Law on Business Organizations - Part 1_-456673922.pdf

Law on Business Organizations (Partnerships, Corporations and Cooperatives) Any profit may obtain CORPORATIONS Are authorized to...

Law on Business Organizations (Partnerships, Corporations and Cooperatives) Any profit may obtain CORPORATIONS Are authorized to as an incident to its distribute to the holders operations shall, when DEFINITION OF CORPORATION of such shares, necessary or proper, dividends or allotments be used for the A Corporation is an artificial being created by of surplus profits on the furtherance of its operation of law, having the right of succession and basis of the shares held purpose or purposes the powers, attributes, and properties expressly [Sec. 3] [Sec. 86,] authorized by law or incident to its existence. [Sec. 2, Composed of Composed of unless otherwise indicated, all sections cited herein stockholders members are from RA 11232, or the Revised Corporation It is for profit It is not for profit Code] Other distinctions Essential Requisites or Elements 1. An Artificial Being - A corporation is a juridical Stock Non-Stock entity that exists apart from its stockholders. It has Maximum of 15 its own set of rights and obligations as provided directors except in for by law. May be more than 15 merger or [Sec. 91] consolidation of banks 2. Created by Operation of Law - Mere consent of [Sec. 13] the parties to form a corporation is not sufficient. Maximum term of a The State must give its consent either through a Term of director is 1 trustee is 3 years [Sec. law. year [Sec. 22] 91] Stockholders’ meetings 3. Has the Right of Succession must be in the principal office as set forth in the May be anywhere 4. Has the Powers, Attributes and Properties AOI or, if not within Philippine Expressly Authorized by Law or Incident to its practicable, in the city territory as provided by Existence - A corporation has no power except or municipality where BL. [Sec. 92] those expressly conferred on it by the Revised the principal office is Corporation Code and by its articles of located [Sec. 50] incorporation, those which may be incidental to One class of shares Right to vote of such conferred powers, those that are implied must always have members of any class from its existence, and those reasonably complete voting rights may be denied in the necessary to accomplish its purposes. [Sec. 6,] AOI or BL [Sec. 88] There is free transfer of Transfer of membership CLASSES OF CORPORATIONS shares. Membership is cannot be made not personal to the without consent of the Stock Corporation stockholder. Note: corporation. [Sec. 89] Subject to provisions on Membership is These are corporations which have capital stock close corporations. personal. divided into shares AND are authorized to distribute to the holders of such shares dividends or allotments One Person Corporation of the surplus profits on the basis of shares held. [Sec. 3] One Person Corporations - A corporation with a single stockholder. Only a natural person, trust, or an Non-Stock Corporation estate may form a One Person Corporation. All other corporations are non-stock corporations. Excepted corporations One where no part of the income is distributable as The ff. may NOT incorporate as OPCs: dividends to its members, trustees, or officers, subject (1) Banks and quasi-banks, to the provisions of the Code on dissolution. [Sec. 86] (2) Pre-need, trust, insurance, public and publicly-listed companies, and Its governing body is usually the Board of Trustees (3) Non-chartered government-owned and (BoT). However, non-stock corporations may, controlled corporations through their articles of incorporation or their by- (4) Profession laws, designate their governing boards by any name other than as board of trustees. [Sec. 174] Capital stock requirement Stock Non-Stock Shall not be required to have a minimum No part of income is authorized capital stock. distributable as Have capital divided dividends to its Articles of incorporation and by-laws into [Sec. 3,] members or trustees [Sec. 86] (1) Articles of Incorporation KAMM | 1 Law on Business Organizations (Partnerships, Corporations and Cooperatives) Shall file articles of incorporation in Liability accordance with the requirements under Section 14 of this Code. Limited Liability An important advantage of the corporation is By-Laws the limitation of an investor’s liability to the amount of investment, which flows from the legal The OPC is not required to submit and file theory that a corporate entity is separate and corporate by-laws. [Sec. 119, RCC] distinct from its stockholders. [San Juan Structural and Steel, Inc. v. CA, 296 SCRA 631 (1998).] iv. Corporate name Applicability of the Doctrine of Piercing the A One Person Corporation shall indicate the Corporate Veil letters “OPC” either below or at the end of its The principles of piercing the corporate veil corporate name. applies with equal force to OPCs, as with other corporations. [Sec. 130, RCC] Corporate structure and officers Conversion of corporation to one person (1) Single Stockholder as Director, President corporations and vice-versa The single stockholder shall be the sole director and president of the One Person Conversion from an Ordinary Corporation to a Corporation. [Sec. 121, RCC] OPC When a single stockholder acquires ALL the (2) Treasurer, Corporate Secretary, and stocks of an ordinary stock corporation, the latter Other Officers may apply for conversion into a One Person Corporation, subject to the submission of such The OPC shall appoint: documents as the Commission may require. (1) A treasurer; (2) A corporate secretary; and Other corporations (3) Other officers as it may deem necessary Educational corporations SH cannot be the CorSec The single stockholder may NOT be Educational corporation – One organized for appointed as the corporate secretary. educational purposes. [Sec. 105] (3) Treasurer’s Bond If organized as a non-stock corporation Trustees of educational institutions organized as A single stockholder who is likewise the self- non-stock corporations shall not be less than five appointed treasurer of the corporation, shall (5) nor more than fifteen (15). Provided, give a bond to the Commission however, that the number of trustees shall be in multiples of five (5). They shall classify themselves vi. Nominee in such a way that the term of 1/5 of them expires every year. [Sec. 106] The single stockholder shall designate in the AOI a nominee and an alternate nominee who shall, If organized as a stock corporation in the event of the single stockholder’s death or For institutions organized as stock corporations, incapacity: (1) Take the place of the single the number and term of directors shall be stockholder as director; and (2) Manage the governed by the provisions on stock corporation’s affairs. [Sec. 124, RCC] corporations. [Sec. 106] Term of Nominee Religious corporations When the single stockholder is temporarily incapacitated, the nominee shall serve only until Classes of Religious Organization the stockholder, by self-determination, regains (1) Corporation Sole – incorporated by one the capacity to assume such duties. [Sec. 125, person; and RCC] (2) Religious Societies – incorporated by more than one person. [Sec. 107] In case of death or permanent incapacity of the single stockholder. the nominee shall serve until: (1) Corporation Sole a. The legal heirs of the single stockholder have been lawfully determined; and b. The heirs have Corporation sole – is one formed for the designated one of them or have agreed that the purpose of administering and managing, as estate shall be the single stockholder of the OPC. trustee, the affairs, property and [Sec. 125, RCC] temporalities of any religious denomination, sect, or church, by the chief archbishop, Term of Alternate Nominee bishop, priest, rabbi, or other presiding elder In case of the nominee’s inability, incapacity, of such religious denomination, sect or death, or refusal to discharge the functions as church. [Sec. 108] director and manager of the corporation KAMM | 2 Law on Business Organizations (Partnerships, Corporations and Cooperatives) Doing Business in Can sue and be Nationality the PH, WITH a sued A corporation sole has no nationality but for license the purpose of applying nationalization laws, Doing Business in GR: Cannot sue, but nationality is determined not by the the PH, WITHOUT a may be sued in the nationality of its presiding elder but by the license PH nationality of its members constituting the XPN: Capacity to sect in the Philippines. sue may not be questioned if the Religious Societies (Corporation Aggregate) other party is estopped Corporation aggregate – A religious NOT doing business May sue; may be corporation incorporated by more than one in the PH, on sued person. isolated transactions Foreign corporations Foreign corporation – One formed, organized or existing under any laws other than those of the Philippines and whose law allows Filipino citizens and corporations to do business in its own country and state. [Sec. 140] (1) Bases of authority over foreign corporations Consent Doctrine The legal standing of foreign corporations in the host state is founded on international law on the basis of consent, whether implied or express Under Philippine law, the condition is that it must obtain a license to do business in the Philippines [CAMPOS]. Doctrine of “doing business” The concept of "doing business" implies a continuity of commercial dealings and arrangements and the performance of acts/works/exercise of some of the functions normally incident to the purpose or object of a foreign corporation’s organization. [Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 525 (1941)] Resident agent A resident agent may be either: An individual residing in the Philippines (must be of good moral character and sound financial standing) or A domestic corporation (must likewise be of sound financial standing and must show proof of good standing) lawfully transacting business in the Philippines. [Sec. 144, RCC] Doctrine on Isolated Transactions In an isolated transaction, there is no intent on the part of the foreign corporation to engage in a progressive pursuit of the purpose of a business transaction. [Eriks Ltd. v. CA, 267 SCRA 567 (1997)] Summary of Rules on Capacity to Sue Status Consequence KAMM | 3