to those of the principal, he should
have been performed within the prefer his own.
scope of the agent's authority, if - Art. 1896. The agent owes interest
such act is within the terms of the on the sums he has applied to his
power of attorney, as written, even own use from the day on which he
if the agent has in fact exceeded did so, and on those which he still
the limits of his authority according owes after the extinguishment of
to an understanding between the the agency.
principal and the agent. - Art. 1894. The responsibility of two
- Art. 1881. The agent must act or more agents, even though they
within the scope of his authority. have been appointed
He may do such acts as may be simultaneously, is not solidary, if
conducive to the accomplishment of solidarity has not been expressly
the purpose of the agency. (1714a) stipulated. (1723)
9

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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- Art. 1895. If solidarity has been rule. Stockholders on the other hand
agreed upon, each of the agents is delegates such authority to corporate
officers through their right to vote on
responsible for the non-fulfillment
the election of directors subject to the
of agency, and for the fault or rights privileges or restrictions of
negligence of his fellows agents, shares as classified in Article VII of
except in the latter case when the the Articles of Incorporation.
fellow agents acted beyond the Cruz vs. Dalisay (152
scope of their authority. SCRA 482)
- Art. 1911. Even when the agent has - The tenor of the NLRC judgment and
the implementing writ is clear enough.
exceeded his authority, the It directed Qualitrans Limousine
principal is solidarily liable with the Service, Inc. to reinstate the
agent if the former allowed the discharged employees and pay them
latter to act as though he had full full backwages. Respondent,
powers. however, chose to "pierce the veil
- Art. 1910. The principal must of corporate entity" usurping a
comply with all the obligations power belonging to the court and
which the agent may have assumed improvidently that since the
contracted within the scope of his complainant is the owner/president of
authority. Qualitrans Limousine Service, Inc.,
they are one and the same. It is a
As for any obligation wherein the
well-settled doctrine both in law and in
agent has exceeded his power, the equity that as a legal entity, a
principal is not bound except when corporation has a personality distinct
he ratifies it expressly or tacitly.  and separate from its individual
- Art. 1918. The principal is not liable stockholders or members. The mere
for the expenses incurred by the fact that one is president of a
agent in the following cases: corporation does not render the
property he owns or possesses the
(1) If the agent acted in
property of the corporation, since the
contravention of the principal's president, as individual and the
instructions, unless the latter corporation are separate entities.
should wish to avail himself of the Palay Inc. vs. Clave (124
benefits derived from the contract; SCRA 638)
(2) When the expenses were due to - On the issue of personal liability of
petitioner President, with the
the fault of the agent;
corporation, to jointly and severally
(3) When the agent incurred them refund the respondent, it is basic to
with knowledge that an unfavorable note that a corporation is invested by
result would ensue, if the principal law with a personality separate and
was not aware thereof; distinct from the persons composing it
(4) When it was stipulated that the as well as from that of any legal entity
to which it may be related. As a
expenses would be borne by the
general rule, a corporation may not be
agent, or that the latter would be made to answer for acts or liabilities of
allowed only a certain sum. its stockholders or those legal entities
- to which it may be connected and
- VICE VERSA.
- The board and the corporate officers
are agents of the corporation, they - However, the veil of corporate fiction
exercise control over corporate affairs may be pierced when it is used in the
through the corporate powers derived, following badges of fraud:
delimited and authorized by law
(Corporation Code and other special 1) as a shield to further (any wrongdoings
laws) and the corporation’s articles of or) an end subversive of justice;
incorporation and its by-laws for and 2) for purposes not intended by the law that
on behalf of the corporation in their created it;
fiduciary capacity. They answer 3) to defeat public convenience, to justify a
directly to the corporation and not to wrong, to protect fraud, or to defend a
the stockholders per se. – general crime;

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4) to perpetuate fraud or to confuse would be liable jointly and solidarily

legitimate issues; with the corporation.
5) to circumvent the law or to perpetuate - The fact that the subsequent sale was
deception; done for evasive purposes was
6) to be an alter ego, to be an adjunct strengthened due to the failure of the
business conduit for the sole benefit of defendant corporation to prove that it
the stockholders. has other property than the jeep (AC-
687).
- Sufficient proof must exist that the - The evidence, testimonial or anywise,
corporation was used to defraud would prove that the corporation was
others. Any stockholder cannot be used by its incorporators or members
made personally liable just because as a shield to protect their end which
he “appears to be the controlling is subversive of justice. Burden of
stockholder”. Mere ownership by a proof lies on the one who alleges the
single stockholder or by another same.
corporation is not of itself sufficient
ground for disregarding the separate Marvel Bldg. vs. David
corporate personality. (94 SCRA 376)
Yutivo and Sons vs. CTA
Soriano vs. CA (174 (1 SCRA 160)
SCRA 195) Commissioner vs. Norton
- In determining personal liability of & Harrison (11 SCRA 714)
corporate officers / directors: the La Campana Coffee vs.
general rule is that a corporation Kaisahan ng Manggagawa (93 Phil 160)
has a separate and distinct Emilio Cano vs. CIR (13
personality from its directors and SCRA 290)
officers; the exception is that the Telephone Engineering
protective mantle of the corporation’s vs. WCC (104 SCRA 354)
separate and distinct personality can Claparols vs. CIR (65
be pierced, and liability attaches SCRA 613)
directly to its officers and/or members- Nat'l Federation vs. Ople
stockholders, when the corporation is (143 SCRA 124)
used for: (1) fraudulent, unfair, or A.C. Ransom vs. CA
illegal purpose; and, (2) when the (150 SCRA 498)
majority of the directors took Concept Builders vs.
advantage of the corporate NLRC (257 SCRA 149)
personality as a protective shield for Mc Connel vs. CA (1
any wrongdoing. Burden of proof is on SCRA 722)
the party alleging the purpose of Tan Boon Bee vs.
defrauding and usage of the corporate Jarencio (163 SCRA 205)
veil as a protective shield for any Cease vs. CA (93 SCRA
wrongdoing. 483)
Wensha Spa Center,
Inc. vs. Yung. (GR No.
2. Piercing the Veil of Corporate Fiction 185122, August 10,
2010)
a. General Concept General Credit Corp. vs.
Alsons Development, et.
Palacio vs. Fely al. (GR 154975, January
Transportation Co. (5 SCRA 1011) 29, 2007)
- Generally, a corporation or a company
has a separate and distinct personality b. When not justified
from its members or incorporators.
However, if it was proved that the Remo, Jr. vs. IAC (172
fiction of corporate entity was used as SCRA 405)
a protective shield for evasive Del Rosario vs. NLRC
purposes or to further an end (187 SCRA 777)
subversive of justice, the above rule Indophil Textile Mills vs.
cannot be invoked by its members or Galica (205 SCRA 697)
incorporators and that the said group PNB vs. Ritratto Group
(362 SCRA 216)

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Pacific Rehaus Corp. vs.

CA (719 SCRA 665) Alhambra Cigar vs. SEC
Yu vs. NLRC (245 SCRA (24 SCRA 269)
134) - The corporate term lasts only for 50
Francisco Motors years; but it may be extend for a
Corporation vs. Court of one-time extension of another 50
Appeals (GR. No. years.
100812, June 25, 1999) - When a corporate is undergoing
liquidation process due to its
dissolution, it will have a statutory
3. Amendment of Corporate Charter period of 3 years for the sole
purpose of settling and winding up
4. Special Amendments its corporate affairs including
prosecution of actions in relation
5. Provisions subject to amendments with its prior contracts and
obligations. Its existence and
a. Change in Corporate Name juridical personality to further
transact business with third
Phil. First Insurance vs. Hartigan persons ceases.
(74 SCRA 2520)

VI. BOARD OF DIRECTORS / TRUSTEES

- A Corporation effectively changes its
name only after "a copy of the articles 1. Powers of the Board
of incorporation as amended, duly
certified to be correct by the president a. Classification of Powers
and the secretary of the corporation
and a majority of the board of Ramirez vs. Orientalist
directors or trustees” has been filed (38 Phil 634)
with the SEC Commissioner; only
from the time of such filing, that - Section 28 of the Corporation Law
"the corporation shall have the states that corporate power shall be
same powers and be subject to the exercised, and all corporate business
same liabilities as if such conducted by the board of directors.
amendment had been embraced in This provision was not intended to
the original articles of confer an independent power unto any
incorporation." members of the board to enter into a
- A Corporation should still conduct its contract binding upon a corporation
business under the original name until without the authority of the Board of
it has filed the amended articles of Directors itself; this is a formal
incorporation with the SEC requirement that the board of directors
Commission; it can only legally has to meet before it can exercise its
acquire the amended name after the power to enter into a contract.
filing was done. However, the power to enter into a
- Thereafter, prior causes of action corporate contract vested with the
transpiring during the usage of the Board of Directors does not
original name should be filed by the necessitate a conduct of a formal vote
corporation under its new name to before a contractual liability can be
enforce its rights existing at the attached to it; means other than
time the change was made. formal expression of its will can create
- The change in the name of a contractual liability. If it appears that a
corporation is not a deprivation of its member of the board acted and
right to bring an action for a cause signed on behalf of the corporation,
which transpired when it bore its binding himself as the latter’s
former name. guarantor, to enter into a contract
involving matters with utmost
importance, the authority of the acting
Relevant SEC agent shall be binding even if there is
Memorandum Circulars an allegation that no actual authority
was given provided that it is shown by
b. Corporate Term way if usage that the corporation has
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observed giving implied consent in the

customary of its business 8. Self-Dealing Directors
transactions.
Prime White Cement vs. IAC (220
Barreto vs. La Previsora SCRA 1030)
(57 Phil 649) Mead vs. Mc Cullough (21 Phil
95)
b. Qualifications and
Disqualifications 9. Interlocking Directors

Lee vs. CA (205 SCRA 10. Derivative Suit

572)
Detective and Protective Pascual vs. Orozco (19 Phil 83)
Bureau vs. Cloribel (26 SCRA 256) Everette vs. Asia Banking (49 Phil
512)
2. Election and Voting Republic Bank vs. Cuaderno (19
SCRA 671)
Western Institute of Tech. vs.
3. Validity and Binding Effects of Actions Salas (supra)
of Corporate Officers San Miguel Corp. vs. Khan (176
SCRA 447)
Yao Ka Sin Trading vs CA (209 Chase vs. Buencamino (136
SCRA 763) SCRA 365)
Lopez Realty vs. Fontecha (247 Reyes vs. Tan (3 SCRA 198)
SCRA 183) Gamboa vs. Victorino (90 SCRA
Pua Casim vs. Neumark (46 Phil 40)
242) Evangelista vs. Santos (86 Phil
Yu Chuck vs. Kong Li Po (46 Phil 387)
208)
Francisco vs. GSIS (7 SCRA 557) 11. Executive Committee
Board of Liquidators vs. Kalaw
(20 SCRA 987) VII. CORPORATE POWERS AND AUTHORITY
Buenaseda vs. Bowen & Co. (110
Phil 464) 1. Classifications of Corporate Power

4. Removal and Filling up of vacancies a. Power to sue and be sued

Valle Verde Country Club vs. Delta Motors vs.

Africa (598 SCRA 201, September 2009) Mangosing (70 SCRA 77)
E.B. Villarosa & Partner
5. Compensation of Directors Co. vs. Benito (GR 14926, August 6,
1999)
Central Cooperative Exchange
vs. Tibe (33 SCRA 593) b. Power of Succession
Western Inst. of Tech. vs. Salas
(278 SCRA 216) c. Power to Adopt and Use a
Gov't vs. El Hogar Filipino (50 Phil Common Seal
399)
d. Power to Amend the Articles of
6. Liability Corporate Officers Incorporation

Tramat Mercantile vs. CA (238 e. Power to Adopt By-Laws

SCRA 214)
Llamado vs. CA (270 SCRA 423) f. Power to Sell / Issue Stocks or
Uichico vs. NLRC (273 SCRA 35) Admit Members

7. Three-fold Duty of Directors g. Power to Acquire / Alienate

Property
Montelibano vs. Bacolod Murcia
Milling (5 SCRA 36) Luneta Motors Co. vs.
Strong vs. Repide (41 Phil 947) A.D. Santos Inc. (5 SCRA 809)

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Gov't. vs. El Hogar John Gokongwei vs.

Filipino (supra) SEC (89 SCRA 336)
Director of Lands vs. CA
(158 SCRA 568) r. Power to Declare Dividends

h. Power to Adopt Plans of i. Types

Merger / Consolidation
ii. When and to whom it
i. Power to make Donations is vested

j. Power to establish Pension, Nielson & Co.

Retirement and other Plans vs. Lepanto Consolidated Mining (26
SCRA 540)
Republic vs. Acoje
Mining Co. (7 SCRA 361) s. Power to Enter into
Management Contracts
k. Implied Powers

Teresa Electric vs. PSC

(21 SCRA 199) 2. Ultra Vires Acts
National Power
Corporation vs. Vera (170 SCRA 721) a. Consequences: on the
Powers vs. Marshall (161 Corporation, on the immediate parties, on
SCRA 176) the stockholders

l. Power to Extend / Shorten Privano vs. Dela Rama

Corporate Term Steamship Co. (96 Phil 335)
Carlos vs. Mindoro
m. Power to Increase / Decrease Sugar Co. (57 Phil 343)
the Authorized Capital Stock; Japanese Warnotes
Incur / Create Bonded Claimants Assn. vs. SEC (110
Indebtedness Phil 540)
Crisologo - Jose vs. CA
Philtrust vs. Rivera (44 (117 SCRA 594)
Phil 469)
Madrigal & Co. vs. VIII. BY- LAWS
Zamora (151 SCRA 3550)
Loyola Grand Villas Assn. vs. CA (276
n. Power to Deny Pre-emptive SCRA 681)
Rights Govt vs. El Hogar Filipino (supra)
Gokongwei vs. SEC (89 SCRA 336)
Benito vs. SEC (123
SCRA 722) IX. MEETINGS

o. Power to Sell / Dispose of 1. Stockholders' / Members' Meeting

Assets
Board of Directors vs. Tan (105
Islamic Directorate of the Phil 426)
Phils. vs. CA (272 SCRA 454) Ponce vs. Encarnacion (91 Phil
Edward Nell & Co. vs. 81)
Pacific Farms (15 SCRA 415)
2. Directors' / Trustees' Meeting
p. Power to Acquire Own Shares
SEC Memorandum Circular No.
Steinberg vs. Velasco 15, Series of 2001
Board Meeting Through
q. Power to Invest Funds Teleconferencing or
Videoconferencing ("Tele/Video
De la Rama vs. Ma-ao Conferencing")
Sugar Central (7 SCRA 247)
3. Right to Vote and Manner of Voting

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7. Enforcement and Payment of Unpaid

a. Proxy and other representative Subscriptions
voting
Velasco vs. Poizat (37 Phil 802)
NIDC vs. Aquino (160 De Silva vs. Aboitiz & Co. (44 Phil
SCRA 153) 755)
Lingayen Gulf vs. Baltazar (93
SEC Memorandum Phil 746)
Circular No. 4, Series of 2004 Apocada vs. NLRC (175 SCRA
Voting by Mail and One 442)
Share-One Vote Policy Lumanlan vs. Cura (59 Phil 746)
PNB vs. Bitulok Sawmill (33
IX. STOCK and STOCKHOLDERS SCRA 136)
Edward Keller vs. COB Group
1. Subscription Contract (141 SCRA 86)
Garcia vs. Suarez (67 Phil 441)
Trillana vs Quezon College (93
Phil 383) 8. Effects of Delinquency

SEC Memorandum Circular No. 9. Rights of Unpaid Shares

11, Series of 2016
Subscription Contracts 10. Lost or Destroyed Certificates

2. Pre-incorporation Subscription 11. Rights and Liabilities of Stockholders

National Exchange vs. Dexter (51 XI. CORPORATE BOOKS AND RECORDS
Phil 601)
1. Books and Records to be Kept
3. Certificates of Stock and their Transfer
2. Right of Inspection
Monserrat vs. Ceron (58 Phil 472)
Chua Guan vs. Samahang W.G. Philpotts vs. Phil. Mfg. Corp.
Magsasaka (62 Phil 472) (49 Phil 471)
Padgett vs. Babcock & Templeton Vegaruth vs. Isabela Sugar (57
(59 Phil 232) Phil 266)
Lambert vs. Fox (26 Phil 588) Gokongwei vs. SEC (supra)
Embassy Farms vs. CA (188 Gonzales vs. PNB (122 Phil 489)
SCRA 492)
Razon vs IAC (207 SCRA 510) XII. MERGER AND CONSOLIDATION
Rural Bank of Salinas vs. CA (210
SCRA 510) 1. Requirements and Procedure
Tay vs. CA (GR No. 126891,
August 5, 1998)
Rural Bank of Lipa vs. CA (366
SCRA 740) 2. Effects
Tan vs. SEC (206 SCRA 740)
Nava vs. PEERS Marketing (74 Associated Bank vs. CA (GR
SCRA 65) 123793, June 29, 1998)
Won vs. Wack Wack Golf (104 BPI vs. BPI Employees Union
Phil 466) (658 SCRA 569)
De los Santos vs. Mc Grath (95
Phil 577) XIII. APPRAISAL RIGHT

4. Forged and Unauthorized Transfers 1. Definition; when exercised

5. Issuance of Stock Certificates 2. Requirements and Procedure

Fua Cun vs. Summers 3. Effect

6. Watered Stocks 4. When Right ceases

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5. Cost of appraisal
1. Educational Corporations

XIV. NON-STOCK CORPORATIONS 2. Religious Corporations

1. Definition; Purpose a. Corporation Sole

2. Membership and Voting Rights Roman Catholic

Apostolic Church vs. LRC (102 Phil 596)
Chinese YMCA vs. Ching (71 Director vs. CA (158
SCRA 463) SCRA 568)
Cebu Country Club vs. Republic vs. IAC (168
Elizagaque (542 SCRA 65) SCRA 165)

3. Trustees and Officers i. Filling up of Vacancies

Lions Club Int'l vs. CA (121 SCRA ii. Dissolution

621)
3. Religious Societies
4. Other references:

SEC Memorandum Circular No. 8,

Series of 2006 XVII. DISSOLUTION AND WINDING UP
Revised Guidelines on
Foundations 1. Methods of Dissolution

SEC Memorandum Circular No. 4, a. Expiration of Corporate Term

Series of 2013
Amendment of Part I (4) (A) & (B) PNB vs. CFI (209 SCRA
of SRC Rule 68, as amended 294)

SEC Memorandum Circular No. b. Voluntary Dissolution

10, Series of 2016
Guidelines on the Issuance of i. Where no creditors are
Certificate on the Nationality of Non-Stock affected
Corporations
ii. Where creditors are
XV. CLOSE CORPORATIONS affected

1. Definition; Permissive Provisions c. Shortening of Corporate Term

2. Effects of Breach of Qualifying d. Involuntary Dissolution

Provisions
Gov't vs. Phil. Sugar
3. Stockholders' Agreement Estate (39 Phil 15)
Gov't vs. El Hogar
4. When Board Meeting Not Necessary Filipino (supra)
Republic vs. Security
5. Pre-Emptive Right Credit (19 SCRA 59)
Republic vs. Visaya Land
6. Deadlocks (81 SCRA 9)
Financing Corporation
7. Withdrawal of Stockholders / vs. Teodoro (94 Phil 687)
Dissolution
2. Effects of Dissolution
Dulay Enterprises vs. CA (225
SCRA 678) Buenaflor vs. Camarines Sur
Naguiat Enterprises vs. NLRC Industry (108 Phil 427)
(268 SCRA 546) Cebu Port Labor Union vs. State
Marine (101 Phil 468)
XVI. SPECIAL CORPORATIONS

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Gonzales vs. Sugar Regulatory gain or of the purpose and object of the business
Administration (174 SCRA 377) organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere
3. Liquidation and Winding Up investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business,
National Abaca vs. Pore (2 SCRA and/or the exercise of rights as such investor; nor having
989) a nominee director or officer to represent its interests in
Sumera vs. Valencia (67 Phil 721) such corporation; nor appointing a representative or
Board of Liquidators vs. Kalaw distributor domiciled in the Philippines which transacts
(20 SCRA 987) business in its own name and for its own account;
Gelano vs. CA (103 SCRA 90)
Republic vs. Marsman (44 SCRA
481) Marshall-Wells vs. Elser (46 Phil
Chung Ka Bio vs IAC (163 SCRA 70)
534) Western Equipment vs. Reyes
Clemente vs. CA (242 SCRA 717) (51 Phil 115)
Mentholatun vs. Mangaliman (72
XVIII. FOREIGN CORPORATIONS Phil 524)
Far East International vs. Nankai
1. Definition Kogyo (6 SCRA 725)
Swedish East Asia vs. Manila
2. Modes of Entry Port Services (25 SCRA 632)
General Garments vs. Director
3. Application of License (41 SCRA 50)

Subsidiary (FIA Form F-100) Facilities Management vs. Dels

Branch Office (FIA Form F-103) Osa (89 SCRA 131)
Representative Office (FIA Form Le Chemise Lacoste vs.
F104) Fernandez (120 SCRA 377)
Regional Operating Area Bulakhids vs. Navarro (142 SCRA
Headquarters 1)
Regional Area Headquarters Antam Consolidated vs. CA (143
SCRA 288)
4. Resident Agent Puma Sportshufabriken vs. IAC
(158 SCRA 233)
5. Effect of Doing Business Without a Communication Materials and
License Design vs. CA (260 SCRA 673)

Meaning of “doing-business” – the term is coined 6. Capacity to Sue

by several jurisprudences back then. As of now, the
Foreign Investments Act of 1991 has defined the Atlantic Mutual Insurance vs.
term. If you will analyze, the definition of the FIA Cebu Stevedoring (17 SCRA 1037)
seems to jive with the definition of a “non-resident Olympia Business Machines vs.
alien engaged in trade or business here in the E. Razon Inc. (155 SCRA 208)
Philippines” under the National Internal Revenue Time vs. Reyes (39 SCRA 303)
Code of 1997). Perhaps, the tax code got its
definition from FIA. 7. Laws Governing Foreign Corporations

The phrase "doing business" shall include soliciting M.E. Gray vs. Insular Lumber (67
orders, service contracts, opening offices, whether called Phil 139)
"liaison" offices or branches; appointing representatives
or distributors domiciled in the Philippines or who in any 8. Amendment of the License
calendar year stay in the country for a period or periods
totaling one hundred eighty [180] days or more; 9. Merger / Consolidation
participating in the management, supervision or control
of any domestic business, firm, entity or corporation in 10. Revocation of License
the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements and 11. Withdrawal of License
contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial

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XIV. MISCELLANEOUS PROVISIONS

Rule 15 Reportorial Requirements

PART 2 Rule 19 Tender Offer; Mandatory Tender

PRESIDENTIAL DECREE 902-A Offer and Exemptions

I. Devices or Schemes Amounting to Fraud Justee Terms Enterprise vs. SEC

(CA GR. SP. No. 48013, July 30, 1999)
II. Intra-Corporate Controversies China Banking vs. CA (270 SCRA
503)
III. Controversies in the Election, Appointment or People vs. Petralba (439 SCRA
Removal of Directors / Officers 158)

IV. Appointment of Management Committee, Board Rule 23 Reports to be Filed by Directors,

or Body Officers and Principal Stockholders

R.J. Jacinto vs. FWCC (410 SCRA 140) IV. Title VII: Prohibitions on Fraud,
Sy Chim vs. Sy Siy Ho & Sons (480 SCRA Manipulation and Insider Trading
206)
Rule 24.1 Manipulative Practices

PART 3 Rule 24.2 Short Sales

SECURITIES REGULATION CODE
2015 IMPLEMENTING RULES AND Rule 25 Option Trading
REGULATIONS
Rule 26 Fraudulent Transactions

I. Rule 3: Definition of Terms Rule 27 Insider Trading

II. Rule 5: Powers and Functions of the

Commission V. Title VIII: Registration of Securities Market
Professionals
SEC Memorandum Circular No. 11, Series
of 2003 Rule 28.1.1 Broker Dealer
Supervision Over Registered Corporations
Rule 28.1.2 Registration Requirements
III. Title III: Registration of Securities
Rule 28.1.5 Registration of Salesmen and
Rule 8.1 Registration Statement Associated Persons of Broker Dealers

Rule 9.1 Exempt Securities Rule 28.1.5.4 Registration Requirements

Rule 9.2 Other Exempt Transactions VI. Title IX: Exchanges and other Securities
Trading Markets
Rule 10.1 Exempt Transactions
Rule 38 Requirements on Nomination and
Rule 10.1.7 Isolated Transactions Election of Independent Directors

Rule 10.1.11 Qualified Buyers SEC Memorandum Circular No.

9, Series of 2011
Rule 10.2 Limited Public Offerings and Term Limits for Independent
other Exempt Transactions Directors

Rule 10.3 Application for Confirmation of SEC Advisory dated 20 July 2015
Exemption Clarification on the Term Limits of
Independent Directors
Rule 13 Suspension or Revocation of
Registration of Securities SEC Advisory dated 31 March
2016
Rule 14 Amendments to the Registration Term Limits for Independent
Statement and Prospectus Directors
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