Corporation: Definition, Nationality, Classes, & Juridical Personality

Definition of 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 incidental to its existence (RCC Sec. 2)

Four Characteristics of a Corporations

  1. Artificial Being (Exception: Doctrine of Piercing the Veil of Corporate Fiction)
  2. Created by Operation of Law
  3. Has Right of Succession
  4. Has Power, Attributes, Properties Granted by Law (Doctrine of Limited Capacity)

Classes of Corporations (RCC Sec.3)

  1. Stock Corporations – those 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.
  2. Non-stock Corporations – a corporation where no part of its income is distributable as dividends to its members, trustees, or officers: provided, that any profit which it may obtain incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized (RCC Sec. 86)

Other classes of corporations

  1. Purpose
    1. Public – Those formed or organized for the government of a portion of the state which has for their purpose the general good and welfare. (Republic Act No. 1459 also known as The Corporation Law, Sec. 3)
    2. Private – Those formed for some private purpose, benefit, aim. (The Corporation Law, Sec. 3)
    3. GOCCs – Government-owned and Controlled Corporations, refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government of the Republic of the Philippines directly or through its instrumentalities either wholly or, where applicable as in the case of stock corporations, to the extent of at least a majority of its outstanding capital stock (Republic Act No. 10149 also known as GOCC Governance Act of 2011, Sec. 3o)
    4. Quasi-Public – Private corporations supported by the government in the performance of public duties (e.g. public utilities – electric, water, & transportation)
  2. Control
    1. Parent
    2. Subsidiary
  3. Legal Status
    1. De jure
    2. De facto
  4. Laws of Incorporation
    1. Domestic
    2. Foreign
  5. Number of Persons
    1. Aggregate
    2. Sole
  6. Public or Not
    1. Open
    2. Close
  7. Charitable or Not
    1. Eleemosynary
    2. Civil
  8. Religious or Not
    1. Ecclesiastical
    2. Lay

Corporation by Prescription

A corporation that has existed longer than the memory of man can remember and is presumed to have acquired its juridical personality from the long time ago.

Nationality of Corporations

For purposes of this Code, a foreign corporation is one formed, organized or existing under laws other than those of the Philippines’ and whose laws allow Filipino citizens and corporations to do business in its own country or State. It shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance with this Code and certificate of authority from the appropriate government agency. (RCC Sec. 140)

Incorporation test

The primary test under Philippine jurisdiction in determining the nationality of a corporation is the incorporation test, wherein a corporation is considered a national of the country under whose laws it was incorporated. (SEC-OGC Opinion No. 12-02)

Control test (liberal rule)

Test used to determine the eligibility of a corporation, which has foreign equity participation in its ownership structure, to engage in nationalized or partly nationalized activities. (SEC-OGC Opinion No. 12-02)

If a corporation is at least 60% Filipino-owned, then all shares (100%) are recorded as Filipino shares.

Wholly/partly nationalize industries

wholly or partly nationalized industries are industries regulated by the constitution or some other laws by limiting foreign equity. Most of these industries are provided in the Foreign Investment Act Negative List. Some examples of these industries are as follows:

  • No foreign equity – Mass media by mandate of the 1987 Constitution
  • Up to 25% foreign equity – private recruitment, whether for local or overseas employment by mandate of PD No. 442
  • Up to 40% foreign equity – ownership of private lands by mandate of the Constitution

Grandfather rule (strick rule)

If a corporation is less than 60% Filipino-owned, then the corresponding percentage belonging to Filipino shall be the only shares to be recorded as Filipino shares.
Grandfather rule is applied to corporations where the 60-40 Filipino-foreign ownership is in doubt.

In computing the true Filipino-foreign equity, the long method (for presentation purposes) is as follow:

DEF Corp.59% X 60%= 35.4%Filipino
41% X 60%= 24.6%Foreign
XYZ Corp.= 40%Foreign
XYZ C orp.35.4% X 70%= 24.78%Filipino
64.6% X 70%= 45.22%Foreign
ABC Corp.= 30%Foreign

We came up with the true Filipino-foreign equity of ABC Corp. as 24.78%:75.22%.

We can come up with the same figure by simply multiplying the Filipino equity percentages.

70% X 60% X 59% = 24.78%

Liability of Corporations for Torts and Crimes

Is a corporation liable for torts?

YES, whenever a tortuous act is committed by an officer or agent under the express direction or authority of the stockholders or members acting as a body, or, generally, from the directors as the
governing body. (PNB v. CA, G.R. No. L-27155, May 18, 1978)

Is a corporation liable for crimes?

NO, since a corporation is a mere legal fiction, it cannot be held liable for a crime committed by its officers, since it does not have the essential element of malice; in such case the responsible officers would be criminally liable. (People v. Tan Boon Kong, G.R. No. L-35262. Mar. 15, 1930)

EXCEPTION: If the penalty of the crime is only fine or forfeiture of license or franchise. (Ching v Secretary of Justice, G. R. No. 164317, Feb. 6, 2006)

An officer of a corporation can be held criminally liable for acts or omissions done in behalf of the corporation only where the law directly makes the person who fails to perform the act in the prescribed manner expressly liable criminally. (Sia v. People, L-30896,
Apr. 28, 1983)

Is a corporation entitled to moral damages?

A corporation is NOT entitled to moral damages because it has no feelings, no emotions, no senses. (ABS-CBN Broadcasting Corporation v. CA, G.R. No. 128690 Jan 21, 1999 and Phillip Brothers Oceanic, Inc, G.R. No. 126204, Nov. 20, 2001)

EXCEPTIONS: The corporation may recover moral damages under item 7 of Article 2219 of the New Civil Code because said provision expressly authorizes the recovery of moral damages in cases of libel, slander, or any other form of defamation. Article 2219(7) does not qualify whether the injured party is a natural or juridical person. Therefore, a corporation, as a juridical person, can validly complain for libel or any other form of defamation and claim for moral damages. (Filipinas Broadcasting Network, Inc. v. AMEC-BCCM, G.R. No. 141994, Jan 17, 2005)

When the corporation has a reputation that is debased, resulting in its humiliation in the business realm. (Manila Electric Company v. T.E.A.M. Electronics Corporation, et. al., G.R. No. 131723, Dec. 13, 2007)

Doctrine of Piercing the Veil of Corporate Fiction

A doctrine that disregard the separate personality of a corporation if this separate personality was used to justify wrong, protect fraud, or perpetrate deception.

Elements

  • Control – absolute control by the directors/stockholders of a corporation where the corporation seems to its will
  • Act – Wrong-doings such as fraud
  • Loss – injury sustained by the plaintiff

Tests in determining applicability

  • Fraud test (When corporate fiction used to justify a wrong, protect fraud or defend crime)
  • Control test
  • Alter-ego or instrumentality test (or conduit cases)
  • Public convenience or objective test
  • Equity cases/test