Corporate Structures & Legal Frameworks

• Forms of Business Organization include sole proprietorships, partnerships, and corporations.

Sole Proprietorship

• A business where the owner commands the entire business.
• The owner is liable for losses up to the extent of their personal holdings.

Partnership

• Two or more individuals bind themselves to contribute money, property, or industry to a common fund.
• Intention is to divide the profits.

Corporation

• An artificial being created by law.
• Corporations have the right of succession.
• Corporations have powers, attributes, and properties authorized by law.

Attributes of a Corporation

• It is an artificial being.
• It is created by operation of law.
• It has the power of succession.

Forms of Partnership

General Partnership

• All partners manage the business.
• All partners are personally liable for the debts.

Limited Partnership

• Certain limited partners relinquish their ability to manage the business.
• It is exchanged for limited liability for the debts.

Limited Liability Partnership

• All partners have some degree of limited liability.

Types of Partners

General Partners

• Have an obligation of strict liability to third parties injured by the partnership

Limited Partners

• Liability is limited to their investment in the partnership

Silent Partners

• Provide capital to the business

Nature of Partnership

• Fiduciary in character.
• All partners must trust and have confidence in one another.

Delectus Personae

• A person has the right to choose their partner(s).

Essential Elements of Partnership

• Valid and Voluntary Contract is needed to become Partners.
• Persons forming partnership must be capable of entering a contractual relationship.
• Contributions of money, property, or industry goes into a common fund.
• Exclusive use for the common interest to benefit the partnership.
• Must be an association for profit, intending to divide profits.
• Partners must be mutual agents of each other.
• An agent can enter a contract and bind the partnership if acting within their authority and for the partnership's best interest.
• There must be a Lawful purpose.
• Articles of partnership must not be kept secret.
• The Juridical personality must be separate and distinct from the individual personality of each partner.
• Acquired once the partnership is legally established.
• Every contract of partnership with capital of Php 3,000 or more in cash or property must appear in a public instrument.
• It must be recorded in the SEC office per ACT 1772.
• Batas Pambansa Bilang 68 Corporation Code of the Philippines was signed on May 1, 1980.

Advantages of a Corporate Form of Business

Strong Legal Personality

• The corporation has a legal capacity to act and contract as a distinct unit in its own name.
• It has continuity of existence.

Limited Liability to Investors

• An investor's liability is limited to the amount of the investment
• Flows from the legal theory that a corporate entity is separate and distinct from its stockholders.

Free Transferability of Units of Investment

• Shares of stocks can be transferred without other stockholders' consent.
• Assures a ready mechanism to dispose of investments when the member's personal or financial situation requires it.

Centralized Management

• Centralized in the Board of Directors.
• Shareholders are not agents of the corporation, nor can they bind the corporation.

Advantages of a Corporation Over Unregistered Associations

• It enjoys perpetual succession under its corporate name and artificial form.
• It has the capacity to take and grant property and contract obligations.
• It can sue and be sued in its corporate name as a juridical person.
• It can receive and enjoy common grants of privileges and immunities.
• Stockholders or members generally have no personal liability beyond the value of their shares.

Disadvantages of Corporate Form

• Complicated and costly formation and maintenance.
• Lack of personal element.
• Abuse of corporate management.
• Limited liability hits innocent victims.
• Double taxation.

Distinction between Corporation and Partnership as to Legal Capacity

Corporation

• Stronger legal personality.
• Continues despite the death, insolvency, or member withdrawal.

Partnership

• Dissolves with the withdrawal, death, or insolvency of any partners.

Limited Liability

• Main feature in a corporate setting.
• Partners are liable personally for partnership debts beyond their investment.
• Every partner is an agent of the partnership and can bind the partnership.

Nationality of Corporation

Place of Incorporation Test

• Principal doctrine for nationality test in the Philippines.
• Corporation is a nationality test of the country where it was organized and registered.

Control Test

• Nationality of the corporation is determined by the nationality of the majority of stockholders who control it.

Classifications of Corporation in Relation to the State

Public Corporations

• Formed or organized for the government of a portion of the state.
• Ex: GSIS, PAGCOR, and Municipalities.

Private Corporations

• Formed for some private purpose, benefit, or end.
• Ex: ABS CBN Corporation, Jollibee Food Corp and San Miguel Corp.

Quasi-Public Corporation

• A cross between private and public corporations.
• Ex: School districts, water districts, and PLDT.

Domestic Corporation

• Obtains personality through incorporation under Philippine laws.

Foreign Corporation

• Licensed by SEC to do business in the Philippines under the principle of RECIPROCITY.
• Requires a certificate of authority from the Board of Investment under EO 226 or the Omnibus Election Code.
• Compliance with license issuance conditions, application forms, structural organizations, and capitalization is needed.

Classifications of Corporation as to the Place of Incorporation

• Place them on equality with domestic corporations.
• Subject them to inspection to ensure condition is known.
• Protect the residence of the state, subjecting business to the courts within the state.

Classifications of Corporation as to Stock

Stock Corporation

• Private corporations with capital stock divided into shares.
• Stockholders are entitled to dividends or corporate surplus profits based on stockholdings or subscriptions.

Non-Stock Corporation

• Corporations that don't issue stocks.
• Composed of members, not stockholders.
• May be civic, charitable, religious, or professional organizations.

Other Kinds of Corporation

De Jure Corporation

• Complies with all the legal requirements.

De Facto Corporation

• Fails to comply with one or two legal requirements.

Corporation Sole

• Composed of one member or corporator.
• Applies to religious denominations.

Close Corporation

• Usually owned and managed by a family.
• Outstanding stocks are owned and managed by a family.
• Stocks are not open for public subscription.

Open Corporation

• All members or corporations exercise their right to elect the directors and officers.
• Stocks are open for public subscription.

Eleemosynary Corporation

• Established for charitable purposes.

Ecclesiastical Corporation

• Established for religious purposes.

Lay Corporation

• Established for any purpose other than religion.

Corporation Aggregate

• Composed of multiple members or corporators.

Corporation by Estoppel

• Corporation with five or more people.
• Assumes to act as a corporation, all persons involved will be liable as general partners.

Multinational Corporation

• Organized in one state or country.
• Extends its corporate business into territories or countries.

Powers of Corporation

Expressed Power

• Corporation can perform functions in the By Laws, Corporation Code.
• Functions in other statutes pertinent to the corporation.

Implied Power

• Power is inherently necessary to exercise its corporate function in pursuit of its corporate existence.

Different Corporation Doctrines

The Doctrine of Piercing the Veil of Corporate Assistance

• Corporate Entity is used to commit fraud, justify wrong, or defend crime.
• It defeats public convenience or is a mere pretense.
• Piercing the corporate fiction is necessary to achieve justice or equity.

Doctrine of Business Opportunity

• A director or officer of the corporation is presented with a business venture that could be profitable to the corporation.

Trust Fund Doctrine

• Directors distribute corporate assets to stockholders without reserving assets for debts.
• Applies whether the corporation is solvent or insolvent.

Distinction Between Corporators and Incorporators

Corporators

• Total number of persons composing corporation after formation.
• Includes incorporators, stockholders, and/or members.

Incorporators

• Original founder organizers of the corporation, either stock or non-stock.
• Incorporators must be natural persons.
• Juridical persons cannot be incorporates.
• Law requires at least five (5) but not more than (15) incorporators.

Explore partnership agreements, corporate advantages, and the roles within a corporation. Understand liability differences between corporations and partnerships. Learn about perpetual succession and SEC regulations for corporate entities.