Philippines Corporation Code

Where corporation has been formed by members of a partnership subsequent to incurring of debts-

Where a corporation has been formed by the members of a partnership subsequent to the incurring of debts, former partners being the only members of the corporation, and the assets of the partnership have been transferred to the corporation for the continuance of the business, in exchange for stock and without other consideration, the corporation thereby impliedly assumes the partnership debts and is prima facie liable therefore, since the legal entity of the corporation and the want of identity as between the corporation and the partners may be disregarded and the members of the partnership may be said to have simply put on a new coat. (Quimzon vs. Alaminos Cooperative Marketing Association, inc., 73 Phil. 342.)

What is the nationality of the corporation?-

There are three theories on how to determine the nationality of a corporation. Under the incorporation theory, the nationality of a private corporation is that of the State under whose laws such corporation was organized. Under the control test, the nationality of the private corporation is determined by the citizenship of its controlling stockholders. Under the domicile or central management test, the nationality of a corporation is determined by the law of its domicile or place of principal business. In the Philippines, the incorporation theory, applies. Thus, if five Japanese citizens majority of whom are residents in the Philippines formed a corporation under the Corporation Code of the Philippines (by filing articles of incorporation with our Securities and Exchange Commission and complying with other legal requirements), such corporation is a domestic corporation and is a Philippine corporation.

The control test should be followed in case of war for purposes of knowing whether a particular corporation is an enemy corporation, a test dictated by the needs of national security. (See Filipinas Cia de Seguros vs. Christen Huenfield and Co., Inc., L-2294, 1951.)

Citizenship of partially nationalized corporations-

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality but if the percentage of Filipino ownership in the corporation or partnership is less than 60% only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But if less than 60% or, say, only 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens. (Gpinicrn of the Secretary of Justice No. 18, Series of 1989; SEC Opinion dated Nov. 6, 1989)

Corporation is protected by the Constitution-

A corporation as an artificial person is protected under the Bill of Rights against denial of due process, and it enjoys the equal protection of the law. (Smith, Bell and Co., vs. Natividad, 40 Phil. .13). A corporation is also protected against unreasonable searches and seizures. (See Stonehill vs. Diokno, L-19550, June 19, 1967.) A corporation is entitled to immunity against unreasonable searches and seizures. A corporation is, after all but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body, it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected against unlawful discrimination. (Bache and Co. vs. Ruiz, L-32409, Feb. 27, 1971; 37 SCRA, p.823.)

A corporation is not entitled to moral damages; exception-

A corporation is not entitled to moral damages because an artificial person cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation, but a corporation may be awarded moral damages for "besmirched reputation" because a corporation may enjoy a good reputation (goodwill) which can be besmirched. (See Mambukto Lumber Co. vs. PNB, L-22973, January 30, 1968.)

Advantages of a corporation-

The following are the advantages of the corporate form of doing business:

(1) The limited liability of the shareholders for the debts of the business. (2) The free and ready transferability of ownership by sale and transfer of stock certificates representing such ownership. (3) The perpetual (actually the power of succession) existence of the entity unaffected by "the personal vicissitudes of the individual shareholders. (4) The fact that the corporation is a legal entity affords the important conveniences of being able to acquire, hold and convey property, to contract, to sue and be sued and generally to act as a single distinct unit under its own name. (5) As a consequence of the aforementioned factors and by reason of the flexibility allowed in the choice of securities the corporation is ideally suited to serve as a medium for the gathering for a common project of the separate funds of many investors. (Rohrlich, Organizing Corporate and other Business Enterprise8, pp. 158-160.)

Disadvantages of forming a corporation-

The following are the disadvantages of forming a corporation to do business:

(1) The limited liability of the stockholders serves to limit the credit available to the corporation to that justified by its own assets without resort to those of the stockholders. (2) The transferability of stock eliminates the delectus personae (where one cannot be a member or investor without the consent of the others) and thus permits otherwise incompatible elements becoming united in one venture. (3) The subservience of minority stockholders to the wishes of the majority, subject only to such equitable restraints as may be applied to protect against fraud or as derived from the view that "corporate powers are powers in trust." (4) The fact that in large corporations, stockholders" voting rights have become largely theoretical because of widespread ownership, disinterest in management, inertia and inaccessible meeting places. (5) Separation of management and control from ownership. (6) By virtue of its statutory character, the corporation is limited in the transaction of its business to the state of its incorporation, unless it qualifies in other states as a "foreign corporation." (7) Corporations are subject to governmental restrictions and controls and report requirements beyond other forms of doing business. (Rohrlich, pp. 160-163.) (8) Existence of double taxation with. respect to profits realized by the corporation and distributed as dividends to existing stockholders. Sec. 3. Classes of corporations.-Corporations formed or organized under this Code may be stock or non-stock corporations. Corporations which have 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 are stock corporations. All other corporations are non-stock corporations. (3a)

Private corporations may be stock or non-stock-

In the old Corporation Law, corporations were classified into public and private. But then, the Corporation Code applies only to private corporations and therefore, in general private corporations are classified into: (a) Stock corporations, which are corporations which have capital stock divided into shares and which are authorized to distribute to holders of shares dividends (or allotments of surplus profits) based on shares held. (b) Non-stock corporations, which are corporations other than stock corporations, that is, they are corporations without shares or stocks and therefore not authorized to distribute dividends.