Corpo Personal Notes - Campos Chapter 3

8/12/2019 Corpo Personal Notes - Campos Chapter 3

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Campos Chapter III:

Formation and Organization of Corporation

Who may form corporationSec 10 CoCo

Incorporators: stockholders/members mentioned in the AoI as originally forming and composing thecorporation, are signatories

Corporators: all stockholders or members (larger term)

ach incorporator m!st be a stockholder (ne" re#!irement of the CoCo)

1$ %!st be &at!ral persons

Corporations and partnerships cannot be incorporators

Corporations and partnerships can be stockholders

'&: cooperaties and corporations primarily organi*ed to hold e#!ities may be incorporators

+$ At least fie incorporators

If a single person o"ns the b!siness, he can incorporate by giing nominal o"nership of a share

of stock to other persons

-$ .esidence re#!irement citi*enship re#!irement only in certain areas

.: only hilippine residence re#!ired to be an incorporator

'&: citi*enship also re#!ired for p!blic !tilities, retail trade, banks, inestment ho!ses, saings

and loan associations, schools, other areas of inestment that Congress "ill determine

If more than 0 of the o!tstanding capital is o"ned/controlled by aliens, "ritten a!thori*ation

from 23I re#!ired before SC registration

23I "ill determine if the corporation "ill contrib!te to the so!nd and balanced de4t of

the nat4l economy

$ .estrictions on stock o"nership of closely knit gro!ps

2anks cannot operate if the stockholdings of one person or persons related to each other "ithin

the -rddegree of consang!inity or affinity e5ceed +0 of the oting stock

Sec 10, CoCo

Sec 67 CoCo

(m!st both be taken in harmony "ith each other)

Steps in Formation of Corporation1$ romotional Stage

romoter: one "ho brings together persons "ho become interested in the enterprise, aids in

proc!ring s!bscriptions and sets in motion the machinery "hich leads to the formation of the

corporation itself

Sec + .e Sec Act: a promoter

8akes initiatie in fo!nding and organi*ing the b!siness or enterprise of an iss!er

.eceies in consideration of serices or property or both serices or property 10 or

more of any class of sec!rities of the iss!er or 10 or more of the proceeds from the sale

of any class of s!ch sec!rities

.e#!isites before incorporation

at least +9 of the a!thori*ed capital stock of the proposed corporation sho!ld be

S2SC.I2;

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At least +9 of the s!bscription sho!ld be paid in

romoters are often also the incorporators

If initial capital re#!irements of the b!siness cannot be met by the incorporators, s!ch b!siness

m!st be incorporation s!bscriptions !p to the minim!m amo!nt re#!ired

before a corporation may be registered, proided no commission is paid in connection "ith their

disposition

2efore s!bscriptions to the stock of a proposed corporation may be solicited, the stocks m!st first

be registered or a certificate of e5emption from registration sho!ld be obtained

+$ ;rafting articles of incorporation

Articles of incorporation constit!te the charter of the corporation

8he AoI is the contract bet"een the corporation and the stockholders

Sec 1 CoCo

Sec 19 CoCo

(1) Corporate name

ssential to a corporation4s e5istence

8hro!gh the name the corporation can s!e and be s!ed and perform all legal acts

&ot allo"ed to adopt a name identical or deceptiely or conf!singly similar to any e5isting

corporation, for e5ample:

i$ Starbo5 Coffee Inc

ii$ ?!lie 2ee Corporation

iii$ %ang ;onald4s Inc

Incorporators may be allo"ed to resere a name "ith the SC for a reasonable time

(+) !rpose cla!se

Confers and limits the po"ers of a corporation

nder the CoC3 a corporation only has the po"ers e5pressly granted to it by la" and by its

articles of incorporation ( @ incidental po"ers @ reasonably necessary po"ers)

2allantine: reasons for a p!rpose cla!se

i$ rospectie stockholder "ill kno" "hat b!siness his money "ill be risked for

ii$ %anagement "ill kno" "ithin "hat b!siness it is allo"ed to act

iii$ 8hird parties "ill be able to determine if a contract he "ants to enter "ith the

corporation is "ithin general a!thority of the management

In Sec 1(+), a corporation may hae as many p!rposes as it may "ish to incl!de in its

articles, s!bect to certain conditions

i$ AoI m!st specify the primary and secondary p!rposes

ii$ Corporations "ith special proisions in the CoCo/goerned by special la"s can only

hae the p!rposes !ni#!e to them and no other (ed!c corps cannot import and e5port)

iii$ Ba"f!l p!rpose



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&;A has the po"er to ref!se or deny the application for registration of any corporation if

its establishment/organi*ation/operation "ill not be consistent "ith the declared national

economic policies

Corporations CA&&38 be formed for the p!rpose of practicing a profession

Sec CoCo

(-) rincipal office of the corporation

Sole re#!irement: principal office m!st be "ithin the hilippines

Statement of principal office establishes the residence of the corporation

() 8erm of e5istence

3riginal term: D 90 years, can be e5tended infinitely (also !sing 90>year increments)

Sec 11 CoCo

(9) Incorporators and directors n!mber and #!alifications

AoI m!st gie names/nationalities/residences of incorporators/directors/tr!stees

;irectors: for stock corps

8r!stees: for non>stock corps

AoI /2yla"s of a non>stock corporation can proide for more than 19 tr!stees (b!t "hat

abo!t a stock corporationE)

&F:

i$ incorporator of stock corporation m!st o"n at least one share of capital stock

ii$ director m!st o"n at least one share of stock too

iii$ tr!stee m!st be a member of his non>stock corporation

Aliens can be directors b!t only in s!ch n!mber proportional to their allo"able

participation/capital shares

(G) Capital stock s!bscription payment

Capital stock: the amo!nt fi5ed in the articles of incorporation to be s!bscribed and paid in or

sec!red to be paid in by the shareholders of a corporation, at the organi*ation of the

corporation and !pon "hich it is to cond!cts its operations

i$ 8he limit to the total par or iss!ed al!e of the shares "hich a corporation may iss!e S!bscription: m!t!al agreement of the s!bscribers to take and pay for the stock of a

corporation

ar al!e share: a share "ith a certificate of stock that has an amo!nt in pesos as its nominal

al!e

i$ Stated in the AoI

ii$ 8he corporation cannot iss!e par shares at less than the stated par al!e

Iss!ed al!e: consideration for "hich no par al!e shares may be iss!ed$ Can be fi5ed

thro!gh

i$ AoI

ii$ 2oard of directors (if they hae a!thority)iii$ Stockholders representing maority of the o!tstanding capital stock

AoI m!st sho" the names/nationalities/residences of the original s!bscribers, the amo!nt

s!bscribed by them, and ho" m!ch each has paid on their s!bscription

.: stock corporations are not re#!ired to hae a minim!m a!thori*ed capital stock, s!bect

to Sec 1-

Sec 1- CoCo

At least +9 of the a!thori*ed capital stock m!st be s!bscribed A8 8H 8I% of

incorporation



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At least +9 of the total s!bscription m!st be paid 3& S2SC.I8I3& (i$e$

+9 of the +9 in the preio!s b!llet)

aid !p capital cannot be less than 9k

Fhy these re#!irementsE rotect third persons

SC re#!ires that paid !p capital at the time of incorporation m!st be in the form of cash

deposited in a bank or in property !sed by the corporation in its b!siness$ Cannot be money

market placements

(7) 3ther matters AoI can incl!de classes of shares into "hich shares of stock hae been diided @ their

preferences and restrictions

;enial or restriction of stockholders4 pre>emptie right

If "holly/partially nationali*ed b!siness/actiity: prohibition against transfer of stock "hich

"o!ld red!ce Jilipino o"nership to less than the re#!ired minim!m

() Close Corporations

A corporation is a close corporation only if it follo"s the re#!isites of Sec 6G

Sec 6G CoCo

8he CoCo allo"s a close corporation to proide special proisions in its AoI e5cl!ding it

from some of the re#!irements and prohibitions imposed on corporations, essentially makingit an


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If the conditions conc!r then the corporation is a de facto corporation$ 8he incorporation of a de facto

corporation cannot be collaterally attacked either by the State or by priate indiid!als$ (the state can

directly attack it in a #!o "arranto proceeding)

;e facto corporation almost the same as de !re corporation e5cept the State can #!estion its

incorporation in a direct proceeding

Has a !ridical personality e5cept as to the state

8herefore stockholders still hae limited liability

Sec +0 CoCo 8he incorporation of a de !re corporation cannot be s!ccessf!lly attacked een in a #!o "arranto

proceeding by the state

8herefore, a good defense for a corporation being attacked by a State !sing a prima facie case is

to bring !p the fact that it is a de !re corporation

Stockholders still hae limited liability

;e facto doctrine: came from the necessity to promote sec!rity of b!siness transactions

Fhat happens if the corporation is neither de facto nor de !reE Associates in the b!siness may be held

liable as partners, 'C8 if the principle of corporation by estoppel is applicable

(1) se of corporate po"ers

8he slightest eidence of cond!cting b!siness as a corporation "ill be deemed s!fficient

&ot necessary that dealings bet"een paries "as on a corporate basis

lection of directors/officers: not

reailing ie": no de facto corporation !nder a stat!te s!bse#!ently declared !nconstit!tional

Increasing tendency to recogni*e e5istence "hen the corporation in good faith did all re#!ired

!nder the stat!te to form a alid corporation

en if the corporation is not recogni*ed as a de facto corporation, limited liability for the

stockholders may still apply !nder estoppel

(-)


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A third person can be precl!ded from denying an association4s corporate e5istence on a s!it bro!ght by

the association on the contract$ 8his applies een if he "as !na"are of the defectie corporation$

A person sho!ld not be allo"ed to escape liability on a contract from "hich he has benefited on

the irreleant gro!nd of defectie incorporation

&ot tr!e estoppel since the third person has not made any representation of d!e incorporation,

ho"eer, the third person is deemed to hae admitted the e5istence of the corporation by the fact

that he dealt "ith it as a corporation

Sit!ation: associates fra!d!lently misrepresent e5istence of corporation$ 8hird party contracts "ith them,"itho!t kno"ledge of the serio!s defect$

8hird party can s!e the associates as if they "ere general partners

8he general partners cannot claim that the third party is estopped from asserting their liability

8he general partners cannot profit by their o"n misrepresentation

Sit!ation: associates ignorant of defectie incorporation, innocent third person dealt "ith the corporation

8hird person cannot hold associates personally liable

Ho"eer, if third person "as not innocent, he is deemed to hae chosen to deal "ith the

corporation as a corporation$ His recoery is limited to corporate assets only, not from the

indiid!al associates$

stoppel applies een if

8he alleged corporation did not deal "ith the plaintiff

2!t the plaintiff is s!ing on a tort

;e facto doctrine stoppel doctrine

Fhere all the re#!isites of a de facto corporation

are present, the defectiely formed corporation "ill

be a de !re corporation, e5cept as to the State in a

direct proceeding

3nly applies if !nder the circ!mstances of the

partic!lar case, the association is estopped from

defending on the gro!nd of its lack of capacity to

s!e, or the third party had dealt "ith the

corporation and is deemed to hae admitted its

e5istence (altho!gh sometimes the persons

composing the association may be held liable aspartners)

Internal Organization of CorporationA corporation needs to be organi*ed preparatory to the cond!ct of its b!siness$ In order to be organi*ed properly,

the follo"ing m!st be done:

Approal of by>la"s

lection of directors

lection of officers

1$ 2y Ba"s

2y>la"s: the prod!ct of the agreement of the stockholders or members$ 8hey establish the r!les

for the internal goernment of the corporation

Sec -G, G

Sec G, 7

2y>la"s are s!bordinate to the articles of incorporation as "ell as to the CoCo$ 8hey sho!ld not

be inconsistent "ith them$

Sec 7 en!merates matters that may be coered by by>la"s

2y>la"s can proide for the time place manner of calling and cond!cting directors4 meetings



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2y>la"s can only proide for the time and manner of cond!cting stockholders4 meetings (not the

place)

FhyE 8he CoCo proides that stockholders4 meetings sho!ld be held at the place "here

the principal office of the corporation is established, "hile directors can hold meetings

any"here, !nless the by>la"s proide other"ise$

2y>la"s can be filed and adopted een before incorporation

Ho"eer, they m!st be approed by all the incorporators (not !st maority)

and they sho!ld be s!bmitted to the SC "ith the AoI After incorporation, by>la"s m!st be adopted by a corporation "ithin one month after receipt of

notice of iss!ance of the certificate of incorporation

&o by>la"s may res!lt in s!spension/reocation of the certificate

Mote re#!ired: maority of o!tstanding capital stock (if non>stock, maority of members)

8he SC can disapproe by>la"s inconsistent "ith la"

Can a by>la" !napproed by the SC bind the stockholders and the corporation pending

approalE &ot anymore$ Sec G states that by>la"s only become effectie !pon iss!ance of the

SC of a certification

Approed by>la"s "ill bind the corporation and stockholders, incl!ding those "ho oted against

them and those "ho oined after their adoption and approal

Fhen deemed "aied: SC has held that contracts entered into "itho!t strict compliance

"ith by>la"s may become binding on the corporation d!e to long ac#!iescence and !sage

(the infamo!s case of 2oard of Bi#!idators Nala")

2y>la"s are merely internal r!les among the stockholders$ 8hey cannot affect/pre!dice persons

"ho deal "ith the corporation, !nless they hae kno"ledge of them$

+$ lection of directors and officers commencement of b!siness

Sec ++

la"s and establishment of the board of directors

2oard of directors: body "hich "ill administer the affairs of the corporation and e5ercise its

po"ers

AoI shall name initial board members !ntil the first set of reg!lar directors are d!ly elected and

#!alified

pon election of directors, they m!st complete the organi*ation of the corporation by electing

officers

Sec +9

After the approal of by>la"s and election of directors and officers, the corporation is ready to do

b!siness$

8he corporation sho!ld do b!siness "ithin + years from its date of incorporation, other"ise:

o Its corporate po"ers "ill cease

o 8he corporation "ill be deemed dissoled

-$ Ann!al financial statements

8he corporation (stock or non>stock) sho!ld keep proper acco!nting records and file ann!al

financial statements "ith the SC

FhyE So SC can e5ercise its s!perisory po"ers


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Corpo Personal Notes - Campos Chapter 3