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Philippines Corporation Code

Other kinds or Classes of Corporations

Corporations may be:

(1) De jure corporation, one which has been regularly created in compliance
with all legal requirements and the right of which to exercise a corporate
franchise is invulnerable against attack by the state in quo warranto
proceedings. (2) De facto corporation, one organized as a corporation but
lacking in compliance with certain requirements, now governed by Section
20 of the Corporation Code, infra.. (3) Corporation by estoppel, one in which
the parties in a given transaction are estopped to deny corporate existence
to protect innocent third persons, now governed by Section 21 of this
Corporation Code, infra..(4) Corporation by prescription, one which, without
formal incorporation, has claimed to be a corporation, exercising corporate
powers for a long period of time, with the tolerance of the State, example of
which is the Roman Catholic Church. (5) Corporation aggregate, one
composed of several natural persons. (6) Corporation sole, which exists
when a religious elder or leader incorporates himself to manage the
properties of his Church, governed by Sections 110 to 115 of this
Corporation Code, infra. (7) Eleemosynary corporation, one organized for
public charity. (8) Civil corporation, one organized on matters or for
purposes other than religious or ecclesiastical. (9) Religious corporations,
those organized for ecclesiastical or religious purposes. (10) Close
corporation, which have either of two meanings: (a) one in which the stock
is held in few hands, or in few families and wherein it is not at all, or only
rarely, dealt in; (b) one where vacancies in the board of directors are filled
only by the remaining members of the board. (11) Open corporation, one
which may have either of two meanings: (a) one where the stock is available
for subscription or purchase by any person; or (b) one where the members
of the board are elected or the vacancies thereof are filled by the
stockholders. (12) Domestic corporation, one organized according to the
laws of a particular State. (13) Foreign corporation, one organized in one
State and licensed to do business in another State. (14) Subsidiary
corporation, one the stocks of which are controlled by another corporation
known as a parent or holding corporation. (15) Condominium corporation,
one which may be stock or non- stock organized by owners of definite
portions of a building for effective management thereof.

There is a large class of private corporations which on account of special

franchise conferred on them owe a duty to the public which they may be
compelled to perform. They are known as quasi- public corporations. A
quasi-public corporation may be said to be a private corporation which has
been given certain powers of a pub.. lie nature such as the power of eminent
domain in order to enable it to discharge its duties for the public benefit in
which respect it differs from an ordinary private corporation the powers of
which are given, and exercised exclusively for the profit and advantage of
shareholders. Quasi public corporations are not public corporations.

Quasi corporations are public bodies which resemble corporations to

undertake public or state work for the general welfare. They are, in a limited
sense, public corporations. They are public agencies of the State like
municipal corporations.

When Government does business through a corporation-

It is well-settled doctrine that when the government enters into commercial

business, it abandons its sovereign capacity and is to be treated like any
other corporation. By engaging in a particular business through the
instrumentality of a corporation, the government divests itself pro hac vice
of its sovereign character, so as to render the corporation subject to the
rules of law governing private corporations. (See Philippine National
Railways vs. Union de Maquinistas, Fogoneros y Motormen, L-31948, July
25, 1978.)

Corporation distinguished from a cooperative-

Membership in a cooperative is not the same as ownership of stocks in

ordinary corporations. While cooperatives may exercise some of the rights
and privileges given to ordinary corporations pro.. vided under existing laws,
such cooperatives enjoy other privileges not granted to the latter. Similarly,
members of cooperatives have rights and obligations different from those of
stockholders of ordinary corporations. Because of the special nature of
cooperatives, its members-employees cannot form or join a labor union for
purposes of collective bargaining. (Ben guet Electric Cooperative, Inc. vs.
Callejai, et al., G.R. No. 79025, Dec. 29, 1989) A cooperative is by its nature
different from an ordinary business concern being run either by persons,
partnerships, or corporations. Its owners or members are the ones who run
and operate the business while the others are its employees. Irrespective of
the number of shares owned by each member, they are entitled to cast one
vote each in deciding upon the affairs of the cooperative. Their share capital
earn limited interest. An employee of a cooperative who is a member and
co-owner thereof cannot invoke the right to collective bargaining for an
owner cannot bargain with himself or his co-owners.

Concept of joint ventures; dangers of foreign control in violation of

constitutional nd legal requirements
Participants in a joint venture in organizing the joint venture, deviate from
the traditional pattern of corporation management. Just as in close
corporations, shareholders' agreements in joint venture corporations contain
certain provisions which do one or more of the following:

(1) require greater than majority vote for shareholder and director action;
(2) give certain shareholders or group of shareholders power to select a
specified number of directors; (3) give to the shazjho1ders control over the
selection and retention )f employees; and (4) set up a procedure for
settlement of disputes by arbitration. (Aurbach us. Sanitary Wares Mfg.
Corp., G.R. ,NO.75875, Dec. 15, 1989). The legal concept of a joint venture
is of common law origin. It has no precise definition but it has been
generally understood to mean an organization formed for some temporary
purpose. It is hardly distinguishable from the partnership, since their
elements are similar -community of interest in the business, sharing of
profits and losses, and a mutual right of control.

The main distinction cited by most opinions in common law jurisdictions is

that the partnership contemplates a general business with some degree of
continuity while the joint venture is formed for the execution of the single
transaction, and is thus of a temporary nature. This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal and a particular partnership may have for its
object a specific undertaking. It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by
the law of partnership. The Supreme Court had however recognized a
distinction between these two business firms and has held that although a
corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others.

Quite often, Filipino entrepreneurs in their desire to develop ;he industrial

and manufacturing capacities of a local firm are constrained to seek the
technology and marketing assistance of huge multinational corporations of
the developed world. Arrangements are formalized where a foreign group
becomes a minority owner of a firm in exchange for its manufacturing
expertise, use f its brand names and other such assistance. However, there
is always a danger from such arrangements. The foreign group may, from
the start, intend to establish its own sole or monopolistic operations and
merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries to
completely arid predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say the
least. To the extent that such subversive actions can be lawfully prevented,
the courts should extend protection especially in industries where
constitutional and legal requirements reserve controlling ownership to
Filipino citizens.

Sec. 4. Corporations created by special laws or charters.-Corporations

created by special laws or charters shall be governed primarily by the
provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.