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 & 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 & 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 & 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.
Next Pages
