The Corporation Code of The Philippines B.P. Blg. 68: Title 1 General Provisions Definitions and Classifications

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THE CORPORATION CODE OF THE PHILIPPINES

B.P. Blg. 68

Title 1
GENERAL PROVISIONS
Definitions and Classifications

What is 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. (Sec. 2)

What does it mean that a corporation is an artificial being?

It means that the corporation is treated as a person which is separate and apart
from its individual members or stockholders. Consequently, as a rule, the corporation is not
liable for the debts of its stockholders and vice versa. Also, it can acquire property and
incur obligations and file cases in its own name. The property in the name of the
corporation is not the property of the stockholders in the same way that the property of the
stockholders is not the property of the corporation. This is known as the Doctrine of
corporate entity.

Why is the corporation considered as a person separate and distinct from the
members/stockholders?

This is for the purpose of convenience and to promote the ends of justice.

However, where the fiction of corporate entity is being used as a cloak or cover for fraud
or illegality, this fiction will be disregarded and the individuals composing it will be treated
as identical. This is known as the doctrine of piercing the veil of corporate entity.

What does it mean that the corporation is created by operation of law?

This means that corporations cannot come into existence by mere agreement of
the parties. They require special authority or grant from the State. There should be a law
which will directly create the corporation or there should be a general incorporation law
through which persons may incorporate. In the Philippines, this general law is Batas
Pambansa Bilang 68 otherwise known as the Corporation Code of the Philippines.

Note: Corporations created by special law is subject to the constitutional limitation


that such corporation shall be owned or controlled by the government. Also, under BP Blg.
68, it shall be governed primarily the the provisions of the special law or charter creating
them supplemented by the provisions of the Corporation Code, insofar as they are
applicable.

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What does it mean that the corporation has a right of succession?

It means that a corporation has a capacity of continuous existence irrespective of


death, withdrawal, insolvency or incapacity of the individual members or stockholders and
regardless of the transfer of their interest or shares of stock.

What does it mean that the corporation has the pwers, attributes and properties expressly
authorized by law or incident to its existence?

This means that since a corporation is merely created by law, it may exercise only
such powers as are granted by the law of its creation. Thus, a corporation organized for the
purpose of supplying electricity to the public can build electrical facilities but they cannot
buy and sell agricultural lands because it is not within the power expressly or impliedly
authorized by law or incident to its existence.

How is a corporation different from a partnership?

The following are the distinctions:

1. Manner of creation – A partnership is created by mere agreement of the parties


while a corporation is created by law or by operation of law.
2. Number of incorporators – A partnership may be organized by only two persons,
while a corporation (except a corporation sole) requires at least five incorporators.
3. Commencement of juridical personality – A partnership commences to acquire
juridical personality from the moment of the execution of the contract of
partnership, while a corporation begins to have corporate existence and juridical
personality only from the date of the issuance of the certificate of incorporation by
the Securities and Exchange Commission under its official seal.
4. Powers – A partnership may exercise any power authorized by the partners provided
it is not contrary to law, morals, good customs, public order or public policy, while a
corporation can exercise only the powers expressly granted by law or implied from
those granted or incident to its existence.
5. Management – In a partnership, when the management is not agreed upon, every
partner is an agent of the partnership, whil in a corporation, the power to do
business and manage its affairs is vested in the board of directors or trustees.
6. Effect of mismanagement – In a partnership, a partner as such can sue a co-partner
who mismanages, whil in a corporation, the suit against a member of the board of
directors or trustees who mismanages must be in the name of the corporation.
7. Right of succession – A partnership has no right of succession, whil a corporation has
such right.
8. Extent of liability to third persons – In a partnership, the partners (except limited
partners) are liable personally and subsidiarily (sometimes solidarily) for partnership
debts to third persons, while in a corporation, the stockholders are liable only to the
extent of their investments as represented by the shares subscribed by them.
9. Transferability of interest – In a partnership, a partner cannot transfer his interest in
the partnership so as to make the transferee a partner without the consent of all the
other partners because the partnership is based on the principle of delectus
personum, while in a stock corporation, a stockholder has the right to transfer his

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shares without the prior consent of the other stockholders because a corporation is
not based on this principle.
10. Term of existence – A partnership may be established for any period of time
stipulated by the partners, while a corporation may not be formed for a term in
excess of 50 years extendible to not more than 50 years in any one instance.
11. Firm name – A limited partnership is required by the law to add the word “Ltd” to its
name, while a corporation may adopt any firm name provided it is not identical or
deceptively similar to any registered firm name or contrary to existing laws.
12. Dissolution – A partnership mayb be dissolved at any time by the will of any or all of
the partners, whil a corporation can only be dissolved with the consent of the State.
13. Laws which govern – A partnership is governed by the Civil Code, while a
corporation is governed by the Corporation Code.

What are the similiarities between a partnership and a corporation?

The following are the similarities between a partnership and a corporation:


1. Both has a juridical personality separate and distinct from that of the individuals
composing it.
2. Like a partnership, a corporation can act only through agents
3. Both are composed of an aggregate of individuals.
4. Both distribute their profits to those who contribute capital.
5. A partnership, no matter how created or organized, is taxable as a corporation
subject to income tax.

What are the different classifications of corporations?

The following are the classifications of corporations:


1. Classification under the Corporation Code:
a. Stock corporation – It is created and operated for the purpose of making profit
which may be distributed in the form of dividends to stockholders on the basis of
their invested capital.
b. Non-stock corporation – It does not issue stock and are created not for profit but
for the public good and welfare.
2. As to number of persons who compose them
a. Corporation aggregate – it is a corporation consisting of more than one menber
or corporator.
b. Corporation sole/ Religious corporation – It consist of one member or corporator
only and his successors such as a bishop.
3. Ecclessiatical corporation – It is one organized for a religious purpose
4. Eleemosynary corporation – it is one established for charitable purposes.
5. As to state or country under whose laws they have been created.
a. Domestic corporation – It is one incorporated under the laws of the Philippines.
b. Foreign corporation – it is one formed, organized or existing under any laws other
than those of the Philippines.
6. As to their legal right to corporate existence
a. De jure corporation – It is a corporation existing in fact and in law.
b. De facto corporation – It is a corporation existing in fact but not in law.
7. As to whether they are open to the public or not.

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a. Close corporation – It is one which is limited to selected persons or members of a
family.
b. Open corporation – It is one which is open to any person who may whish to
become a stockholder or member thereto.
8. As to their relation to another corporation:
a. Parent or holding corporation – It is one which is so related to another
corporation that it has the power either directly or indirectly to elect the majority
of the directors of such other corporation.
b. Subsidiary corporation – It is one which is so related to another corporation that
the majority of its directors can be elected either directly or indirectly by such
other corporation.
9. As to whether they are corporations in a true sense or only in a limited sense
a. True corporation is one which exists by statutory authority.
b. Quasi- corporation is one which exists without formal legilative grant. It is an
exception to the general rule that a corporation can exist only by authority of
law and it may be:
i. Corporation by prescription which has exercised corporate powers for an
indefinite period without interference on the part of the sovereign power
and which by fiction of law, is given the status of a corporation. Example
is the Catholic Church.
ii. Corporation by estoppel which is neither de jure or de facto but is
considered a corporation in relation to those only who, by reason of their
act or admissions are precluded from asserting that it is not a corporation.
10. As to whether they are for public or private purpose
a. Public corporation – It is one formed for the government of a portion of the State.
b. Private corporation – It is one formed for some private purpose, benefit or end. It
maybe stock or non-stock, GOCC or quasi-public corporation

What is a corporation composed of?

A corporation is composed of the following:


1. Corporators – They are those who compose the corporation, whether stockholders
or members.
a. Stockholders – They are the owners of shares of stock in a stock corporation.
b. Members – They are the corporators of a corporation which has no capital stock.
2. Incorporators – They are those mentioned in the articles of incorporation as originally
forming and composing the corporation and who executed and signed the article
of incorporation as such.
3. Promoters – They are persons who bring about the formation and organization of a
corporation by bringing together the incorporators or the persons interested in the
enterpirse, procuring subscriptions or capital for the corporation and setting in
motion the machinery which leads to the incorporation of the corporation itself.
4. Subscirbers – They are persons who have agreed to take and pay for original,
unissued shares of a corporation formed or to be formed.
5. Underwriter – is a person, usually an investment banker, who does the following:
a. Has agreed, alone or with others, to buy at stated terms an entire issue of
securities or a substantial part thereof

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b. Has guaranteed the sale of an issue by agreement to buy from the issuing party
any unsold protion at a stated price
c. Has agreed to use his best efforts to market all or part of an issue
d. Has offered for sale stock he has purchased from a controlling stockholder.

How can a person have a share in the profits of a corporation?

A person must become a stockholder of a corporation to have a share in its profits.


To become a stockholder he/ she must have shares in the corporation’s capital stock.
Having shares of stocks in a corporation is evidenced by a Certificate of stock issued by the
corporation.

What is a capital stock?

Capital stock is the amount fixed the articles of incorporation, to be subscribed and
paid in by the shareholders of a corporation, either in money or property, labor or services,
at the organization of the corporation or afterwards and upon which it is to conduct its
operation. It represents the equity of the stockholders in the corporate assets.

Authorized capital stock are shares of the corporation which have par value. Par
value is the value of the stock as specified in the articles of incorporation.

Subscribed capital stock is the amount of the capital stock subscribed whether fully
paid or not. It connotes an original subscription contract for the acquisition by a subscriber
of unissued shares in a corporation.

Outstanding capital stock is the portion of the capital stock which is issued and held
by persons other than the corporation itself. It is the total shares of stock issued to
subscribers or stockholders whether fully or partially paid except treasury shares.

Paid-up capital stock is that portion of the subscribed or outstanding capital stock
that is paid.

Unissued capital stock is that portion of the capital stock that is not issued or
subscribed. It does not vote or draws no dividends.

What are the different classes of shares?

Shares of stock may be:


1. Par value shares – It is one with a specific money value fixed in the articles of
incorporation and appearing in the certificate of stock for each share of stock of
the same issue. Under the law, a stock corporation may or may not have par value.
The following are the limitations or restrictions imposed by law regarding the
issuance of no par value shares:
a. Banks, trust companies, insurance companies and building and loan associations
shall not be permitted to issue no par value shares of stocks.
b. Preferred shares of stock may be issued only with a stated par value.

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c. Shares issued without par value shall be deemed fully paid and non-assessable
and the holder os such shares shall not be liable to the corporation or its creditors
in respect thereto. In other words, the holder shall not be liable beynd the issued
price.
d. Shares without par value may not be issued for a consideration less than the
P5.00 per share.
e. The entire consideration received by the corporation for its no par value shares
shall be treated as capital and shall not be available for distribution as dividends.
2. No par value share is one without any stated or par value appearing on the face of
the certificate of stock.
3. Voting share is share without right to vote.
4. Non-voting share is share without right to vote.
5. Common share is one which entitled the holder thereof to pro rata division of the
profits, if there are any, without any preference or advantage in that respect over
other stockhoder or class of stockholders. Common stocks are the residual owners
of the corporation, in that they get only the assets left over in case of liquidation
after all other securities holders are paid.
6. Preferred share of stock is stock which entitles the hoder thereof to certain
preferences over the holders of common stock. The preferences may consist in the
payment of dividends or the distribution of the assets of a corporation in case of
dissolution. This kind of share is rarely given voting privileges except in the following
matters:
a. Amendment of the articles of incorporation
b. Adoption and amendment of by laws
c. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporated property
d. Incurring, creating or increasing bonded indebtedness
e. Increase or decrease of capital stock
f. Merger or consolidation of the corporation with another corporation
g. Investment or corporate funds in another corporation or business in accordance
with the Corporation Code
h. Dissolution of the corporation
7. Promotion share is such share as is issued to promoters
8. Share in escrow is share subject to an agreement by virtue of which the share is
deposited by the grantor or his agent with a third person to be kept by the
depositary until the performance of a certain condition or the happening of a
certain event contained in the agreement.
9. Convertible stock is stock which is convertible or chageable by the stockholder from
one class to another class such as from preferred to common at the conversion rate.
10. Founders’ shares are shares issued to the organizers and promoters of a corporation
in consideration of some supposed right or property. Such shares usually share in
profits only after a certain percentage has been paid upon the common stock, but
are often given special privileges over other stock as to voting and as to division of
profits in excess of a minimum dividend on the common stock.
11. Redeemable shares are shares which may be purchased or taken up by the
corporation upon the expiration of a fixed period, or at the option of either the
issuing corporation or the stockholder or both at a certain redemption price. It may
be issued only when expressly so provided in the articles of incorporation.

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12. Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption,
donation or through some other lawful means. Such shares may again be disposed
of for a reasonable price fixed by the board of directors.

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