Corporation Law Rev

CORPORATION LAW
Introduction stockholders or members and from any other legal

entity to which it may be connected.
Different forms of business organization
It has a personality separate and distinct from its
Individual Proprietorship: individual operates a small stockholders.
business with a limited capital. Registration to DTI
Corporate officers cannot be held liable for their own
Partnership: by the contract of partnership, two or more acts so long as they acted within the scope of their
persons bind themselves to contribute money, property,
authority and in good faith.
or industry to a common fund, with the intention of
dividing the profits among themselves. Two or more Properties of corporation cannot be sold by the
persons may also form a partnership for the exercise of stockholder without express authority from the board.
profession. (article 1767 CC)Registration to SEC Their interest is merely indirect, contingent and
inchoate. Hence, they have no right to intervene in a
Joint Stock Company: formed under a contract and litigation involving the property of corporation.
requires no special sanction from the state/ The
members are liable jointly and severally for the Instances when corporate officers can be held liable in
company’s debts. their personal capacity
Cooperative Association: Registration to the Cooperative 1. Acted maliciously or in bad faith or with gross
development authority negligence;
2. Agreed to hold himself personally and solidarilly
Business trust: formed by a contract and that te title to liable with the corporation;
the properties and the conduct of business is in the
3. Made personally liable for corporate action by a
hands of trustees who act for a large group of specific provision of law;
beneficiaries. 4. When it is proven that the officer has used the
Corporation: Creation of law and all its rights, powers fiction of separate corporate personality to
and duties are derived from legislation. defraud a third party or for wrongful ends.
Theories of Corporations Corporation not entitled to Moral Damages
1. Ethnological Theory: under this theory, the A juridical person is not entitled to moral damages
corporate idea therefor, is the product of no because, not being a natural person, it cannot
one people and no one country, but on the experience physical suffering or such sentiments as
contrary, developed more or less wounded feelings. However, a corporation may have a
independently, in varying forms among several good reputation which if debased or besmirched
ethnological units. resulting in social humiliation, may be a ground for
2. Imitative Theory: recovery of moral damages and attorney’s fees.
Doctrine of Peircing the Veil of Corporate Fiction
SECTION 1 Being a mere creation of law, a corporation may be

Corporation an artificial being created by operation of allowed to exist solely for lawful purposes but where
law, having the right of succession and the powers, the fiction of corporate entity is being used as a cloak or
attributes and properties expressly authorized by law or cover for fraud or illegality, or to “defeat public
incidental to its existence. ABCOL RS PAPEAL IE convenience, justify a wrong, protect fraud, or to
defend a crime”, or for ends subversive of the policy
A corporation is a legal or a juridical person with a and purpose behind its creation. On equitable
personality separate and apart from its individual consideration, this fiction will be disregarded and the
CORPORATION LAW
individuals composing it or two corporations will be instrumentality, agency, conduit or adjunct of
treated as identical. another corporation.
Law will not recognize the separate and distinct

personality; this non-recognition is called the doctrine
Sec. 2 page 30
of piercing the veil of corporate fiction.
The rationale is to remove the barrier between the

corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain
proscribed activities.
The wrongdoing must be clearly and convincingly

established; it cannot be presumed. The presumption is
that the stockholders or officers and the corporation
have distinct separate juridical personality.
Burden of proof falls upon the party seeking to pierce

the veil.
 Effect of Liability
In any of the cases where the separate corporate
identity is disregarded, the corporation will be treated
merely as an association of persons and the
stockholders or members will be considered as the
corporation, that is, the liability will attach personally or
directly to the officers and the stockholders; or when
there are two corporations, they will be merged into
one, the one being regarded merely as the
instrumentality, agency, conduit or adjunct of the other.
Even if fraud is established, this fact alone is not
sufficient to justify the piercing of the veil where it is
not sought to hold the officers and stockholders
personally liable for corporate debt.
 Application of the Doctrine in Three Areas

1. Defeat public convenience – as when the
corporate fiction is used as a vehicle for the
evasion of an existing obligation;
2. Fraud Cases – or when the corporate entity is
used to justify a wrong, protect a fraud or
defend a crime;
3. Alter ego cases – where a corporation is merely
a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is
so organized and controlled and its affairs are
so conducted as to make it merely an

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CORPORATION LAW

Introduction stockholders or members and from any other legal

Theories of Corporations Corporation not entitled to Moral Damages

Doctrine of Peircing the Veil of Corporate Fiction

SECTION 1 Being a mere creation of law, a corporation may be

Law will not recognize the separate and distinct

The rationale is to remove the barrier between the

The wrongdoing must be clearly and convincingly

Burden of proof falls upon the party seeking to pierce

 Application of the Doctrine in Three Areas

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