OUTLINE NO.

3 contract of pledge, while the second is through a chattel mortgage

CORPORATION CODE OTHER CLASSES OF CORPORATIONS UNDER THE CORP CODE

V. CLASSES OF CORPORATION UNDER CORP CODE 1. CLOSE CORPORATION
2. SPECIAL CORPORATION
a. Non-stock  Educational, Religious
b. Stock  Section 105-132, RCC

Valley Golf and Country Club, Inc. vs. Vda. de Caram 3. FOREIGN CORPORATION
 The procedure under Section 67 of the Corporation Code for the stock OTHERS
corporation’s recourse on unpaid subscriptions is inapt to a non-stock
corporation vis-à-vis a member’s outstanding dues. 4. Subsidiary
 The right of a non-stock corporation to expel a member through the a. Wholly owned v. majority owned
forfeiture of such member’s share may be established in the by-laws 5. Affiliate
alone 6. Parent/holding company
 Generally in theory, a non-stock corporation has the power to effect the 7. Joint venture corporation
termination of a member without having to constitute a lien on the 8. Open vs. close
membership share or to undertake the elaborate process of selling the 9. Lay vs religious
same at public auction 10. Eleemosynary vs civil corp
 Share ownership introduces another dimension to the case—the reality VI. CREATION OF CORPORATION
that termination of membership may also lead to the infringement of
property rights. PROMOTION
 When the loss of membership in a non-stock corporation also entails
the loss of property rights, the manner of deprivation of such property Section 3. Definition of Terms. - 3.10. "Promoter" is a person who,
right should also be in accordance with the provisions of the Civil acting alone or with others, takes initiative in founding and organizing the
Code. business or enterprise of the issuer and receives consideration therefor.
 Non-stock corporations and their officers are not exempt from the CASES:
obligation imposed by Articles 19, 20, and 21 under the Chapter on
Human Relations of the Civil Code, which provisions enunciate a Cagayan Fishing Development vs. Sandiko
general obligation under law for every person to act fairly and in good
 Unquestionably, a duly organized corporation has the power to purchase
faith towards one another.
and hold such real property as the purposes for which such corporation
 The arrangement provided for in the by-laws of Valley Golf whereby a
was formed may permit and for this purpose may enter into such
lien is constituted on the membership share to answer for subsequent
contracts as may be necessary.
obligations to the corporation finds applicable parallels under the Civil
 But before a corporation may be said to be lawfully organized, many
Code—membership shares are considered as movable or personal
things have to be done. Among other things, the law requires the filing of
property, and they can be constituted as security to secure a principal
articles of incorporation.
obligation, such as the dues and fees; There are at least two
 Although there is a presumption that all the requirements of law have
contractual modes under the Civil Code by which personal property
been complied with in the case before us it cannot be denied that the
can be used to secure a principal obligation—the first is through a
plaintiff was not yet incorporated when it entered into the contract of sale.

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 The contract itself referred to the plaintiff as "una sociedad en vías de
incorporación." It was not even a de facto corporation at the time.
 Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.
 Corporations are creatures of the law, and can only come into existence
in the manner prescribed by law.
 General laws authorizing the formation of corporations are general
offers to any persons who may bring themselves within their provisions;
and if conditions precedent are prescribed in the statute, or certain acts
are required to be done, they are terms of the offer, and must be
complied with substantially before legal corporate existence can be
acquired.
 That a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind' of a contract or
transact any business, would seem to be self-evident.
 A corporation, until organized, has no life and, therefore, no faculties. It
is, as it were, a child in ventre sa mere.
 This is not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if and when
subsequently organized.
 There are, of course, exceptions, but under the peculiar facts and
circumstances of the present case the doctrine of ratification should not
be extended because to do so would result in injustice or fraud to the
candid and unwary.
INCORPORATION
 Who May Form a Corporation Incorporators
 Any number of natural persons not less than five (5) but not more than
fifteen (15), all of legal age and a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or
purposes. Each of the incorporators of a stock corporation must own or
be a subscriber to at least one (1) share of capital stock of the
corporation.
 GENUINE INTEREST:
Each incorporator must own or subscribe to at least one share of
stock of the corporation.
Majority of the incorporators must be residents of the Philippines
 General rule: need not be a citizen
 Exceptions:
a. public utilities (Art XII, Sec 11. Consti),
b. schools (Art XIV, Sec 4(2), Consti),
c. banks (General Banking Act),
d. retail trade (RA 1180),
e. savings and loan associations (RA 3799),
f. investment houses (Sec 5, PD 129), and
g. other areas of investment as congress may by law provide (Art XII,
Sec. 10, Consti).
 Even though there are no legal restrictions as to alien ownership, where
> 40% of the outstanding capital stock will be owned and controlled by
aliens, must get written authorization from BOI before it can register with
SEC. (purpose is to enable BOI to determine whether such corporation
wherein aliens own a substantial number of shares would contribute to
the sound and balanced development of the national economy) 4)
Incorporators must be of legal age
Conditions Precedent for Incorporation
 Consent or agreement of at least 5 natural persons with respect to:
1. Compliance with the Corp Code;
2. Contribution/pooling of resources – delivered to and held in trust by a
designated trustee;
3. Governance of: Contributions; Distribution of contributions; Division
of profits/sharing of losses; Pursuit of purpose/objectives; Corporate
combination; and Transactions with third parties; and
4. Continuity or termination of existence.
 Mandatory Requirements of the Code:
1. Execution of constitutive documents (AOI, By-laws);
2. Payment/delivery of contributions – delivered to and held in trust by a
designated trustee;
3. Submission of constitutive documents to SEC for review or evaluation;
and 4. SEC action – issuance of certificate of registration.
 Note that once contributions are made before incorporation, such
subscriptions are irrevocable for a period of 6 months (general rule).
 Exceptions:
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 1. When all of the other subscribers consent to the revocation; or
2. When the incorporation fails to materialize (Sec. 61)
1. STEPS IN INCORPORATION
Mutual Agreement to perform certain acts required for organizing a
corporation
1-Organize and establish a corporation
2-Comply with requirements of corporation code
3-Contribute capital/resources
4-Mode of use of capital/resource and control/management of
capital/resource
5-distribution/disposition of capital/resource (embodied in constitutive
documents)
BINDING EFFECT OF AMENDMENT
Philippine Trust Co. vs. Rivera
 A corporation has no power to release an original subscriber to its capital
stock from the obligation of paying for his shares, without a valuable
consideration. for such release; and as against creditors a reduction of
the capital stock can take place only in the manner and under the
conditions prescribed by law.
Iglesia Evangelista Metodism En Las Islas Filipinas (IEMELIF)
(Corporation Sole), Inc. vs. Lazaro
 Section 110 of the Corporation Code, the Court said that a
 Corporation sole is “one formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of a religious denomination, sect,
or church, for the purpose of administering or managing, as trustee, the
affairs, properties and temporalities of such religious denomination, sect
or church.”
 A corporation aggregate formed for the same purpose, on the other
hand, consists of two or more persons.
 The Corporation Code provides no specific mechanism for amending the
articles of incorporation of a corporation sole; Section 109 of the
Corporation Code allows the application to religious corporations of the
general provisions governing non-stock corporations
 Although a non-stock corporation has a personality that is distinct from
those of its members who established it, its articles of incorporation
cannot be amended solely through the action of its board of trustees;
The amendment needs the concurrence of at least two-thirds of its
membership.
CARPIO, J., Separate Concurring Opinion:
 A corporation sole, as the lone trustee and member of the corporation,
can amend its articles of incorporation.—Section 16 requires the
majority vote of the board of trustees and the vote or written assent of at
least two-thirds of the members of a non-stock corporation. Applying this,
a corporation sole, as the lone trustee and member of the corporation,
can amend its articles of incorporation.
 The votes of those members are not necessary in amending the articles
of incorporation of the corporation sole, the vote of the latter being
sufficient in effecting the amendment.—The religious denomination, sect
or church represented by the corporation sole has members who are
distinct and different from the member of the corporation sole.
 The members of the religious organization should not be considered for
purposes of Section 16. Thus, the votes of those members are not
necessary in amending the articles of incorporation of the corporation
sole, the vote of the latter being sufficient in effecting the amendment.
 Once the conversion from corporation sole to corporation aggregate is
perfected, the provisions of the Corporation Code specifically designed
for a corporation sole cease to apply to the corporation aggregate.
NAME OF CORPORATION
Republic Planters Bank vs. Court of Appeals
 The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect
changed.
 A change in the corporate name does not make a new corporation and
whether affected by special act or under a general law has no effect on
the identity of the corporation or on its property, rights or liabilities.
 The corporation continues as before responsible in its new name for all
debts or other liabilities which it had previously contracted or incurred.
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 As a general rule, officers or directors under the old corporate name bear
no personal liability for acts done or contracts entered into by officers of
the corporation, if duly authorized. Inasmuch as such officers acted in
their capacity as agent of the old corporation and the change of name
meant only the continuation of the old juridical entity.
P.C. Javier & Sons, Inc. vs. Court of Appeals
 Unless there is a law, regulation or circular from the SEC or BSP
requiring the formal notification of all debtors of banks of any change in
corporate name, such remains to be a mere internal policy that banks
may or may not adopt
 A change in the corporate name does not make a new corporation,
whether effected by a special act or under a general law.
Industrial Refractories Corporation of the Philippines vs. Court of
Appeals
 It is the SEC’s duty to prevent confusion in the use of corporate names
not only for the protection of the corporations involved but more so for
the protection of the public, and it has authority to de-register at all times
and under all circumstances corporate names which in its estimation are
likely to generate confusion. Clearly therefore, the present case falls
within the ambit of the SEC’s regulatory powers.
 Requisites to fall within the prohibition of the law.—As held in
Philips Export B.V. vs. Court of Appeals, to fall within the
prohibition of the law, two requisites must be proven, to wit:
1. that the complainant corporation acquired a prior right over the use
of such corporate name; and
2. the proposed name is either:
a. identical, or
b. deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law; or
c. patently deceptive, confusing or contrary to existing law.
GSIS Family Bank-Thrift Bank [formerly Comsavings Bank, Inc.] vs. BPI
Family Bank
 Arbitrary marks
 “words or phrases used as a mark that appear to be random in the
context of its use. They are generally considered to be easily
remembered because of their arbitrariness.

They are original and unexpected in relation to the products they
endorse, thus, becoming themselves distinctive.”
 Suggestive marks
 are marks which merely suggest some quality or ingredient of goods.
x x x The strength of the suggestive marks lies on how the public
perceives the word in relation to the product or service.
 The enforcement of the protection accorded by Section 18 of the
Corporation Code to corporate names is lodged exclusively in the SEC.
 The jurisdiction of the SEC is not merely confined to the adjudicative
functions provided in Section 5 of the SEC Reorganization Act, as
amended.
 By express mandate, the SEC has absolute jurisdiction, supervision and
control over all corporations.
 It is the SEC’s duty to prevent confusion in the use of corporate names
not only for the protection of the corporations involved, but more so for
the protection of the public.
 It has authority to de-register at all times, and under all circumstances
corporate names which in its estimation are likely to generate confusion.
 The certificate of registration of a mark shall be prima facie evidence
of the validity of the registration, the registrant’s ownership of the mark,
and of the registrant’s exclusive right to use the same in connection with
the goods or services and those that are related thereto specified in the
certificate.
RESIDENCE OF CORPORATION
 A corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation
 The Corporation Code precisely requires each corporation to specify in
its articles of incorporation the “place where the principal office of the
corporation is to be located which must be within the Philippines” (Sec.
14 [3]).
 The purpose of this requirement is to fix the residence of a corporation in
a definite place, instead of allowing it to be ambulatory.
A corporation cannot be allowed to file personal actions in a place other
than its principal place of business unless such a place is also the
residence of a co-plaintiff or a defendant.
CITIZENSHIP REQUIREMENTS
Gamboa vs. Teves
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 The term “capital” in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock comprising both
common and non-voting preferred shares
 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the
right of common shareholders to vote is invalid.
 Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term “capital” in Section 11, Article XII of the Constitution
refers only to common shares.
 However, if the preferred shares also have the right to vote in the
election of directors, then the term “capital” shall include such preferred
shares because the right to participate in the control or management of
the corporation is exercised through the right to vote in the election of
directors. In short, the term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of
directors.
Roy III vs. Herbosa
 As defined in the SRC-IRR, “[b]eneficial owner or beneficial
ownership
 any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares
voting power (which includes the power to vote or direct the voting of
such security) and/or investment returns or power (which includes
the power to dispose of, or direct the disposition of such security).”
 The term “full beneficial ownership” found in the FIA-IRR is to be
understood in the context of the entire paragraph defining the term
“Philippine national.”
 Mere legal title is not enough to meet the required Filipino equity, which
means that it is not sufficient that a share is registered in the name of a
Filipino citizen or national, i.e., he should also have full beneficial
ownership of the share.
 If the voting right of a share held in the name of a Filipino citizen or
national is assigned or transferred to an alien, that share is not to be
counted in the determination of the required Filipino equity. In the same
vein, if the dividends and other fruits and accessions of the share do not
accrue to a Filipino citizen or national, then that share is also to be
excluded or not counted.
 Given that beneficial ownership of the outstanding capital stock of the
public utility corporation has to be determined for purposes of
compliance with the 60% Filipino ownership requirement, the definition
in the SRC-IRR can now be applied to resolve only the question of who
is the beneficial owner or who has beneficial ownership of each “specific
stock” of the said corporation.
 Thus, if a “specific stock” is owned by a Filipino in the books of the
corporation, but the stock’s voting power or disposing power belongs to
a foreigner, then that “specific stock” will not be deemed as “beneficially
owned” by a Filipino.
 If the Filipino has the “specific stock’s” voting power (he can vote the
stock or direct another to vote for him), or the Filipino has the
investment power over the “specific stock” (he can dispose of the stock
or direct another to dispose it for him), or he has both (he can vote and
dispose of the “specific stock” or direct another to vote or dispose it for
him), then such Filipino is the “beneficial owner” of that “specific
stock” — and that “specific stock” is considered (or counted) as part of
the 60% Filipino ownership of the corporation.
 In the end, all those “specific stocks” that are determined to be Filipino
(per definition of “beneficial owner” or “beneficial ownership”) will be
added together and their sum must be equivalent to at least 60% of the
total outstanding shares of stock entitled to vote in the election of
directors and at least 60% of the total number of outstanding shares of
stock, whether or not entitled to vote in the election of directors.
 To be sure, the application of the 60-40 Filipino-foreign ownership
requirement separately to each class of shares, whether common,
preferred nonvoting, preferred voting or any other class of shares fails
to understand and appreciate the nature and features of stocks as
financial instruments.
 That stock corporations are allowed to create shares of different classes
with varying features is a flexibility that is granted, among others, for the
corporation to attract and generate capital (funds) from both local and
foreign capital markets.
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 This access to capital — which a stock corporation may need for national and at least sixty (60%) of the fund will accrue to the benefit of
expansion, debt relief/repayment, working capital requirement and other the Philippine nationals: Provided, That where a corporation and its
corporate pursuits — will be greatly eroded with further unwarranted non-Filipino stockholders own stocks in a Securities and Exchange
limitations that are not articulated in the Constitution. Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stocks outstanding and entitled to vote of both
 In this regard, it should be noted that the 8 corporate matters corporations must be owned and held by citizens of the Philippines
enumerated in Section 6 of the Corporation Code require, at the outset, and at least sixty percent (60%) of the members of the Board of
a favorable recommendation by the management to the board. As Directors of both corporations must be citizens of the Philippines, in
mandated by Section 11, Article XII of the Constitution, all the executive order that the corporations shall be considered a Philippine national;
and managing officers of a public utility company must be Filipinos.
 Thus, the all-Filipino management team must first be convinced that any CONTROL TEST V. GRANDFATHER RULE
of the 8 corporate actions in Section 6 will be to the best interest of the CONTROL TEST GRANDFATHER RULE
company. uses only the voting stock to not enough that the corporation has
determine whether the corporation the required 60% Filipino
 Allowing stockholders holding preferred shares without voting rights to is a Philippine national - whether stockholdings of face value. To
vote in the 8 corporate matters enumerated in Section 6 is an 60% of the outstanding capital determine the percentage of
acknowledgment of their right of ownership. stock entitled to vote is owned by ultimate Filipino ownership, it must
 If the owners of preferred shares without right to vote/elect directors are Filipinos Exploitation of Natural first be traced to the level of
not allowed to vote in any of those 8 corporate actions, then they will not Resources – Section 2, Art. XII investing corporation and added to
be entitled to the appraisal right provided under Section 81 of the CONST. “only Filipino Citizens or the shares directly owned in the
Corporation Code in the event that they dissent in the corporate act. Corporations whose capital stock invested corporation.
are at least 60% owed by Filipinos
can qualify to exploit natural
 preferred shareholders are merely investors in the company for income
resources.” Public Utilities –
in the same manner as bondholders. Without a lucrative package,
including an attractive return of investment, preferred shares will not be Sec. 11, Art XII, CONST. “xxx no
subscribed and the much-needed additional capital will be elusive. franchise, certificate or any other
form of authorization for the
Republic Act No. 7042 June 13, 1991
operation of a public utility shall be
AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE granted except to citizens of the
PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS Philippines or to corporations or
IN THE PHILIPPINES, AND FOR OTHER PURPOSES associations organized under the
laws of the Philippines at least 60%
Section 3. Definitions. - As used in this Act: of whose capital is owned by such
citizens. “
a) The term "Philippine national" shall mean a citizen of the Philippines
or a domestic partnership or association wholly owned by citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock  Compliance with the constitutional limitation(s) on engaging in
outstanding and entitled to vote is owned and held by citizens of the nationalized activities must be determined by ascertaining if 60% of the
Philippines; or a trustee of funds for pension or other employee investing corporation’s outstanding capital stock is owned by "Filipino
retirement or separation benefits, where the trustee is a Philippine citizens", or as interpreted, by natural or individual Filipino citizens.

6
 If such investing corporation is in turn owned to some extent by another
investing corporation, the same process must be observed.
 One must not stop until the citizenships of the individual or natural
stockholders of layer after layer of investing corporations have been
established.
 Used to determine the nationality of a corporation by which the
percentage of Filipino equity in corporations engaged in nationalized
and/or partly nationalized areas of activities, provided for under the
constitution and other nationalization laws, is computed, in cases where
corporate shareholders are present in the situation, by attributing the
nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate stockholder.
 Two acknowledged tests in determining the nationality of a
corporation:
a. the control test and
b. the grandfather rule.
 Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the requirement of the Constitution
and other laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by Filipino
citizens, provides:
 Shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality.
 Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of
the shares shall be recorded as owned by Filipinos.
 But if less than 60%, or say, 50% of the capital stock or capital
of the corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted as owned
by Filipinos and the other 50,000 shall be recorded as belonging
to aliens.
 The first part of paragraph 7, DOJ Opinion No. 020, stating
“shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality,” pertains to the control
test or the liberal rule.
 On the other hand, the second part of the DOJ Opinion which
provides, “if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as
Philippine nationality,” pertains to the stricter, more stringent
grandfather rule.
 The “control test” is still the prevailing mode of determining whether or
not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art.
II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant
facts and circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the “grandfather rule.”
 Grandfather Rule has no statutory basis. It is the Control Test that
governs in determining Filipino equity in corporations.
 It is the Control Test that governs in determining Filipino equity in
corporations. It is this test that is provided in statute and by our most
recent jurisprudence.
NATIONALITY OF CORPORATION SOLE
Roman Cath. Apostolic Adm. of Davao, Inc. vs. Land Reg. Com., et al.
 A corporation sole is a special form of corporation usually associated
with the clergy * * * designed to facilitate the exercise of the functions of
ownership of the church which was regarded as the property owner (
 It consists of one person only, and his successors (who will always be
one at a time), in some particular station, who are incorporated by law in
order to give them some legal capacities and advantages particularly
that of perpetuity which in their natural persons they could not have. * *
*
 Through this legal fiction, church properties acquired by the incumbent
of a corporation sole pass, by operation of law, upon his death not to his
personal heirs but to his successor in office. A corporation sole,
therefore, is created not only to administer the temporalities of the
7
 church or religious society where he belongs, but also to hold and circumvent the real purpose of the constitution.
transmit the same to his successor in said office.
 The corporation sole by reason of their peculiar constitution and form of
 Although a branch of the Universal Roman Catholic Apostolic Church, operation have no designed owner of its temporalities, although by the
every Roman Catholic Church in different countries, if it exercises its terms of the law it can be safely implied that they ordinarily hold them in
mission and is lawfully incorporated in accordance with the laws of the trust for the benefit of the Roman Catholic faithful of their respective
country where it is located, is considered an entity or person with all the locality or diocese.
rights and privileges granted to such artificial being under the laws of They can not be considered as aliens because they have no nationality
that country, separate and distinct from the personality of the Roman at all. In determining, therefore, whether the constitutional provision
Pontiff or the Holy See, without prejudice to its religious relations with requiring 60 per centum Filipino capital is applicable to corporations sole,
the latter which are governed by the Cannon Law or their rules and the nationality of the constituents of the diocese, and not the
regulations. nationality of the actual incumbent of the parish, must be taken into
consideration.
 Under the circumstances of the present case, it is safe to state that
even before the establishment of the Philippine Commonwealth and of DE JURE CORPORATION DE FACTO CORPORATION
the Republic of the Philippines every corporation sole then organized
a corporation created in strict or organized with a colorable
and registered had by express provision of law the necessary power
substantial conformity with the compliance with the requirements
and qualification to purchase in its name private lands located in the
mandatory statutory requirements of a valid law and its existence
territory in which it exercised its functions or ministry and for which it for incorporation and the right of cannot be inquired collaterally but
was created, independently of the nationality of its incumbent unique which to exist as a corporation such inquiry may be made by the
and single member and head, the bishop of the diocese. cannot be successfully attacked or Sol-Gen in a quo warranto
 It can be also maintained without fear of being gainsaid that the Roman questioned by any party even in a proceeding - one which actually
Catholic Apostolic Church in the Philippines has no nationality and direct [proceeding for that purpose exists for all practical purposes as a
that the framers of the Constitution did not have in mind the by the state -can resist a suit corporation but which has no legal
religious corporation sole when they provided that 60 per centum brought by the State challenging its right to corporate existence as
of the capital thereof be owned by Filipino citizens. Thus, if this existence. against the State - it is a
constitutional provision were not intended for corporation sole, it is corporation from the fact of its
obvious that this could not be regulated or restricted by said provision. acting as such, though not in law or
right a corporation.
With certificate of incorporation
 Both the Corporation Law and the Canon Law are explicit in their
 Requisites of De Facto Corporation
provisions that a corporation sole or "ordinary" is not the owner of the
1. A valid law under which the corporation is organized
properties that he may acquire but merely the administrator thereof and
2. An attempt in good faith to incorporate;
holds the same in trust for the church to which the corporation is an
3. An assumption of corporate powers
organized and constituent part.
 Quo warranto – to oust a corporation from the exercise of corporate
 Being mere administrator of the temporalities or properties titled in
powers usurped by it and to have it dissolved
his name, the constitutional provision requiring 60 per centum
Requisites:
Filipino ownership is not applicable. The said constitutional provision
1. valid law under which a corporation with powers assumed might be
is limited by its terms to ownership alone and does not extend to control
incorporated
unless the control over the property affected has been devised to
2. bona fide attempt to organize a corporation under such law

8
 3. actual user or exercise in good faith of corporate powers conferred
upon it by law, i.e., the transaction of business in some way as if it were
a corporation.
DEFECTS THAT PRECLUDE CREATION OF A CORPORATION –
EVEN A DE FACTO
 absence of AOI failure to file AOI with the SEC lack of certificate of
incorporation from the SEC
DEFECTS THAT RESULT IN CREATION OF DE FACTO
1. Corporation did not pass its by-laws
2. AOI is not complete in its details - fails to state all the matters required
by the Code to be stated, or state some of them incorrectly
3. name of the corp. closely resembles that of a pre-existing corporation
that it will tend to deceive public
4. incorporators or a certain number of them are not residents of the Phils
5. acknowledgment of AOI or cert. of incorporation is insufficient or
defective in form or it was acknowledged before the wrong officer
6. percentage of Filipino-ownership of the capital stock required for the
business is less than that prescribed by law
7. minimium paid-up capital stock has not been paid to and received by
the corporate treasurer contrary to his affidavit
8. failure to submit its AOI on time
Duty to correct defect if discovered –
 essential that corp must act in good faith in claiming to be a corporation
and exercising corporate powers. If after incorporation to be a
corporation and exercising corporate powers. If after incorporation the
incorporators discovered that they have not complied substantially with
the law and still continued transacting business as a corporation,
without doing anything to correct the defect, the privelege of de facto
existence can no longer be invoked dissolved?
 POWERS – same as de jure, may legally do every act and thing which
the same entity could do were it a de jure
 VALIDITY – cannot be collaterally attacked, only State can question its
existence by quo warranto
 LIABILITIES – de jure/de facto stockholders or members are not
personally liable for debts except to the extent provided by the charter
or act of incorporation -taxation 1. In general. officers and directors are
subject to all liabilities and penalties attending to officers and directors
duly chosen by a corporation jure, including liability under criminal law
and their acts are binding when such acts would be within power of
such officers if the corp is a de jure
 Liability as partners to 3rd persons. not liable esp. if stockholders have
no knowledge of defect in the formation of corp and had no intent to
become partners and ostensible corp is apparent to 3rd persons. But if
attempt to organize fails because of omission of substantial
step/proceeding required by law – members/stockholders liable as
partners 3. Liability among themselves. de jure/de facto liabilities are
determined by the terms of their agreement, they are not partners
unless they agreed to be such
 Can a corporation transact business as a ‘de facto’ corporation
while application is still pending with SEC?
No. In the case of Hall v. Piccio (86 Phil. 603; 1950), where the
supposed corporation transacted business as a corporation pending
action by the SEC on its articles of incorporation, the Court held that
there was no ‘de facto’ corporation on the ground that the corporation
cannot claim to be in ‘good faith’ to be a corporation when it has not yet
obtained its certificate of incorporation.
CORPORATION BY ESTOPPEL
 No COI issued
 Parties liable as general partners
 It is a status acquired by persons who assume to act as a corporation
knowing it to be without authority. Such persons shall be liable as
general partners for all debts, liabilities and damages incurred or arising
as a result thereof.
Sec. 21.Corporation by estoppel.- All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as
a result thereof: Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be allowed to use as a defense
its lack of corporate personality. On who assumes an obligation to an
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ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation.
 There should also be no question that having contracted with the private
respondent every year for thirty two years and thus represented itself as
possessed of juridical personality to do so, the petitioner is now
estopped from denying such personality to defeat her claim against it.
 According to Article 1431 of the Civil Code, “through estoppel an
admission or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person
relying on it.”
 As the school itself may be sued in its own name, there is no need to
apply Rule 3, Section 15, under which the persons joined in an
association without any juridical personality may be sued with such
association. Besides, it has been shown that the individual members of
the board of trustees are not liable, having been appointed only after the
private respondent’s dismissal.
 It is clear now that a charitable institution is covered by the labor laws
although the question was still unsettled when this case arose in 1968.
At any rate, there was no law even then exempting such institutions
from the operation of the labor laws (although they were exempted by
the Constitution from ad valorem taxes)
. deemed to be part of said association and is covered by the scope of
 Hence, even assuming that the petitioner was a charitable institution as
it claims, the private respondent was nonetheless still entitled to the
protection of the Termination Pay Law, which was then in force.
Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc.
 Even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence.
 The reason behind this doctrine is obvious—an unincorporated
association has no personality and would be incompetent to act and
appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk.
 And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other
acts performed as such agent.
 The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages
and benefits.
 A third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it,
may be barred from denying its corporate existence in a suit brought
against the alleged corporation.
 In such case, all those who benefited from the transaction made by the
ostensible corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took advantage of.
 A person who has reaped the benefits of a contract entered into by
persons with whom he previously had an existing relationship is
the doctrine of corporation by estoppel
Corporations that are neither de jure, de facto nor by estoppels
 A corporation by estoppels has no real existence in law. It is neither a
de jure nor a de facto corp but is a mere fiction existing for the particular
case and vanishing where the elements of estoppels is absent.
 It exists only between persons who misrepresented their status and the
parties who relied on the misrepresentation. Its existence may be
attacked by any party except if stopped to treat the entity other than as
a corporation.
COMMENCEMENT OF BUSINESS VS FORMAL ORGANIZATION
SEC. 18.
Registration, Incorporation and Commencement of Corporate Existence .
– A person or group of persons desiring to incorporate shall submit the
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 intended corporate name to the Commission for verification. If the
Commission finds that the name is distinguishable from a name already
reserved or registered for the use of another corporation, not protected
by law and is not contrary to law, rules and regulations, the name shall
be reserved in favor of the incorporators. The incorporators shall then
submit their articles of incorporation and bylaws to the Commission.

If the Commission finds that the submitted documents and information

are fully compliant with the requirements of this Code, other relevant
laws, rules and regulations, the Commission shall issue the certificate of
incorporation.

A private corporation organized under this Code commences its

corporate existence and juridical personality from the date the
Commission issues the certificate of incorporation under its official seal
and thereupon the incorporators, stockholders/members and their
successors shall constitute a body corporate under the name stated in
the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in
accordance with law.

FORMAL ORGANIZATION

 is an organization with a fixed set of rules of intra-

organization procedures and structures. As such, it is usually set out in
writing, with a language of rules that ostensibly leave little discretion
for interpretation. In some societies and in some organizations, such
rules may be strictly followed; in others, they may be little more than an
empty formalism.

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