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If you are interested in engaging in such grounds do not dissolve a

business or practicing your profession with corporation.


some colleagues, a partnership may be the
proper vehicle. Like a corporation, a partnership has a
separate juridical personality. Even if the
The Philippine Civil Code provides for a partnership failed to register with the SEC,
definition of a partnership as follows: it still has a separate juridical personality.
Thus, the partnership, as a separate
Art. 1767. By the contract of partnership person can acquire its own property, bring
two or more persons bind themselves to actions in court in its own name and incur
contribute money, property, or industry to a its own liabilities and obligations. A
common fund, with the intention of dividing partnership action is embodied in a
the profits among themselves. Partners’ Resolution which is similar to a
corporation’s Board Resolution.
Two or more persons may also form a
partnership for the exercise of a Partnerships are recorded with the
profession. Securities & Exchange Commission
(SEC). The following requirements must be
A partnership is different from a submitted with the SEC:
corporation in many ways. First, there is no
time limit for the existence of the 1. Name Verification Slip with the
partnership as this depends on the reservation of the partnership name
agreement of the parties. On the other 2. Articles of Partnership
hand, a corporation can exist for a period 3. Registration Data Sheet
not exceeding fifty (50) years. Second, as 4. Affidavit of a partner undertaking to
to the beginning of juridical personality, a change partnership name
partnership becomes a juridical person 5. Certificate of Bank Deposit
from the time the contract begins while in a
corporation, it only becomes a juridical If a partnership has foreign partners, the
person upon registration with the following additional requirements must be
Securities & Exchange Commission filed:
(SEC). Third, although a partner may 1. SEC Form No. F-105
transfer his interest in a partnership to 2. Bank certificate on the capital
another, the transferee does not contribution of the partners
automatically become a partner unless all 3. For foreign partners who want to register
the other partners give their consent. their investments with the Bangko Sentral
However, in corporations, when the shares ng Pilipinas, proof of the remittance
of stock are transferred to another, the
transferee becomes a stockholder of the The following information should also be
corporation. Fourth, as to liability to third provided:
persons, partners may be held liable with
their private and personal property while in 1. Name of the partnership
corporations, the stockholders are 2. Principal office address
generally liable only to the extent of their 3. Telephone number of the partnership
subscribed capital stock. Lastly, a 4. Name, citizenship, address, birthday
partnership may be dissolved due to the and TIN of the partners
insolvency, civil interdiction, death, insanity 5. Capital contribution of the partners
or retirement of any of the partners while 6. Purpose of the partnership
A partner has certain rights in the [a] Stock corporations - [1] capital stock divided
partnership. Thus, he has a share in the into shares; and [2] authorized to distribute
profits of the partnership and has the right profits
to a specific partnership property. As a
partner, he has a right to participate in the
[b] Non-stock corporations - organized not for
management, inspect partnership books
profit
and can in fact, demand for a formal
accounting. However, rights have
corresponding obligations. Hence, a Corporation, kinds by method of creation:
partner is obligated to give his contribution
and share in the losses.
[a] by special law or charter
There are many types of partners, the
common types of which are:
[b] by being organized under the corporation
code
1. General partner
2. Industrial partner (one who furnishes
labor or industry) Corporation, how organized:
3. Capitalist partner (one who give capital)
4. Limited partner (one who is liable only to
the extent of his contribution) Philippine corporate entities are organized as
follows:
Anent the liability, all partners are liable to
third persons. However, as between the
partners, the industrial partner is not liable [a]Number of incorporators:
for losses while a limited partner is liable
only to the extent of his contribution.
Incorporators are required to be not less than
five [5] but not more than fifteen [15].cralaw
BUSINESS ORGANIZATION
At a Glance
CORPORATION [b] Residency requirement:
Corporation, definition:

Majority of the incorporators are required to be


Within the context of Philippine law, a residents of the Philippines.cralaw
"corporation" is treated as an artificial being
created by operation of law, having the right of
succession and the powers, attributes and [c] Qualifications:
properties expressly authorized by law or
incident to its existence [Sec. 2, Corporation
Code].cralaw All incorporators:

Corporation, classes: [1] must be natural persons

Corporations may be classified as follows: [2] must be of legal age


A corporation or a partnership cannot be [c] Treasurer's Affidavit which should state
incorporators of a Philippine corporate entity. compliance with the authorized subscribed and
The only way a corporation or a partnership paid-up capital stock requirements.cralaw
may become stockholder of a Philippine
corporation is by acquiring a stock thereof but
only after it shall have been duly [d] Bank Certificate that the paid-up capital
incorporated.cralaw portion of the authorized capital stock has been
deposited with the issuing bank.cralaw

[d] Subscription requirement:


There are "express lane" forms available at the
Securities and Exchange Commission [SEC] for
All incorporators must subscribe to at least one certain specified corporate business
(1) share of stock of the corporation being organizations.cralaw
organized.cralaw

Corporation, where filed:


Corporation, minimum subscription:

The incorporation documents should be filed


The law requires that the total capital stock to with the Securities and Exchange Commission
be subscribed at the time of incorporation [SEC] of the Philippines.cralaw
should at least be twenty five percent [25%] of
the authorized capital stock of the corporation
being organized.cralaw Corporation, what should be stated:

Corporation, minimum paid-up capital: [a] the name of the corporation which must not
be identical or deceptively or confusingly
similar to any existing corporation;
The paid-up capital of a Philippine corporation
must not be less than PhP5,000.00. Thus, it is
required that at least twenty five percent [25%] [b] the purpose of the corporation;
of the subscribed capital stock should be fully
paid up but the amount of which should not be
less than said PhP5,000.00.cralaw [c] principal office of the corporation;

Corporation, incorporation documents: [d] the term or life of the corporation which
should not exceed fifty [50] years. This
corporate lifetime may, however, be extended
The following incorporation documents are for another fifty [50] years but the extension
required: must not be effected earlier than five [5] years
before the expiration of its term.cralaw

[a] Articles of Incorporation;


Corporation, limitation on foreign equity
holdings:
[b] By-laws;

The equity requirements should be strictly


observed and followed in certain areas of
business where the constitution and the laws of [b] manufacture and distribution of dangerous
the Philippines impose limitation on foreign drugs
holdings.cralaw

[c] nightclubs, bathhouse and similar activities


Generally, however, foreigners may invest as
much as one hundred percent [100%] equity in
areas not covered by the Negative List under [d] small and medium-sized domestic market
the Foreign Investments Act.cralaw enterprises with paid-in equity capital of less
than US$500,000.00

The following provisions thereof may serve as


guide: [e] export enterprises utilizing new materials
from depleting natural resources with paid-in
equity of less than US$500,000.00
List A : Includes those reserved to Philippine
nationals by the Constitution of the
Philippines.chanrobles virtual law library Corporation, when corporate existence
commences:

[a] exploitation of natural resources [100%


domestic equity] The corporate life or existence of a Philippine
corporation commences from the time a
Certificate of Incorporation is issued in its favor
[b] operation of public utilities [60% domestic by the Securities and Exchange Commission
equity] [SEC].cralaw

[c] mass media [100% domestic equity] Corporation, effect of non-use:

[d] educational institution [70% domestic [a] A corporation is deemed dissolved if the
equity] corporate charter granted in its favor expires by
non-use for a period of at least two [2] years
from issuance thereof.cralaw
[e] labor recruitment [65% dom. equity]

[b] A corporation is deemed suspended or its


[f] retail trade [100% dom. equity] franchise revoked if it has been duly organized
but it failed to operate for a period of five [5]
years.cralaw
[g] rural banking [100% dom. equity]

Corporation, its organization:


List B : Includes those regulated by
law.chanrobles virtual law library
A Philippine corporation is organized by
electing members to its Board of Directors, by
[a] defense-related activities electing the corporate officers thereof and/or
by setting up an Executive Committee.cralaw
Board of Directors, qualifications: [3] When the terms of the contract are fair and
reasonable and had been previously approved
by the Board of Directors.cralaw
The members of the Board of a Philippine
corporation must possess the following
qualifications: Corporate Officers, general rule:

[1] owner or holder of at least one [1] share of As a general rule, the corporate officers of a
capital stock; Philippine corporation consist of the President
who is required to be a member of the Board of
Directors; the Corporate Treasurer; and the
[2] majority of the members must be residents Corporate Secretary who is required to be both
of the Philippines; a resident and a citizen of the
Philippines.cralaw

[3] they must be elected by the owners/holders


of at least the majority of the outstanding Other corporate officers may be designated
capital stock.cralaw under the By-laws of the corporation without
getting afoul with the law.cralaw

Board of Directors, corporate acts:


The only limitation imposed by law on
corporate officers is that no person can be the
For validity and legality of the corporate acts of President and the Corporate Secretary at the
the Board of Directors, a meeting should be fully same time or the President and Corporate
convened and the same must be attended by at Treasurer at the same time.cralaw
least a majority of its members. Any and all
corporate acts must be duly approved by a
majority of the members of the Board except Corporate Officers, personal liability for
when otherwise provided by Philippine laws or damages:
by the By-laws of the corporation.cralaw

A corporate officer of a Philippine corporation


Board of Directors, self-dealing rule: becomes personally liable for certain corporate
acts under the following circumstances:

A self-dealing transaction of a member of the


Board of Directors becomes voidable except [1] When he willfully and knowingly votes or
under the following circumstances: assents to patently unlawful acts;

[1] When the presence of such director in the [2] When he is guilty of gross negligence or bad
Board meeting is not necessary to constitute a faith in the conduct of the corporate affairs; or
quorum;

[3] When he acquires personal or pecuniary


[2] When his vote is not necessary for the interest which is in conflict with his duty as
approval of the contract or transaction such officer.cralaw

Stockholders, limited liability:


Corporation, dissolution:

The liability of stockholders in Philippine


corporations is limited only to the extent of As a general rule, the corporate existence of a
their capital contribution thereto. Other Philippine corporation may last up to fifty [50]
properties, holdings or assets of stockholders years, renewable for another fifty [50] years.
are not within the reach of corporate creditors. However, such lifetime may be shortened by a
To discourage abuse of this privilege, the vote of 2/3 of the outstanding capital stock
Securities and Exchange Commission [SEC] thereof through the process called dissolution.
imposes certain reportorial requirements which
should be complied with on a regular basis.
Powers of partnership

Stockholders, kinds of meetings: (1) An incorporated limited


partnership has the legal capacity and
The kinds of meetings involving the powers of an individual and also all the
stockholders of a Philippine corporation are as powers of a body corporate including,
follows: for example, the power, whether within
or outside Queensland or outside
[1] Regular meeting which is the equivalent of Australia—
the annual stockholders' meeting required to be (a) to carry on the business of the
duly provided under the By-laws; partnership; and
(b) to do all things necessary or
[2] Special meeting which may be called convenient to be done in connection
anytime as may be necessary with the carrying on of the business of
the partnership including, for example,
Stockholders' meeting, requisites for validity: the power to—
(i) enter into contracts or otherwise
acquire rights or liabilities; or
In order to be valid, the stockholders' meeting
should comply with the following requisites: (ii) create, confer, vary or cancel
interests in the partnership; or
[1] A notice of such meeting must be served to (iii) acquire, hold and dispose of real or
the stockholders personal property or of an interest,
whether beneficial or legal, in real or
[2] A quorum, [i.e., majority of the outstanding personal property; or
capital stock of the corporation] must be fully (iv) appoint agents and attorneys, and
established.cralaw
act as agent for other persons; or
(v) form, and participate in the
[3] Any and all acts of the stockholders in a
meeting duly called and constituted, are formation of, companies or
deemed valid if approved by a majority of the incorporated limited partnerships; or
outstanding capital stock or at least two-thirds
[2/3] vote in certain cases specified under the
(vi) participate in partnerships, trusts,
law. unincorporated joint ventures and other
arrangements for the sharing of profits; Management in a
or
General Partnership
(vii) do any other thing it is authorised
to do by or under this chapter or the Partners in a general partnership all have
equal footing and the authority to
partnership agreement. participate in the management of the
Partnership management business unless there is an agreement
that states otherwise. Typically, each
partner is granted one equal vote when
Management of there is a decision to be made. If the
investment capital is not the same, votes
Partnership: are usually weighted in line with the
respective capital contributions.

Everything You If the business's dealings are complex or


numerous, you can draft a partnership
Need to Know agreement where you can create different
partner classes, each with its own voting
rights. The partners may decide on junior
Management of partnership can be done
and senior partners, appoint someone as
by all partners because they have equal
managing partner, or even designate a
rights when it comes to managing it.3 min
special management committee that has
read
specific responsibilities and duties. The
Management of partnership can be done
day-to-day operations may be handled by
by all partners because they have equal
a committee or managing partners;
rights when it comes to managing it.
however, all major business decisions
Partnerships are technically legal
need a partner vote.
business organizations that have two or
more partners who share managerial If differences over standard business
duties and profits. The two main types of operations develop, they are decided by
partnerships are general partnerships and majority vote, unless there is an
limited partnerships. agreement specifying a different method.
If there is an alternative method, it must
A general partnership is one with two or
be decided on by all members.
more people who formed a business
All partnership agreements need to
under state partnership laws to function as
include a provision for handling deadlocks
co-owners of a business. Partners can
and state what the course of action will be
manage the business and assume liability
when there is an impasse.
for the business's debt and other legal
obligations. One option is independent arbitration, and
another option is activation of a buy-out
A limited partnership differs in that it has
clause, which means one partner can
both general and limited partners. The
resolve the deadlock vote by purchasing
general partners are the ones who
another member's partnership interest. If
assume liability and handle operations,
nothing else works, a partner can request
whereas limited partners are investors
to dissolve the partnership based on
only. Limited partners have no authority
partnership law in most jurisdictions.
over the business, nor do they have the
same liability as general partners.
 Understand outside needs to
Dissolving a Partnership support your strategy and identify
Unless an agreement states otherwise, where you may get them. By
most partnership laws allow partnerships understanding the strategic options
to dissolve when specific events have of partners, you can evaluate
occurred. These events can include the whether there is value to
following circumstances: exclusivity and what would happen
if the partnership broke up down
 Death of a partner the line.
 Bankruptcy or expulsion of a  Design your partnership so that it
partner can handle any tradeoffs in an
 Decree of dissolution from the exclusive deal. It's wise to leave
court yourself space to negotiate
 Impossibility to conduct business additional deals if needed, but you
don't want to risk losing
Dissolution doesn't mean the partnership's commitment from your partners.
business ceases, only that the relationship  Keep a close watch on how you'll
between the partners has ended. In the get capital value from your
event the partnership plans to cease selected partners. The team you've
operations, the next step is “winding built not only needs to be strong
things up.” The partnership agreement will enough to play well with others, but
then determine how property, assets, and also strong enough to beat the
the business are to be disposed of. other teams in competition.

If you need help with understanding


Managing Multiple management of a partnership, you
Partnerships can post your legal need on UpCounsel's
marketplace. UpCounsel accepts only the
Exclusive partnerships are not always top 5 percent of lawyers to its site.
ideal because one partner may feel Lawyers on UpCounsel come from law
constrained and start to look for a way to schools such as Harvard Law and Yale
break the deal or find something that Law and average 14 years of legal
gives them additional bargaining power. experience, including work with or on
Typically, much of the dissension is behalf of companies like Google, Menlo
handled behind closed doors, until the Ventures, and Airbnb.
matter winds up in court. There are times
where an exclusive partnership may be
warranted, especially if it's needed to
convince another partner to invest. While
Corporate
exclusive partnerships can work, the
success rate is low. Management
While exclusive partnerships aren't
necessarily the best path, it's not wise to Structure
be promiscuous either. Don't link yourself
with random other partnerships, or you will When you incorporate, or form a
get a bad reputation in the industry. Keep Corporation, you will have a formal
several things in mind when deciding how
many partners to have: three-tier structure of the
organization’s management. Shareholder, there could be a
Shareholders own the business, the varying degree of interest in the
Board of Directors selects officers decisions of the business, some
and makes high level decisions, shareholders play a more active role
while Officers run the day to day in overseeing who is elected to
activities of the business. manage the business. A shareholder
Incorporating your business as a doesn’t run the business or manage
Corporation can be performed with a it in any way. Shareholders elect who
single person in most states, will run the business and vote on
however you should look into your major business issues. Directors.
state’s rules for incorporation. In
some cases when there is more than Shareholders can have a significant

one shareholder, there must be more impact on the business by electing

than one director. Directors that have a shared vision


for the direction of the business as
Shareholders well as voting to remove Directors
that aren’t in line with the
Corporate Shareholders are who
Shareholder’s direction.
owns Corporations. Anyone who
Shareholders have the explicit right
owns a share of stock in a
to approval for big picture business
Corporation is a Corporate
items, such as acquisition, merger,
Shareholder. Any regular C
dissolution and the sale of assets.
Corporation can have an unlimited
amount of shareholders. Closely
Directors
held and Sub Chapter S
Corporations have different The Board of Directors has a closer

restrictions on this and are governed involvement in the management of

by federal mandate. Depending on the business. Directors are voted in

the amount of interest held by a by Shareholders and hold an annual


meeting once they are voted in. Secretary. Officers carry out the day
Directors carry out the vision of the to day activities of the business.
Corporation by electing the Some titles are synonymous with the
Corporate Officers, setting operation typical seats, such as CEO (Chief
policies, expanding the business and Executive Officer) and CFO (Chief
authorizing financial decisions. The Financial Officer) and are common
Board of Directors doesn’t have a corporate jargon.
minimum or maximum size, this will
depend on the size of your business. Officers are hands-on with the day to
day activities of the business,
Directors must act on behalf of the overseeing employees and the
business’ best interests and in any operations of the Corporation. In
event that is compromised, state law small Corporations, officer positions
could hold the individual personally are typically filled by the
liable for a decision. Directors must shareholders and only the traditional
act with honest intentions and loyalty offices are filled.
to the Corporation, putting their
personal interests second. Directors  President: Carries the majority of

ensure that set policies are carried the responsibility of the enforcement

out and oversee the activities of the of corporate policy. Signs major

business. contracts and legal documents on


behalf of the business. Answers to
Officers the Board of Directors.

Officers are elected by the Board of  Vice President: Although a vice

Directors. Each office has a specific president is typically the successor

function and duty. Corporations have of the President office in the event

4 typical officer seats, President, of death or dismissal, the Vice

Vice President, Treasurer and President is a senior executive of


the business. Directors will elect who are tasked with operating the
officers and Bylaws may have business.
provisions for availability events in
an officer position.
Members
 Secretary: Maintains corporate Members of an LLC are the owners.
records and books. Anyone who holds LLC interest in

 Treasurer: Manages the financial the company is a member. By default

records, accounting operations and LLC law, company decisions should

transactions. be carried out with consent of all the


members. Members will managed
Limited the LLC in this case and it is referred

Liability to as “Member Managed”.

Company Managers

Management Any LLC can appoint a member or


externally contracted individual to
Structure manage the company affairs. This
LLC’s are managed by the owners, provides for close control of the
or members of the company. business and availability to have
Another method is to designate other members play a more passive
specific members to be the role in the organization. This
managers of the business. By management is awkwardly called
default state LLC law provides that “Manager Managed”.
the company will be run by all
Classes of Partners
members. Your operating agreement 1. As to contribution
can provide your own management
model with designated individuals Capitalist partner – contributes money,
property to the partnership.
Industrial partner – contributes only his skills,
knowledge, industry or personal service to the
partnership.
Capitalist-Industrial partner – contributes
money, property and industry in the
partnership.
2. As to liability

General partner – one whose liability extends to


his separate properties.
Limited partner – one whose liability for
partnership obligation is limited to his
contribution.
3. As to management

Managing partner – one who is appointed by


the partners to take charge of the partnership.
Silent partner – one who has no active part in
the management of the partnership.
4. Other classifications

Liquidating partner – one who takes charge of


the winding up of the partnership affairs after
dissolution.
Secret partner – one who is not known to third
persons as a partner.
Dormant partner – who is secret and silent
partner.
Nominal or Ostensible partner – one who is a
partner in name only by permitting the use of
his name either for accommodation or for
consideration; subject to liability by the
doctrine of estoppel.