INTRODUCTION Definition and attributes of a corporation A corporation is an artificial being created by operation of law, having the right of succession

and the powers, attributes and properties expressly authorized by law or incident to its existence. A corporation, being a creature of law, "owes its life to the state, its birth being purely dependent on its will," it is "a creature without any existence until it has received the imprimatur of the state acting according to law." A corporation will have no rights and privileges of a higher priority than that of its creator and cannot legitimately refuse to yield obedience to acts of its state organs. A corporation has four (4) attributes: (1)It is an artificial being; (2)Created by operation of law; (3)With right of succession; (4)Has the powers, attributes, and properties as expressly authorized by law or incident to its existence. Kinds of Business Organizations and their Differences Sole Proprietorship Win Multiple-Rich is not a real party in interest. The sole proprietor is personally liable for all the debts and obligations of the business. A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court. (Excellent Quality Apparel, Inc. v Win Multiple-Rich Builders Inc.) Partnerships Article 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. (1665a) Article 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n) Joint Venture - Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses. (Kilosbayan v Guingona, citing Blacks Law Dictionary, 6th Ed., 639) Cooperatives - A cooperative is a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. (RA 6938, sec. 3 Cooperative Code of the Philippines) Jurisdiction of the SEC CLASSIFICATION OF PRIVATE CORPORATIONS Stock v. Non-Stock Corporations Stock Non-Stock

Definition

Purpose

Corporations which have capital stock divided into shares and are authorized to distribute to the holders of shares dividends or allotments of the surplus profits on the basis of the shares (3) Primarily to make profits for its shareholders

All other private corporations (3) One where no part of its income is distributable as dividends to its members, trustees or officers. (87)

Distribution of Profits

Composition Scope of right to vote

Voting by proxy Voting by mail

Who exercises Corporate Powers 23 Governing Board Board of Directors or Trustees, consisting of 5- Board of Trustees, which may consist of more 15 directors / trustees. than 15 trustees unless otherwise provided by the AOI or by-laws. (Sec, 92) Term of directors Directors / trustees shall hold office for 1 year Board classified in such a way that the term of and until their successors are elected and office of 1/3 of their number shall expire every or trustees qualified (Sec. 23). year. Subsequent elections of trustees comprising 1/3 of the board shall be held annually, and trustees so elected shall have a term of 3 years. (Sec. 92) Election of officers Officers are elected by the Board of Directors Officers may directly elected by the members (Sec. 25), except in close corporations where UNLESS the AOI or by-laws provide the stockholders themselves may elect the otherwise. (Sec. 92) officers. (Sec. 97) Generally, the meetings must be held at the Place of meetings Any place within the Philippines, if provided for by the by-laws (Sec. 93) principal office of the corporation, if practicable. If not, then anyplace in the city or municipality where the principal office of the corporation is located. (Sec. 51) Generally non-transferable since membership Transferability of Transferable. and all rights arising therefrom are personal. interest or However, the AOI or by-laws can provide membership

May be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry, agricultural and like chambers, or any combination thereof. (88) Profit is distributed to shareholders Whatever incidental profit made is not distributed among its members but is used for furtherance of its purpose. AOI or by-laws may provide for the distribution of its assets among its members upon its dissolution. Before then, no profit may be made by members. Stockholders Members Each stockholder votes according to the Each member, regardless of class, is entitled to proportion of his shares in the corporation. No one (1) vote UNLESS such right to vote has shares may be deprived of voting rights except been limited, broadened, or denied in the AOI those classified and issued as "preferred" or or by-laws. (Sec. 89) "redeemable" shares, and as otherwise provided by the Code. (Sec. 6) May be denied by the AOI or the by-laws. (Sec. Cannot be denied. (Sec. 58) 89) May be authorized by the by-laws, with the Not possible. approval of and under the conditions prescribed by the SEC. (Sec. 89) Board of Directors or Trustees Members of the corporation

Distribution of assets in case of dissolution FORMATION AND ORGANIZATION OF CORPORATION Requirements in the formation of a corporation Who may form a corporation (See SEC. 10) INCORPORATORS Definition

otherwise. (Sec. 90) See Sec. 94.

Characteristic Number

REQUIREMENTS stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof natural persons not less than 5; not more than 15

COMMENTS compare with Corporators which include all stockholders or members, whether incorporators or joining the corporation after its incorporation.

excludes corporations and partnerships may be more than 15 for non-stock corp. except educational corp. does not prevent the one-man (person) corporation wherein the other incorporators may have only nominal ownership of only one share of stock; not necessarily illegal residence a requirement; citizenship requirement only in certain areas such as public utilities, retail trade banks, investment houses, savings and loan associations, schools

Age Residence

of legal age majority should be residents of the Philippines

Steps in the formation of a corporation Mutual Agreement to perform certain acts required for organizing a corporation 1-Organize and establish a corporation 2-Comply with requirements of corporation code 3-Contribute capital/resources 4-Mode of use of capital/resource and control/management of capital/resource 5-distribution/disposition of capital/resource (embodied in constitutive documents) STEPS a. Promotional Stage (See SEC. 2. Definitions) COMMENTS Promoter brings together persons who become interested in the enterprise aids in procuring subscriptions and sets in motion the machinery which leads to the formation of the corporation itself formulates the necessary initial business and financial plans and, if necessary, buys the rights and property which the business may need, with the understanding that the

b. Drafting articles of incorporation (See SEC. 14) c. Filing of articles; payment of fees.

corporation when formed, shall take over the same. (see chart below) AOI & the treasurers affidavit duly signed & acknowledged must be filed w/ the SEC & the corresponding fees paid failure to file the AOI will prevent due incorporation of the proposed corporation & will not give rise to its juridical personality. It will not even be a de facto corp. Under present SEC rules, the AOI once filed , will be published in the SEC Weekly Bulletin at the expense of the corp. (SEC Circular # 4, 1982). Process: a) SEC shall examine them in order to determine whether they are in conformity w/ law. b) If not, the SEC must give the incorporators a reasonable time w/in w/c to correct or modify the objectionable portions. Grounds for rejection or disapproval of AOI: a) AOI /amendment not substantially in accordance w/ the form prescribed b) purpose/s are patently unconstitutional, illegal, immoral, or contrary to government rules & regulations; c) Treasurers Affidavit is false; d) required percentage of ownership has not been complied with (Sec. 17) e) corp.s establishment, organization or operation will not be consistent w/ the declared national economic policies (to be determined by the SEC, after consultation w/ BOI, NEDA or any appropriate government agency -- PD 902-A as amended by PD 1758, Sec. 6 (k)) Decisions of the SEC disapproving or rejecting AOI may be appealed to the CA by petition for review in accordance w/ the ROC.

d. Examination of articles; approval or rejection by SEC.

e. Issuance of certificate of incorporation.

Certificate of Incorporation will be issued if: a) SEC is satisfied that all legal requirements have been complied with; and b) there are no reasons for rejecting or disapproving the AOI. It is only upon such issuance that the corporation acquires juridical personality. (See Sec. 19. Commencement of corporate existence) Should it be subsequently found that the incorporators were guilty of fraud in procuring the certificate of incorporation, the same may be revoked by the SEC, after proper notice & hearing.

a. Promotion b. Drafting articles of incorporation (See SEC. 14) CONTENTS OF AOI Corporate Name COMMENTS Essential to its existence since it is through it that the corporation can sue and be

sued and perform all legal acts A corporate name shall be disallowed by the SEC if the proposed name is either: (1)identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (2)patently deceptive, confusing or contrary to existing laws. (Sec. 18) LYCEUM OF THE PHILS. VS. CA(219 SCRA 610) The policy underlying the prohibition against the registration of a corporate name which is identical or deceptively or confusingly similar to that of any existing corporation or which is patently deceptive or patently confusing or contrary to existing laws is: [Link] avoidance of fraud upon the public which would have occasion to deal with the entity concerned; [Link] prevention of evasion of legal obligations and duties, and [Link] reduction of difficulties of administration and supervision over corporations. A corporation can only have one (1) primary purpose. However, it can have several secondary purposes. A corporation has only such powers as are expressly granted to it by law & by its articles of incorporation, those which may be incidental to such conferred powers , those reasonably necessary to accomplish its purposes & those which may be incident to its existence. Corporation may not be formed for the purpose of practicing a profession like law, medicine or accountancy must be within the Philippines specify city or province street/number not necessary important in determining venue in an action by or against the corp., or on determining the province where a chattel mortgage of shares should be registered cannot specify term which is longer than 50 years at a time may be renewed for another 50 years, but not earlier than 5 years prior to the original or subsequent expiry date UNLESS there are justifiable reasons for an earlier extension. names, nationalities & residences of the incorporators; names, nationalities & residences of the directors or trustees who will act as such until the first regular directors or trustees are elected; treasurer who has been chosen by the pre-incorporation subscribers/members to receive on behalf of the corporation, all subscriptions /contributions paid by them. amount of its authorized capital stock in lawful money of the Philippines number of shares into which it is divided in case the shares are par value shares, the par value of each, names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his subscription, and if some or all of the shares are without par value, such fact must be stated for a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each 25% of 25% rule to be certified by Treasurer paid up capital should not be less than P5,000 Classes of shares into w/c the shares of stock have been divided; preferences of & restrictions on any such class; and any denial or restriction of the pre-emptive right of stockholders should also be expressly stated in said articles. If the corporation is engaged in a wholly or partially

Purpose Clause

Principal Office

Term of Existence

Incorporators and Directors

Capital Stock

Other matters

nationalized business or activity, the AOI must contain a prohibition against a transfer of stock which would reduce the Filipino ownership of its stock to less than the required minimum. Any corporation may be incorporated as a close corporation, except: a) mining or oil companies; b) stock exchanges; c) banks; d) insurance companies; e) public utilities; f) educational institutions; & g) corporations declared to be vested w/ public interest c. Filing of Articles; Payment of Fees d. Examination of Articles; Approval or Rejection by SEC e. Issuance of Certificate of Incorporation