NOTES

Partnership and Corporation, Distinguished

Characteristic
(a) How created

Partnership
voluntary agreement of parties

(b) Term of existence

no time limit except by

agreement of the parties
May be liable with their private
property beyond their
contribution to the firm
transferee does not become a
partner unless all other partners
consent
Generally, partners act as agents
of the partnership thus, they can
bind the firm and the partners
a partner can sue a partner who
mismanages

(c) As to liability to
strangers
(d) Transferability of
interest
(e) Ability to bind the firm
(f) Mismanagement

(g) Nationality

a partnership is a national of the

country where it was created

(h) Attainment of legal

personality

the firm becomes a juridical

person from the time the contract
begins

(i) Dissolution

a partner may dissolve the

partnership by his act or
withdrawal

Corporation
created by the state in the form of
a special charter or by a general
enabling law
not more than 50 years
liable only for payment of their
subscribed capital stock
transferee becomes a stockholder
even without the consent of the
others.
it is the board of directors or its
duly authorized representative
who can bind the corporation
a stockholder cannot sue a
member of the board of directors
who mismanages; it is the
corporation itself which must file
the action
national of the country under
whose laws it was incorporated
with exceptions
the firm becomes a juridical
person from the time issuance of
its certificate of incorporation by
the SEC
cannot be dissolved without the
approval of the board of directors
and stockholders, and the consent
of the state

Constitutional rights of a Corporation

The rights of a corporation under the 1987 Constitution are:
1. due process,
2. equal protection, and
3. protection against unreasonable searches and seizures.
A corporation is created by operation of law (Sec.2) and it can exist only with the consent of the State or
sovereign power. It may be created under the general law called the Corporation Code of the Philippines
or by Special Law enacted by Congress.

Advantages in forming a corporation

1. A corporation may sue, enter into contracts and acquire properties in its name and in its own
right.
2. It has a continuity of existence.
3. Its credit is strengthened by such continuity of existence.
4. Its management is centralized in the board of directors.
5. The shareholders have limited liability.
6. Shares are transferable even without the consent of the other stockholders.
7. Stockholders are not general agents of the business.
8. Its creation, management, and dissolution are standardized as they governed under one
general incorporation law.
9. It makes gigantic financial undertakings since it enables many individuals to invest their
separate funds in the enterprise in order to furnish large amounts of capital.
Classification of Corporations
1. According to the State under whose laws they have been created:
a. Domestic corporation - one incorporated under the laws of the Philippines
b. Foreign corporation - one formed, organized or existing under any laws other than those of the
Philippines.
2. According to whether or not there is issuance of shares
a. Stock corporation - a corporation with capital stock divided into shares and authorized to
distribute to the holders of such shares dividends or allotments of the surplus profits on the basis
of the shares held. Stock corporations sell stock to generate capital. A stock corporation is
generally a for-profit corporation.
b. Non-stock corporation - a corporation that does not have owners represented by shares of stock. It
typically has members, who are the functional equivalent of stockholders in a stock corporation
(they have the right to vote, etc.) Most non-stock corporations are not-for-profit corporations organized principally for public purposes such as charitable, educational, cultural or similar
purposes. While rare, it is possible for a for-profit corporation to be a non-stock corporation.
3. According to whether the shares are available to the public or not.
a. Close corporation - one which is limited to selected persons or members of a family
b. Open corporation - one which is open to any person who may wish to become a stockholder or
member thereto.
Corporation which are vested with public interest are not allowed to be incorporated as a close
corporation.
4. According to relation to another corporation.
a. Parent or holding corporation - 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
in short it exercises control over the other corporation
b. Subsidiary corporation - 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. It is one in which
another corporation owns at least a majority of the shares and thus has control
c. Affiliated corporation - one related to another by owning or being owned by common
management or by a long term lease of its properties or other control device. An affiliation exists

between a holding or parent company and its subsidiary, or between two corporations owned or
controlled by a third.
5. According to purpose
a. Public corporation - those formed or organized for the government or a portion of the State for
the general good and welfare.
b. Private corporation - those formed for some private purpose, benefit or end.
The true test is the purpose of a corporation. If the corporation is created for public or political
purpose connected with the administration of government, then it is a public corporation. If not, it is
a private corporation although the whole or substantially the whole interest in the corporation belongs
to the State. In the Philippines, the public corporations are the provinces, cities, municipalities, and
barangays, and the autonomous regions in Muslim Mindanao and the Cordilleras. These local units
are also called municipal corporations or local governments.
The provisions of the Corporation Code apply only to Private Corporations.
Private corporations include GOCCs and quasi-public corporations.
GOCCs (Government Owned or Controlled Corporations) are those corporations created or organized
by the government or of which the government is the majority stockholder. Where the government
engages in a particular business through the instrumentality of a corporation, it divests itself of its
sovereign character, so as to subject itself to the rules governing private corporations. Examples are
the GSIS, National Power Corporation, Philippine National Bank.
QUASI-PUBLIC Corporations are private corporations which have accepted from the State the grant
of franchise or contract involving the performance of public duties but which are organized for profit.
These corporations are also known as public utilities or public service corporations. Examples of
these corporations are those organized as electric, water, telephone, and transportation companies.
Because the business in which they are engaged are impressed with a public interest, they may not
engage in that business without the authority of the State in the form of franchise. Neither may they
cease engaging in that business unless the State permits them to do so.
Components of a corporation
1.
2.
3.
4.

Corporators
Incorporators
Stockholders
Members

Corporators are those who compose a corporation whether as stockholders or as members. Corporators
in a stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation
are called members.
Incorporators are those stockholders or members mentioned in the Articles of Incorporation as
originally forming and composing the corporation and who are signatories thereof. Incorporators must
be natural persons.
It is noteworthy to remember that all incorporators are corporators but not all corporators are
incorporators.

Authorized capital, Subscribed capital, Outstanding capital and Paid-up capital, defined
Authorized capital is the total amount of the capital stock of the corporation as stated in its Articles of
Incorporation which it can raise.
Subscribed capital is the amount of the authorized capital which has actually been subscribed to or
undertaken to be paid by the subscriber.
Outstanding capital is the portion of the capital stock which issued and held by persons other than the
corporation itself.
Paid-up capital is the amount of subscription that has been actually paid.