Corporation Law 1-107

Explain the Principle or Priority Adoption in corporate names.

A corporate which acquired a prior right over the use and adoption of a corporate name shall have the exclusive use thereof, with freedom from infringement.

State the express or general powers of a corporation (Theory of General Capacity)

A corporation has no power except those expressly conferred upon it by the RCC and those that are implied of incidental to its existence. Every corporation incorporated under this Code has the power and capacity a) To sue and be sued in its corporate name; b) To have perpetual existence unless the certificate of incorporation provides otherwise; c) To adopt and use a corporate seal; d) To amend its articles of incorporation in accordance with the provisions of this Code; e) To adopt bylaws. Not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code; f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a nonstick corporation; g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution; h) To enter in to a partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons; i) To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity; j) To establish pensions, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and k) To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation. (Sec. 35, RRC)

Define 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 incident to its existent (Sec 2, RCCP)

Within what period may a corporation exist?

A corporation shall have perpetual existence unless its articles of incorporation provides otherwise. Corporations with certificates of incorporation issued prior to the effectivity of this Code, and which continue to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate term pursuant to its articles of incorporation: Provided, that any change in the corporate term under this section is without prejudice to the appraisal right of dissenting stockholders accordance with the provisions of this Code. A corporate term for a specific period may be extended or shortened by amending the articles of incorporation: Provided, that no extension may be made earlier than three (3) years prior to the original justifiable reasons for an earlier extension as may be determined by the Commission: Provided, further, That such extension of the corporate term shall take effect only on the day following the original or subsequent expiry date(s). (Sec. 11, RCC)

When does a corporation acquire its corporate existence?

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, stockholder/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. (Sec 18, RCC)

Define promoter. Is the corporation liable for contracts entered into by the promoter?

A promoter is a person who acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration thereof. He is personally liable for contracts with third persons contracted in behalf of the future corporation, if the corporation does not ratify the same or unless the agreement was expressly made subject to such approval or ratification. The rationale behind this is simple: A corporation should have full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business. The corporation is not bound by the contract entered into by the promoter before the incorporation unless the contract is later ratified. (65 Phil. 223)

Juan is a stockholder of AAA Corp. with a controlling interest in said corporation. For several years, AAA Corp, has been incurring liabilities to the chagrin of its creditors. Alarmed, Juan wants to know if the creditors can go after his own properties should AAA Corp be unable to fulfill its obligations to its creditors. A.) As his lawyer, what advice will you give him? B.) What is the principle of limited liability

A. I will advise Juan that the properties are not the properties of its directors, officers and stockholders. A corporation has a personality separate and distinct from that of its stockholders. And since it is a distinct legal entity, a corporation incurs its own liabilities and is legally responsible for payment of its obligations. In other words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder. B. The principle of limited liability is the protection from liability of shareholders from the liability of a corporation. Since a corporation has a separate juridical personality from that of its stockholders, the corporate debt or credit is not the debt or credit of the stockholder.

Enumerate the classes of corporations and define each.

A.) As to existence of stocks - i.) Stock Corporation- it has a capital stock divided into shares, dividends or allotments of the surplus profits on the basis of the shares held. (Sec. 3, RCC) ii.) Non-Stock Corporation- one where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of the Code on dissolution (whereupon, surplus may be distributed). It is governed by the Board of Trustees. A non-stock corporation is not organized for profit, but for public good and welfare. B.) As to legal status - i.) De Jure Corporation- organized in accordance with the requirements of the law. ii.) De Facto Corporation- a corporation where there exists a flaw in its incorporation. The requisites for its existence are: 1. The existence of a valid law under which it may be incorporated; 2. An attempt in good faith to incorporate or comply with the formalities of the law; and 3. Use of corporate powers. If there is substantial compliance, a de jure corporation results. A colorable compliance, on the other hand, brings about a de facto corporation. The right to exist as a de jure corporation cannot be successfully attacked even in a direct proceeding by the State. But as regards a de facto corporation, its right to exercise its corporate powers cannot be inquired into collaterally in any private suit. Such inquiry, however, may be made by the State through a quo warranto proceeding. C.) Corporation by Estoppel- a group of persons who assume to act as a corporation knowing it to be without authority to do so. They shall be liable as general partners for all debts, liabilities, and damages incurred or arising as a result thereof. (Sec. 20, RCC) These persons are estopped from claiming lack of corporate life in order to avoid liability. D.) Corporation by Prescription- a corporation that was not formally organized but has been duly recognized by immemorial usage as a corporation, with rights and duties under the law (i.e. the Roman Catholic Church). E.) As to laws of Incorporation - i.) Domestic Corporation- a corporation formed, organized, or existing under Philippine law; ii.) Foreign Corporation- a corporation 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 t5he RRC and a certificate of authority from the appropriate government agency. (Sec. 140, RCC) F.) As to how it5 is created and its functions - i.) Private- those generally created under the provisions of the RCC, for profit or other private purpose; ii.) Public- those created under special laws and the Local Government Code; usually created for the government or a portion of the State and for the purpose of serving the general good and welfare. G.) As to relationship of management and control - i.) Parent Corporation- a corporation controlling the financial interest in one or more corporations. ii.) Subsidiary Corporation- the corporation controlled by the parent corporation; it is so related to another corporation that the majority of its directors can be elected either directly or indirectly by such other corporation. iii.) Affiliate- one related to another by owning or being owned by common management or by long-term lease of its properties or other controlled device. It may be controlled or controlling corporation, or under common control. iv.) Holding Corporation- one which controls another as a subsidiary by the power to elect management. It is one that holds stocks in other companies for purposes of control rather than mere investment. H.) As to whether it is for religious purpose pr not - i.) Lay corporation- one organized for a purpose other than for religion. ii.) Ecclesiastical corporation- one organized for religious purposes. I.) Eleemosynary Corporation - one established for charitable purposes. J.) Corporation Sole - one established for the purpose of administering and managing, as trustee, the affairs, property, and temporalities of any religious denomination, sect, or church. It may be formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious denomination, sect, or church. K.) One Person Corporation - a corporation with a single stockholder. Only a natural person, trust, or an estate may form a One Person Corporation. (Par. 1, Sec. 116, RCC)

28) BAR QUESTION: Plaintiffs filed a collection action against X Corporation. Upon execution of the court's decision, X Corporation was found to be without assets. Thereafter, plaintiffs filed an action against Y Corporation which owned substantially all of the stocks of X Corporation. The two corporations have the same board of directors who controlled, financed, and managed their operations. May Y Corporation be held liable for the debts of X Corporation? Why?

ANSWER: Yes. Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the veil of corporate fiction applies to this case. The two corporations have the same board of directors and Y Corporation owned substantially all of the stocks of X Corporation, which facts justify the conclusion that the latter is merely an extension of the personality of the former, and that the former controls the policies of the latter. Y Corporation controls the finances of X Corporation which is merely an adjunct, business conduit, or alter ego of the former.

Distinguish an incorporator from a corporator.

An incorporator is the stockholder or member mentioned in the articles of incorporation as originally forming and composing the corporation, having signed and acknowledged It before a notary public. An incorporator can be any person, partnership, association or corporation. He has no powers beyond those vested in him by the statute. A corporator is a stockholder of a stock corporation or a member of non-stock corporation, including the incorporator who is still a stockholder. An incorporator who is natural person must be of legal age and must have capacity to enter into contract. A corporator may be such through his guardian. There must be at least one(1) incorporator but not more than fifteen (15) incorporators. But there is no restriction as to the number of corporators in a corporation..

Define independent director.

An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgement in carrying out the responsibilities as a director (Sec.22, RCC)

Explain an ultra vires act.

An ultra vires act is an act committed outside the purpose for which a corporation is created as defined by the law and its organization, and therefore beyond the powers conferred upon it. Acts which are clearly beyond the scope of the corporation's authority are null and void and cannot be given any effect. (Gancayco v. City Government of Quezon City, 658 SCRA 853)

What is the minimum and maximum number of incorporators required to incorporate a stock corporation? Is this also the same minimum and maximum number of directors required in a stock corporations?

Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, any organize a corporation for any lawful purpose. (Sec 10, RCC) There must be at least one (1) director but not more than fifteen (15) directors in a stock corporation. (Sec 10, RCC)

Enumerate the instance when concurrence of the stockholders is necessary for the exercise of corporate powers.

Approval of the majority of the Board and 2/3 vote of the stockholders representing the outstanding capital (or 2/3 vote of the members) are necessary in the following: a) Extend or shorten corporate term (Sec. 36,RCC) b) Increase or decrease capital stock (Sec. 37,RCC) c) Incur, create or increase bonded indebtedness (Sec. 37,RCC) d) Sell, dispose, lease, encumber or dispose all or substantially all corporate assets. (Sec.39,RCC) e) Invest in another corporation, business other than primary purpose (Sec. 41,RCC) f) Declare stock dividends (Sec.42 ,RCC) g) Merger or consolidation (Sec.76,RCC) h) Amend Articles of Incorporation (Sec.15,RCC) Approval of majority of the stockholders holding outstanding capital stock is necessary in the following: a) Fixing of compensation of directors (Sec.29,RCC) b) Adoption of bylaws (Sec.45,RCC) c) Election of directors or trustees (Sec.23,RCC) d) Fixing the issued price of no-par value shares (Sec.61,RCC) e) Filling of vacancies in the Board (Sec.28,RCC) f) Enter into management contract (Sec.43,RCC)

What are the binding effects of bylaws?

As to board of directors and officers, stockholders and members- they are bound by the terms thereof, but subordinate employees without actual knowledge are not bound. As to third persons- bylaws are not binding on the, unless they have actual knowledge.

May a corporation be held liable for tort? For crime?

As to tort: A corporation may be held liable for tort when the act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or generally, from the directors as the governing body. As to crime: A corporation is an artificial being incapable of intent, and as such, it cannot commit felonies punishable under the Revised Penal Code. Also, it cannot be held liable for crimes committed under special laws because these crimes are personal in nature requiring personal performance of overt acts. A corporation cannot be meted with the penalty of imprisonment because it exists by mere fiction of law. EXCEPTION: By express provision of the Anti-Money Laundering Act, a corporation may be held criminally liable for violation thereof. In such case, responsible officers would be criminally liable. QUALIFICATIONS: It has been held, however, that corporate officers or employees, through whose act, default, or omission the corporation commits a crime, may themselves be individually held answerable for the crime.

The Securities and Exchange Commission, through its Chairperson, issued on May 20, 2013, SEC-MC No. 8 entitled, "Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationlized and Partly Nationalized Activities." Section 2 of SEC-MC No. 8 provides: All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors." Given that the Gamboa Decision, which attained finality in October 18, 2012, held that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors (only to common shares) and not to the total outstanding capital stock (common and preferred shares), Atty. Roy impugned the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision. RESOLVE.

Atty. Roy's thesis holds no water. The Gamboa Decision did not make any definitive ruling that 60% Filipino ownership requirement was intended to apply to each class of share. Sec 2 of SEC-MC No.8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the test of full beneficial ownership of 60% of the outstanding capital stock, coupled with 60% of voting rights. (Roy III v. Herbosa, 810 SCRA 1)

The GSIS Family Bank (GFB) applied for authority to us GSIS Family Bank, A Thrift bank, as its business name. The Department of Trade and Industry (DTI) and the Banko Sentral ng Pilipinas (BSP) approved the apllication. Thus, pursuant to such approval, GFB operates under the corporate name "GSIS Family Bank, A Thrift bank." Ensuingly, BPI Family Bank (BPI), filed a petition with the SEC praying that GFB be ordered to delete or drop the word "Family" from its corporate name. BPI claimed exclusive ownership to the name "Family bank," having acquired the name since its purchase and merger with FEBTC way back in 1985. Besides, through the years, "BPI family bank" or simply "Family bank" has been associated with BPI both locally and internationally. As such, it has acquired a reputation and good will under such name. Contrariwise, GFB asserted its legal use over such corporate name arguing - one, the word "family" is genuine or descriptive name, which cannot be appropriated exclusively by BPI; and two, the approval of the BSP and the certificate of registration granted to it by the DTI constitute authority for its use "GSIS Family Bank" as corporate name. Resolve.

BPI Family Bank was entitled to the exclusive use of the corporate name because of its prior adoption of the name "Family Bank" since 1969. There is confusing similarity in the corporate names because "confusion as to the possible association with GSIS might arise if we were to allow Comsavings Bank to add its parent company's acronym GSIS to Family Bank. This is true especially considering both companies belong to the banking industry. Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur. (GSIS Family Bank v. BPI Family Savings Bank, 771 SCRA 284)

State the rules on amendment or repeal of bylaws.

Bylaw may be amended or repealed: a) By majority vote of the Board of Directors or Trustees AND the majority vote of the owners of outstanding capital stock, or a majority of the members of a non-stock corporation; b) At a regular or special meeting duly called for purpose; c) Two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal bylaws or adopt new bylaws; d) The power delegated may be revoked when majority of the stockholders owning outstanding capital stock or majority of the members in non-stock corporations, shall so vote at a regular or special meeting; e) The amended or new bylaws shall be effective only upon approval by the SEC.

Define bylaws and enumerate the requisites for valid bylaws.

Bylaws are the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. These are the rules of action pertaining to the direction, management and control of its affairs and activities. (China Banking Corporation v. Court of Appeals, 270 SCRA 503) The requisites for valid bylaws are: a) It must be consistent with the RCC, other laws, and with the Articles of Incorporation. In case of conflict, the Articles of Incorporation prevails. b) It must not disturb vested rights or impair contract or property rights of stockholders or members. c) It must be reasonable and not arbitrary or oppressive. d) It must be duly approved by the SEC.

What can the SEC do if the corporation does not comply with the foregoing?

The Commission, upon determination that the corporate name is: 1) not distinguishable from a name already reserved or registered for the use of another corporation; 2) already protected by law; or 3) contrary to law, rules and regulations, may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one. The Commission shall also cause the removal of all visible signages, marks, advertisements, labels , prints and other effects bearing such corporate name. Upon the approval of the new corporate name, the Commission shall issue a certificate of incorporation under the amended name. If the corporation fails to comply with the Commission's order, the Commission may hold the corporation and its responsible directors or officers in the contempt and/or hold them administratively, civilly and/or criminally liable under this Code and other applicable law and/or revoke the registration of the corporation. (Sec. 17, RCC)

Explain the Doctrine of Separate Juridical Personality.

The Doctrine of Separate Juridical Personality provides that a corporation has a legal personality separate and distinct from that of the people comprising it. By virtue of the doctrine, stockholders of a corporation enjoy the principle of limited liability; the corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the property also of the corporation. (Bustos v. Millians Shoe Inc., 824 SCRA 67)

What is the term of office of a director? How about that of a trustee?

Directors shall be elected for a term of one (1) year from among the holders of stocks registered in the corporation's books, while trustees shall be elected for a term not exceeding three (3) years from among the members of the corporation.

What is the Nell Doctrine? State the exceptions thereto.

The Nell doctrine dictates that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: 1.) Where the purchaser expressly or impliedly agrees to assume such debts; 2.) Where the transaction amounts to a consolidation or merger of the corporation; 3.) Where the purchasing corporation is merely a continuation of the selling corporation; and 4.) Where the transaction is entered into fraudulently in order tp escape liability from such debts. (Nell Company v. Pacific Farms, Inc. 15 SCRA 415)

The articles of incorporation to provisions: a) "First Article. The name of the corporation shall be Toho Marketing Company." b) "Third Article. The principal office of the corporation shall be located in Region III, in such municipality therein as its Board of Directors may designated." c) "Seventh Article. The capital stock of the corporation is One Million Pesos(P1,000,000.00), Philippine Currency." What are your comments and suggested changes to the proposed articles?

For the first article, the name of the corporation should have the word "corporation" or its abbreviation "Corp." or "Incorporated", or "Inc." The corporate name may be changed to: " Toho Marketing Corporation," or "Toho Marketing Company, Incorporated," "Toho Marketing Corp.," or "Toho Marketing, Inc." The third article should indicate with particularity the city or municipality and the province in the Philippines where the corporation shall conduct its principal place of business. The exact address is necessary as it may determine the venue of court cases, as well as the place where service of summons and notices shall be sent. The seventh article must indicated the amount of the authorized capital stock and the number of shares subscribed and paid-up, and if it be a par value stock corporation, the par value of each share.

May a corporation seek moral damages?

General Rule: No. A juridical person is not entitled to moral damages because unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish, or moral shock. EXCEPTION: A corporation may be entitled to moral damages on the basis of libelous articles printed against it. Paragraph 7 Article 2219 expressly authorizes the recovery of moral damages in case of libel, slander, or any other form of defamation. This provision does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim moral damages. (Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine, 448 SCRA 413)

May a stockholder be held criminally liable for acts committed by a corporation?

Generally, no, since in a corporation, the management of its business is vested in its board of directors, not its stockholders. Stockholders are basically investors in a corporation. They do not have a hand in running the day-to-day operations of the corporation unless they are at the same time directors or officers of the corporation. Before a stockholder may be held criminally liable for acts committed by the corporation, therefore, it must be shown that he had knowledge of the criminal act committed in the name of the corporation and that he took part in the same or gave his consent to its commission, whether by action. or inaction. (Espiritu v. Petron Corp., 605 SCRA 245)

29) PROBABLE BAR QUESTION: Atty. Jose Magtanggol, a lessee of two (2) buildings owned by Mario Carreon, owed the latter rental arrears and his share in the payment of realty taxes. Consequently, Carreon filed a complaint for unlawful detainer against Magtanggol before the MeTC of Manila. The MeTC ruled in Carreon's favor and ordered Magtanggol to vacate the Carreon Apartments and to pay various sums of money representing unpaid arrears, realty taxes, penalty, and attorney's fees. Magtanggol failed to appeal and the case became final and executory. Before the sheriff was able to levy on his real property as a result of his failure to satisfy the judgment of the MeTC, Magtanggol suddenly remembered key concepts in Corporation Law and decided to form a non-stock corporation Cato Institute Foundation Incorporated (CIFI) with Magtanggol as President and registered his real property in the name of CIFI. Magtanggol believes that the doctrine of piercing the veil of corporate fiction applies only to stock corporations, and not to non-stock, non-profit corporations such as CIFI since there are no stockholders to be held liable in such a situation but only members. Moreover, he also believes that piercing the corporate veil cannot be applied to a natural person since as a human being, there is no "corporate veil" shrouding his person. At a loss on what to do next, Carreon consults his lawyer Atty. Chevy Chase and asks him whether the real property of Magtanggol, which is now in the name of CIFI, is safe from a writ of execution. If you were Atty. Chase, what legal advice will you give Carreon?

If I were Atty. Chase, I will advise Carreon that Magtanggol cannot hide his real property under the name of CIFI in order to evade a lawful judgment by the court. The doctrine of piercing the veil of corporate fiction may apply to non-stock, non-profit corporations. In determining the propriety of applicability of piercing the veil of corporate fiction, the Court, in a number of cases, did not put in issue whether a corporation is a stock or non-stock corporation. In Sulo ng Bayan, Inc. v Gregorio Araneta, Inc., the Court held that the non-stock corporation had no personality to institute a class suit on behalf of its members, considering that the non-stock corporation was not an assignee or transferee of the real property in question, and did not have an identity that was one and the same as its members.

Pablo, a neophyte entrepreneur, was a defendant in a lawsuit which could subject him to a hefty amount of damages and the possible closure of his new business. Having learned that the Revised Corporation Code was now in effect, he asked Atty. Juan about the effect of putting up a One Person Corporation on his looming legal troubles. If you were Atty. Juan, what advice would you give to Pablo?

If I were Atty. Juan, I would advise Pablo that a sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation was adequately financed. And where the single stockholder cannot prove that the property of the One Person Corporation is independent of the stockholder's personal property, the stockholder shall be jointly and severally liable for the debts and other liabilities of the One Person Corporation. Moreover, the principle of piercing the corporate veil applies with the equal force to One Person Corporation as with other corporations. (Sec. 130, RCC)

Give the effects of non-use of corporate charter and continuous inoperation.

If a corporation does not formally organize commence its business within five(5) years from the date of its incorporation , its certificate of incorporation shall be deemed revoked as of the day following the end of the five(5)- year period. However, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least five(5) consecutive years, the Commission may, after due notice and hearing, place the corporation under delinquent status. A delinquent corporation shall have a period of two(2) years to resume operations and comply with all requirements that the Commission shall prescribe. Upon compliance by the corporation, the Commission shall issue and order lifting the delinquent status. Failure to comply with the requirements and resume operations within the period given by the Commission shall cause the revocation of the corporation's certificate of incorporation. The Commission shall give reasonable notice to, and coordinate with the appropriate regulatory agency prior to the suspensions or revocation of the certificate of incorporation of companies under their special regulatory jurisdiction. (Sec. 21,RCC)

Explain the concept of Insider reverse piercing

In Insider reverse piercing, the controlling members will atempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets. (848 SCRA 437)

State the persons composing a corporation.

Incorporator - stockholder or member mentioned in the article of incorporation as originally forming and composing the corporation and who are signatories thereof. (Sec. 5,RCC) Corporator -those who compose a corporation, whether as stockholder, or shareholders in a stock corporation or as member. (Sec.5 ,RCC) Stockholders and members - stockholder are persons who hold or own shares in a stock corporation while members are those who compose the non-stock corporation. Directors and Trustees - Board of Directors is the governing body in a stock corporation while Board of Trustees is the governing body in a non-stock corporation. They exercise the powers of the corporation. Directors shall be elected for a term of one (1) year from among the holders of stock registered in the corporation's books, while trustees shall be elected for a term not exceeding three (3) years from among the members of the corporation. Each director and trustee shall hold office until the successor is elected and qualified. A director who ceases to own at least one(1) share of stock of a trustee who ceases to be a member of the corporation shall cease to be such. (Sec 22, RCC) Corporate Officers - officers who are identified as such in the Corporation Code, Articles of Incorporation or bylaws of the corporation.

How are independent directors elected?

Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors. Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term of limit, maximum number of board memberships and other requirements that the Commission will prescribe to strengthen their independence and align with international best practices. (Sec 22,RCC)

Outline the procedure for amendment of the Articles of Incorporation. Enumerate items in the Articles of Incorporation which may not be amended.

It may be amended by: a) Majority vote of the board of directors or trustees, and b) Vote or written assent of the stockholder representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stock holders, or c) The written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The amendments shall take effect upon their approval by SEC, or from the date of filing If not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. (Sec.15, RCC)

State the rules on adoption of a corporate name.

No corporate name shall be allowed by the Commission if it is not distinguishable from that already reserved or registered for the use of another corporation, or if such name is already protected by law, or when its use is contrary to existing law, rules and regulations. A name is not distinguishable even if it contains one or more of the following: a) The word "corporation", "company", "incorporated", "limited", "limited liability", or an abbreviation of one of such words; and b) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or number of the same word or phrase. (Sec .17, RCC) The policy behind the foregoing prohibition is to avoid fraud upon the public that will have occasion to deal with the entity concerned, the evasion of legal of administration and supervision over the corporation. (Industrial Refractories Corporation of the Philippines v. Court of Appeals, 390 SCRA 252) Pertinent portions of SEC Circular 14-2000, series of 2000, provide that: a) The corporation name shall contain the word "Corporation" or its abbreviation "Corp." or " Incorporated," or "Inc." b) If the proposed name is similar to the name of a registered firm, the proposed name must contain at least one distinctive word different from the name of the company already registered. c) If the name or surname of a person is used as part of corporate name, the consent of said person or his heirs must be submitted. If such person cannot be identified or is non-existent, an explanation for the use of such name shall be required. d) The following words shall not be used as part of corporate or partnership names: 1) "Finance", "Financing" or "Finance and Investment" by corporations or partnerships not engaged in the financing business; 2) "Engineer", "Engineering" or "Architects" as part of the corporate name; 3) "Bank", "Banking", "Banker", Building and Loan Association", Trust Corporation", "Trust Company" or words of similar import by corporations or associations not engaged in banking business; 4) "United Nations" in full or abbreviated form; 5) "Bonded" for corporations or partnerships with unlicensed warehouse; 6) "Investment(s)" by corporations or partnership not organized as investment house or holding company; 7) "National" by all stock corporations and partnership; 8) "Asean", "Calabarzon" and "Philippines 2000".

PR Company owns a beach resort with several cottages. jaime, the President of PR, occupied one of the cottages for residential purposes. After Jaime's term expired, PR wanted to recover possession of the cottage. Jaime refused to surrender the cottage, contending that as a stockholder and former President, he has a right to possess and enjoy the properties of the corporation. Is Jaime's contention correct? Explain.

No, Jaime's contention is not correct. Jaime may own shares of stock in PR Corp. but such ownership does not entitle him to possession of any specific property of the corporation or a definite portion thereof. Neither is he a co-owner of corporate property. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its stockholders. Stockholders like Jaime only own shares of stock in the corporation. Such shares of stock do not represent specific corporate property.

BPO Bank extended a loan in favor of LU Corp. The loan was secured by a real estate mortgage. The obligation matured and LU Corp. was unable to pay upon maturity. Hence, BPO bank filed a collection suit against LU Corp. A, B, and C, stockholders of LU Corp., seek to intervene in the suit alleging that the loan transaction between BPO Bank and LU Corp. was not approved by the stockholders representing at least 2/3 of the corporate capital. Is the contention of stockholders A, B, and C tenable?

No, the contention of A, B, and C is not tenable. They have no legal interest in the mortgaged property subject of the litigation. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in its profits, and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate aliquot interest in the property of the corporation, it does not vest the owner thereof any legal right or title to any of the property, his interest in the property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. (Saw v. Court of Appeals, 195 SCRA 740)

Redmont Consolidated Mines Corp. (Redmont) took interest in mining and exploring certain areas of the province of Palawan. Adter inquiring with DENR, it learned that the areas where it wanted to undertake exploration and mining activities were already covered by Mineral Production Sharing Agreement (MPSA) applications of Narra Corp., Tesoro Inc., and McArthur Inc., which were all domestic corporations. Redmont, however, questioned these applications for MPSA arguing that at least 60% of the capital stock of these three corporations were owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation, which was disqualified from engaging in mining activities reserved only for Filipino citizens. Narra, Tesoro and McArthur on the other hand insisted that they were "qualified persons" under Section 3 (aq) of RA 7942 or the Philippine Mining Act of 1995 which provided that: "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty percent (60%) of the capital of which is owned by citizens of the Philippines: Provided, that a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit." They stated that their nationality as applicants is immaterial because they also applied for Financial Technical Assistance Agreements (FTAA) which is granted to foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised since they are in fact Philippine nationals as 60% of their capital is owned by citizens of the Philippnes. They claimed that the control test must be applied to determine their nationality. Are Narra, Tesoro and McArthur Filipino corporations?

No. A grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our country's nose through a myriad of corporate layering under different, allegedly, Filipino corporations. Basically, there are two acknowledged tests in determining the nationality of a corporation - the control test and the grandfather rule. Par 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." The first part of paragraph 7 pertains to the control test or the liberal rule. On the other hand, the second part pertains to the stricter, more stringent grandfather rule. Under the liberal control test, there is no need to further trace the ownership of the 60% Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino. Under the stricter rule or grandfather rule proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced to determine the total percentage of Filipino ownership. Moreover, the ulitmate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly owned in the Investee Corporation. (722 SCRA 382)

The Board of Directors of X Corporation, acting on a standing authority of the stockholders to amend the bylaws, amended its bylaws so as to disqualify any of its stockholders who is also a stockholder and director of a competitor from being elected to its Board. Y, a stockholder holding sufficient assets to assure him of a seat in the Board, filed a petition with the SEC for declaration of nullity of the amended bylaws. He alleged, among other things, that as a stockholder, he had acquired rights inherent in stock ownership such as the right to vote and be voted upon in the election of directors. Is the stockholder's petition tenable?

No. Corporations have the power to make bylaws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other competition is valid. A stockholder has no vested right to be elected as director. When a person buys stock in a corporation he does so with the knowledge that its affairs are dominated by a majority of the stockholders. To this extent, the stockholder parted with his personal right to regulate the disposition of his property which he invested in the capital stock of the corporation and surrendered it to the will of the majority of his fellow incorporators or stockholders.

To Prevent the entry of Marlo Enriquez, whom it considered as one antagonistic to its interests, into its Board of Directors, Bayan Corporation amended it's articles of incorporation and bylaws to add certain qualifications of stockholders to be elected as members of its Board of Directors. When presented for approval at a meeting of its stockholders duly called for the purpose, the amendments were overwhelmingly ratified. Marlo Enriquez brought a suit against Bayan Corporation to question the amendment. Would the action prosper?

No. Corporations have the power to make bylaws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid. An officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an office or director. (Gokongwei, Jr. v. Securities and Exchange Commission, 89 SCRA 336)

Explain the concept of Reverse Piercing of the Corporate Veil

The Supreme Court borrowed from American parlance what is called reverse corporate piercing. As held in the US Case, C.F. Trust, Inc., v. First Flight Limited Partnership, "in a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider." "Reverse-piercing flows in the opposite direction and makes the corporation liable for the debt of the shareholders."

Mamuhunan was invited bu his friends to invest in A Corporation, a newly organized firm engaged in money market and financing operation. Because of his heavy investments, Mamuhunan became the firm's President and as such, purchased a big n umber of computers, typewriters, and other equipments from Taktak Corporation. A Corporation paid the down payment and Taktak Corporation issued the corresponding receipt. To his chagrin, Mamuhunan discovered that the Articles of Incorporation had not been filed by his friends. A Corporation became bankrupt three months later. Upon being sued by Taktak Corporation in its personal capacity, Mamuhunan raised the doctrines of de facto corporation and corporation by estoppel among his defenses. Can these two defenses be validly raised?

No. Mamuhunan. cannot validly raise these two defenses. There can never be a de facto corporation because the Articles of Incorporation was not filed with the SEC. There was no attempt in good faith to incorporate if no Articles of Incorporation was filed with the SEC. Also, Mamuhunan is not allowed to raise the defense that A Corporation is a de facto corporation to defeat the rightful claim of Taktak Corporation. It is the State which may, in a proper court proceeding, inquire into its right to exercise corporate powers. A corporation by estoppel may have been created but this defense may not be raised against Taktak Corporation. Mamuhunan cannot allege lack of personality to be sued to evade responsibility for a contract entered into by A Corporation. Otherwise, the purpose of the law which is to protect third persons or creditors who relied in good faith on such representations may be defeated.

Does the RCC require a minimum capital stock for corporations?

No. Stock corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided special law.

Under the Doctrine of Piercing the Veil of Corporate Fiction, is a subsidiary corporation liable for the obligation of its parent corporation?

No. The mere fact that a corporation owns all of the stocks of another corporation, taken alone is NOT sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. There is no definite test to determine when a subsidiary's corporate veil may be pierced thereby treating it as a mere instrumentality of the parent corporation. But the following factors may be considered: a.) The parent corporation owns all or most of the capital stock of the subsidiary. b.) The parent and subsidiary corporations have common directors and officers. c.) The parent corporation finances the subsidiary. d.) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. e.) The subsidiary has grossly inadequate capital. f.) The parent corporation pays the salaries and other expenses or losses the subsidiary or otherwise causes its incorporation. g.) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by6 the parent corporation. h.) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. i.) The parent corporation uses the property of the subsidiary as its own. j.) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation. k.) The formal legal requirements of the subsidiary are not observed. (MR Holdings Ltd. v. Bajar, 380 SCRA 617)

A corporation was created by a special law. later, the law creating it was declared invalid. May such corporation claim to be a de facto corporation?

No. The requisites for the existence of a de facto corporation are absent as there is no law under which it was organized.

The stockholders of People Power Inc. (PPI) approved two resolutions in a special stockholders' meeting: a) Resolution increasing the authorized capital stock of PPI; and b) Resolution authorizing the Board of Directors to issue, for cash payment, the new shares from the proposed capital stock increase in favor of outside investors who are non-stockholders. the foregoing regulations were approved by stockholders representing 99% of the total outstanding capital stock. The sole dissenter was Jimmy Morato who owned 1% of the stock. Are the resolutions binding on the corporation and its stockholders including Jimmy Morato, the dissenting stockholder.

No. The resolutions are not binding on the corporation and its stockholders including Jimmy Morato. While these resolutions were approved by the stockholders, the directors' approval, which is required by law in these cases, was not obtained.

X Corporation is engaged in selling pencils on wholesale basis. It is merely renting a bodega and 90% of its assets consist of its stocks of pencil. A, a school supply dealer, purchased all the stocks of X Corporation. Is the transaction a sale of all or substantially all of the assets requiring concurrence of stockholders representing 2/3 of the outstanding capital stock?

No. The sale here appears to be a sale in the regular course of business because X Corporation is engaged in wholesale business.

May the stockholders of a corporation enjoy the tax exemption enjoyed by the latter?

No. The tax privileges of a corporation do not extend to its stockholders. The dividends of a corporation, which are paid and delivered to stockholders, are subject to payment of income tax, notwithstanding the exemption enjoyed by the corporation. (Manila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895)

Does corporate capital mean the total outstanding capital stock, whether voting or non-voting?

No. The term "capital" pertains only to shares entitled to vote.

Should all incorporators and directors be residents of the Philippines?

No. Under the RCC, there is no requirement that incorporators and directors be residents of the Philippines. (Under the old law, the majority of the incorporators must be residents of the Philippines.)

Explain the concept of Outsider Reverse Piercing

Outsider reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant.

What type of reverse piercing is applicable in the case of Magtanggol and Carreon?

Outsider reverse veil-piercing is applicable in the case of Magtanggol and Carreon. Carreon, as judgment creditor, seeks the court's intervention to pierce the corporate veil of CIFI in order to make its Makti real property answer for a judgment against Magtanggol, who owns and substantially controls CIFI.

Stikki Cement Corp. was organized primarily for cement manufacturing. Anticipating substantial profits, its President proposed that Stikki invest in a.) a power plant project, b.) a concrete road project, and c.) quarry for limestone in the manufacture of cement. What corporate approvals or votes are needed for the proposed investments? Explain. describe the procedure in securing these approvals.

Since the power plan project is not reasonably necessary to the primary purpose for which Stikki cement Corp. was incorporated, the approval of majority of the Board of Directors and ratification of at least 2/3 of the outstanding capital stock or members of the corporation are needed. Assuming that the concrete road project is not necessary for cement manufacturing, the same approval votes as aforestated are needed. Given the quarry operations are indispensable to the manufacture of cement, only the approval of the Board of Directors is required. The procedure to secure these approvals follows: 1. a notice must be sent to the Board of Directors and to the stockholders informing them that a meeting has been set with proposed investments as agenda of such meeting, including time and place thereof; 2. for the stockholders, notice must be mailed or served personally. (Sec. 41, RCC)

Bell Philippines, Inc. (BellPhil) is a public utility company, duly incorporated and registered with the Securities and Exchange Commission. Its authorized capital stock consists of voting common shares and non-voting preferred shares with equal par values of P100.00/share. Currently, the issued and outstanding capital stock of BellPhil consists only of common shares shared between Bayani Cruz, a Filipino with 60% of the issued common shares, and Bernard Fleet, a Canadian, with 40%. To secure additional working fund, BellPhil issued preferred shares to Bernard Fleet equivalent to the currently outstanding common shares. A suit was filed questioning the corporate action on the ground that the foreign equity holdings in the company would now exceed the 40% foreign equity limit allowed under the Constitution for public utilities. Rule on the legality of Bernard Fleet's current holdings.

The acquisition by Bernard Fleet of the additional preferred shares did not violate the 40% foreign equity limit for public utilities under the Constitution. The term "capital" should refer only to common shares outstanding and entitled to vote, and not to the total outstanding capital stock which includes the common and non-voting preferred shares. It is only when preferred shares have been given the right to vote in the election of directors that the term "capital" inclused 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. (Gamboa v. Teves, 652 SCRA 690, and Resolution dated 9 October 2012) The facts of the problem reveal that BellPhil's preferred shares have no voting rights. The right to vote is given only to holders of common shares. Those holding preferred shares have no right to participate in the management of the corporation as they have been deprived of the right to vote. Consequently, the suit questioning the issuance of preferred shares in favor of Bernard Fleet has no leg to stand on. The 60%-40% Filipino-foreign equity requirement was not violated considering that 60% of the outstanding capital stock is still in the hands of Filipino nationals.

Richard owns 90% of the shares of the capital stock of GOM Co. On one occasion, GOM represented by Richard as President and General Manager executed a contract to sell a subdivision lot in favor of Tomas. For failure of GOM, to develop the subdivision, Tomas filed an action for rescission and damages against GOM and Richard. Will the action prosper? Explain.

The action may prosper against GOM but definitely not against Richard. Richard has a legal personality separate and distinct from that of GOM. He may have signed the contract to sell, but he did so as President and General Manager, and not in his personal capacity. Mere ownership by Richard of 90% of the capital stock of GOM is not a sufficient ground in itself to disregard his separate legal personality absent a showing that he acted maliciously or in bad faith.

What are the corporations that are required to have independent directors?

The board of the following corporations vested with public interest shall have independent directors constituting at least twenty percent (20%) of such board: a.) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The Securities Regulation Code", namely those whose securities are registered with the Commission, corporations listed with a n exchange or with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares; b.) Banks and quasi-banks, NSSLAs, pawnshops, pre-need, trust and insurance companies and other financial intermediaries; and c.) Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission. (Sec 22, RCC)

You have been asked to incorporate a new company to be called FSB Savings & Mortgage Bank, Inc. List the documents that you must submit to the Securities and Exchange Commission (SEC) to obtain a certificate of incorporation for FSB Savings & Mortgage Bank, Inc.

The following documents be filed with the SEC to secure a Certificate of Incorporation a) Articles of Incorporation; b) Treasurer's Affidavit (certifying that 25% of the total authorized capital stock has been subscribed and at least 25% of such has been fully paid up); c) Bank certificated of deposit covering the paid-up capital; d) Letter of authority to allow SEC to examine the bank deposit and other corporated books and records to determine the existence of paid-up capital; e) Certificate of Authority from proper government agency when appropriate, such as the BSP for banks, Insurance Commission for insurance corporations; f) Letter undertaking to change the proposed name if already adopted by another corporation, partnership or association.

Pablo, a rich merchant in his early forties, was a defendant in a lawsuit which could subject him to taxes and substantial damages. A year before the court rendered judgment, Pablo sought his lawyer's advise on how to plan his estate to avoid taxes. His lawyer suggested that he should form a corporation with himself, his wife, and children (all student and still unemployed) as stockholders and then transfer all his assets and liabilities to this corporation. Pablo followed the recommendation of his lawyer. One year later, the court rendered judgment against Pablo and the plaintiff sought to enforce judgment. The sheriff, however, could not locate any property in the name of Pablo and therefore returned the writ of execution unsatisfied. What remedy, if any, is available to the plaintiff?

The plaintiff may invoke or ask the court to pierce the corporate fiction of the newly formed corporation of Pablo. While it is true that a family corporation may be organized to pursue estate tax planning, which is not illegal per se, the facts, however, indicate the existence of a lawsuit that eventually exposed Pablo to a substantial amount of damages. It would be difficult for Pablo to convincingly assert that the incorporation of the corporation was intended merely as a case of estate tax planning. It cannot be denied that the corporation was incorporated and organized for Pablo to avoid a just obligation. The separate personality of the corporation cannot be used as a shield to avoid a clear legal obligation, and thus it should be treated as a mere association of persons upon whom liability attaches.

Enumerate the specific powers of a corporation (Theory of specific capacity)

The specific powers of a corporation are: a) Extend or shorten corporate term (Sec. 36, RCC) b) Increase or decrease capital stock (Sec.37, CCP) c) Incur, create or increase bonded indebtedness (Sec.37, RCC) d) Deny preemptive right (Sec. 38, RCC) e) Subject to the provisions of R.A No. 10667 (Philippine Competition Act) and other related laws, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property, assets and goodwill (Sec, 39, RCC) f) Purchase or acquire own shares (Sec. 40 , RCC) g) Invest in another corporation or business or for any purpose other than the primary purpose. (Sec. 41, RCC) h) Declare dividends (Sec. 42, RCC) i) Enter into managements contract. (Sec. 43, RCC) j) Amend the articles of incorporation( Sec. 15, RCC)

X filed a suit to nullify the sale of shares of stock of PLDT, a corporation granted with telecommunication franchise, which was sold by the Government to FP, Inc., a Bermuda-registered, Hongkong based firm. X claimed that the sale increased foreign ownership in the common shares of PLDT to as much as 64.27%. This contravened Sec. 11, Art. XII of the 1987 Constitution which mandated that no franchise for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens. The Government insisted on the validity of the sale arguing that Filipinos still owned 99.44% of PLDT's preferred shares of stock. To this, X countered that the bylaws and Articles of Incorporation of PLDT deprived preferred shares of voting rights. Resolve the suit.

The suit must prosper. The term "capital" should refer only to common shares outstanding and entitled to vote, and not to the total outstanding capital stock which includes the common and non-voting preferred shares. Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, these preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control that is, deprived of the right to vote in the election of directors and on other matters, or the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote. 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 ort 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. Full beneficial ownership of sixty (60) percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national." The sale of the disputed shares to FP, Inc. must be nullified as it effectively divested Filipinos of control over PLDT, a public utility. (Gamboa v. Teves, 652 SCRA 690)

Divine Corporation is engaged in the manufacture of garments for export. In the course of business, it was able to obtain loans from individuals and financing institutions. However, due to the drop in the demand for garments in the international market, Divine Corporation could not meet its obligations. It decided to sell all its equipments such as sewing machines, pressed machines, high speed sewers, cutting tables, ironing tables, as well as its supplies and materials to Top Grade Fashion Corporation, its competitor. How would you classify the transaction? Can Divine Corporation sell the aforesaid items to its competitor, Top Grade Fashion Corporation? What are the requirements to validly sell the items? Explain.

The transactions would constitute a sale substantially all of the assets of Divine Corporation. the transaction was not done in the ordinary course of business, and rendered the corporation incapable of continuing the business or accomplishing the purpose for which it was incorporated. Divine Corporation may6 sell the mentioned items to its competitor. However, for such a transaction to be valid, it requires not only the favorable resolution of majority of the Board of Directors of Divine Corporation, but also the ratificatory vote of stockholders representing at least 2/3 of the outstanding capital stock. (Sec. 39, RCC)

Ronald Sham doing business under the name of SHAMRON Machineries (Shamron) sold Turtle Mercantile (Turtle) a diesel farm tractor. In payment, Turtle's President and Manager Dick Seldon issued a check for P50,000.00 in favor of Shamron. A week later, Turtle sold the tractor to Briccio Industries (Briccio) for P60,000.00. Brcicio discovered that the engine of the tractor was reconditioned so he refused to pay Turtle. As a result, Dick Seldon ordered stop payment of the check issued to Shamron. Shamron sued Turtle and Dick Seldon. Shamron obtained a favorable judgment.holding co-defendants Turtle and Dick Seldon jointly and severally liable. Comment on the decision of the trial court. Discuss.

The trial court erred in holding Dick Seldon jointly and severally liable with Turtle. Dick did not act fraudulently in ordering the stop payment of the check as he decided on such action based on the reconditioned engine tractor that Turtle received from Shamron. There was no indication that Dick intended to evade the obligation of Turtle. Neither was there proof that Turtle is a mere alter ego of Dick. The presumption is that the officer and the corporation have distinct personalities. This presumption should be respected and upheld by the trial court.

What is the Doctrine of Piercing the Veil of Corporate Entity?

This doctrine presupposes that a corporation is an artificial being created by operation of law. It presupposes the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. The veil of corporate fiction, however, may be pierced if it is used: 1.) to defeat public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2.) to justify a wrong, protect fraud, or defend a crime; or 3.) in alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled in its affairs are so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. Any piercing of the corporate veil has to be done with caution, albeit courts will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept or corporate entity was not meant to promote unfair objectives. (Sarona v. National Labor Relations Commission, 663 SCRA 394)

Explain the Alter Ego Theory, otherwise known as the Instrumentality Theory, used to determine whether the corporate veil may be pierced.

This theory espouses that the corporate entity is a mere farce as it is the alter ego, business conduit, or instrumentality of a person or another entity. This contemplates of the following: a.) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; b.) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal right; and c.) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

How do you determine the nationality of a corporation?

Under Philippine Jurisdiction, the place of incorporation test primarily governs the nationality of a corporation. Hence, a corporation is considered a national of the country where it is incorporated regardless of the nationality of the controlling stockholders.

How does one pierce the veil of corporate fiction?

Upon showing that grounds exist, the corporate fiction or veil may be pierced through any of the following: a.) By disregarding the separate personality of the corporation; b.) By holding the corporation officer liable for the corporate obligation. (Francisco v. Mejia, 362 SCRA 738); and c.) By regarding the corporation as an association of persons or in case of two corporations, treat them as one and hold them as such. (Development bank of the Philippines v. Court of Appeals, 363 SCRA 307) Piercing the corporate veil, however, must be done with caution.

DBP and PNB, both banking institutions, acquired the assets of MMIC Corporation. DBP and PNB reorganized MMIC and named it as NMIC. Soon, NMIC contracted with HRCC for the construction of a road within its premises. NMIC, however, failed to pay its obligation prompting HRCC to sue NMIC, DBP, and PNB. HRCC averred that NMIC was NMIC was owned by DBP and PNB, the officers of DBP and PNB were also the officers of NMIC, and DBP and PNB financed the operations of NMIC. HRCC argued that a parent corporation may be held liable for the contracts or obligations of its subsidiary corporation where the latter was a mere agency, instrumentality, or adjunct of the parent corporation. Rule on HRCC's contentions.

While ownership by one corporation of all or majority of stocks of another corporation and their interlocking directorates may serve as indicia of control, by themselves and without more, however, these circumstances are insufficient to establish an alter ego relationship or connection between DBP and PNB on the one hand and NMIC on the other hand, that will justify the puncturing of the latter's corporate cover. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. There is nothing that would show that the corporate finances, policies and practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have a separate mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary, the evidence establishes that HRCC knew and acted on the knowledge that it was dealing with NMIC, not with NMIC's stockholders. HRCC was dealing with NMIC as a distinct juridical person acting through its own corporate officers. There is no evidence that the juridical personality of NMIC was used by DBP and PNB to commit fraud or to do wrong against HRCC. (PNB v. Hydro Resources Contractors Corporation, 693 SCRA 294)

XY is a recreational club which was organized to operate a golf course for its members with an original authorized capital stock of P100 Million. Neither the articles of incorporation nor the bylaws provide for distribution of dividends although there is a provision that after its dissolution, the assets shall be given to a charitable corporation. Is XY a stock corporation? Give reasons for your answer.

XY is a stock corporation as it was incorporated with an authorized capital stock. It need not be stated in the Articles of Incorporation or bylaws that XY may declare dividends given that this power is inherent in a stock corporation. Such power may be enjoyed by XY although the Articles of Incorporation or bylaws are silent on this matter.

May a corporation validly exist if all its stockholders are foreigners?

Yes, except in fully or partly nationalized corporations.

Is a bylaw provision of X Corporation rendering ineligible or if elected, subject to removal, a director if he is also a director in a corporation whose business is in a competition with or is antagonistic to said corporation valid and legal? State your reasons.

Yes, the bylaw provision is valid. No stockholder has the vested right to be voted as director. It is the right of a corporation to protect itself against possible harm and prejudice that may be cause by its competitors. The position of director is highly sensitive and confidential. To say the least, to allow a person, who is a director in a corporation whose business is in competition with or is antagonistic to X Corporation, to become also a director in X Corporation would be harboring a conflict of interest which is harmful to the latter.

Yeti Corp. (YC), through its President, negotiated for yahoo Bank (YB) to issue a letter of credit to course the importation of electronic parts from China to be sold and distributed to various electronic manufacturing in Manila. YB issued the letter of credit and thereafter, the electronic parts arrived in Manila. YB released them to the custody of YC as an entrustee under a trust receipt. When YC unpacked the imported parts in its warehouse, it found that they were not only of inferior quality but also did not fit the descriptions contained in the bill of lading. YC refused to pay YB the amount owed under the trust receipt. Thus, YBM commenced a criminal suit against both YC and its President for estafa and sough the payment of the amount covered in the trust receipt. For his defense, the President of YC averred that he cannot be held liable for a transaction of the corporation, of which he only acted as an officer, and that it is YC as the principal that should be held liable under the trust receipt, which was entered into the name of YC and pursuant to YC's corporate purposes. He cited as his legal ground the "Doctrine of Separate Juridical Personality." Is his contention meritorious?

Yes, the contention of the President of YC is meritorious. The Doctrine of Separate Juridical Personality provides that a corporation has a legal personality separate and distinct from that of the people comprising it. By virtue of that doctrine, stockholders or officers of a corporation enjoy the principle of limited liability; the corporate debt is not the debt of the stockholder. In the case at bar, YC has a legal personality separate and distinct from that of its President. Likewise, corporate officers enjoy the principle of limited liability. Thus, the President of YC should not be held liable since the corporate debt of YC for the amount covered in the trust receipt is that of YC alone and not of its President.

Marulas Creative Technology Inc., an e-business enterprise engaged in the manufacture of computer media accessories, rents an office and store space at a commercial building owned by X. Being a start-up company, Marulas enjoyed some leniency in its rent payments; but after three years, X put a stop to it and asked Marulas and Y, its President and General Manager, to pay the rentals back amounting to One Hundred Thousand Pesos (P100,000) or to vacate the premises at the end of the month. Marulas neither paid its debt nor vacated the premises. X sued Marulas and Y for collection of the unpaid rentals, plus interest and costs of litigation. Will the suit prosper against Marulas Creative Technology Inc.? Against Y?

Yes, the suit against Marulas will prosper as it is the lessee renting the office and store space. It is a corporate entity with a distinct personality. It can enter into contracts and incur obligations. The suit against Y, however, will not prosper. Y, as its President and General Manager, has a personality separate and distinct from that of the corporation. The liability of the corporation is that of the corporation and not that of its officers and stockholders who are not liable for corporate liabilities.

May a corporation be incorporated by just one person?

Yes. A corporation with a single stockholder is considered a One Person Corporation. (Sec. 11,RCC)

May an ultra vires act be ratified?

Yes. For valid ratification, all the stockholder must give their consent to such ratification; the rights of the State are not involved; the creditors are not prejudiced; and the act or contract must be wholly executed.

XY Corporation is engaged in the exploration and development of natural resources. The law requires that 60% of the capital of a corporation engaged in the utilization of natural resources be owned by Filipino citizens and 40% by foreign equity. If XY has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share, is there a violation of the aforesaid law?

Yes. Only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a miniscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilties in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by Filipinos. (Gamboa v. Teves, 652 SCRA 690)

Iglesia ng Dios Kay Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth, "first corporation") was registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members disassociated themselves from the latter and succeeded in registering in 1977 a new non-stock religious society or corporation, name Iglesia ng Dios Kay Kristo Hesus, Haligi ng at saligan ng Katotohanan ("second corporation"). Can the second corporation be compelled to change its name?

Yes. Parties organizing a corporation must choose a name at their peril. The use of a name similar to one adopted by another corporation, whether a business or a non-profit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name. If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed name must contain two other words different from the name of the company already registered. The second corporation cannot claim to have complied with this guideline. The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in the second corporation are merely descriptive of and also referring to the members, or kaanib, of the first corporation. The only difference between the corporate names of these corporations are the words saligan and suhay, which are synonymous- meaning ground, foundation or support. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing one corporation from the other. This is especially so since both corporations are espousing religious beliefs and operating in the same place. (ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc.v. Iglesia ng Dios Kay Cristo Jesus, 372 SCRA 171)

A Korean national joined a corporation which is engaged in the furniture manufacturing business. He was elected to the Board of Directors. To complement its furniture manufacturing business, the corporation also engaged in the logging business. With the additional logging activity, can the Korean national still be a member of the Board of Directors? Explain.

Yes. The capital of the corporation engaged in partly nationalized activities such as those in the business exploration, development and utilization of natural resources must be 60% owned and controlled by Filipinos. The election of aliens as members of the Board of Directors is allowed in proportion to their allowable participation or share in the capital of such entity. Nothing in the facts show that mote than forty percent (40%) of the capital stock, pertaining to shares entitled to vote, are owned or held by foreigners. Absent such fact, the election of the Korean national as director must be upheld.

AA Corporation is engaged in the business of printing books. Around 70% of its assets consist of cash in the bank, 25% printing machine and the remaining office equipment and supplies. AA Corporation plans to sell the machine. can it be considered a sale of substantially all of the assets of the corporation?

Yes. The printing machine is necessary in the usual and regular course of business of AA Corporation. Without this machine, it would not be able to operate and continue its printing business. It is immaterial that the machine merely consisted of the 25% assets of the corporation.

What are the qualifications of an incorporator?

a) An incorporator can be any person, partnership association or corporation. b) There must be at least one (1) but not more than fifteen (15) incorporators. c) Incorporators who are natural persons must be of legal age. d) Natural persons who are licensed to practice a profession and partnerships or associations hall not be allowed to organize as a corporation unless otherwise provided under special laws. e) Each must own or subscribe to at least one (1) share of the capital stock.

Enumerate the contents of the Articles of Incorporation.

a) The name of the corporation; b) The specific purpose of purposes for which the corporation is being formed. Where a corporation has more than one stated purpose, the articles of incorporation shall indicate the primary purpose and the secondary purpose or purposes: Provided, that a nonstick corporation may not include a purpose which would change or contradict its nature as such; c) The place where the principal office of the corporation is to be located which must be within the Philippines; d) The term for which the corporation is to exist, if the corporation has not elected perpetual existence; e) The names, nationalities, and residence addresses of the Incorporators; f) The number of directors, which shall not be more than fifteen (15) or the number of trustees which may be more than fifteen (15); g) The names, nationalities and residence addresses of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code; h) If it be a stock corporation, the amount of its authorized capital stock, numbers of shares into which it is divided, the par value of each, names, nationalities, and residence addresses of the original subscribers, amount subscribed and paid by each on the subscription, and a statement that some or all of the shares are without par value, if applicable; i.) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and residence addresses of the contributors, and the amount contributed by each. j) other matters consistent with law and which the incorporators may deem necessary and convenient; and k) an arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of the RCC.

The AB Memorial Foundation was incorporated as a non-profit, non-stock corporation in order to establish and maintain a library and museum in honor of the deceased parents of the incorporators. Its Articles of Incorporation provided for a board of trustees composed of 5 incorporators, with authority to admit new members. The Article of Incorporation also allow the foundation to receive donations from members. As of January 30, 2013, 60 members had been admitted by the Board. a) Can the Foundation use the funds donated to it by its members for purchase of food and medicine for distribution to the victims of the flood? b) Can the Foundation operate a specialty restaurant that caters to the general public in order to augment its funds?

a) Yes, the CCP allows corporation to make donations for charitable purposes, as long as they are reasonable. (Sec 35{i}, RCC) b) No. The foundation declared as its purpose the establishment and maintenance of a library and museum. Thus, it cannot operate a specialty restaurant for this is beyond the purpose for which it was created.

Enumerates the attributes of a corporation

a. It is an artificial being with a separate and distinct personality b. it is created by operation of law c. it has the right of succession d. it has the powers, attributes and properties conferred by law or incident to its existence

X was hired by A company, a sole proprietorship, as security guard. After 17 years of service, he was asked to tender his resignation and was made to fill up an application form for the same position, this time with B Corporation. X was hired by B Corporation but after several months, A Company informed him not to report back for work again. Claiming that he was illegally dismissed, X theorized that A Company and B Corporation should be treated as one entity so that his 17 years of service with the former should be credited in the computation of his benefits. He insisted that A Company and B Corporation has the same place of business and same set of employees; that C, the sole proprietor of A Company, was also an officer of B Corporation; and that B Corporation was managed by the children of C. a.) What is a sole proprietorship? b.) May the corporate veils of the two entities be pierced even if A Company is a sole proprietorship and not a corporation?

a.) A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit of a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court. (Stanley Fine Furniture, et al. v. Victor T. Gallano, et al., 743 SCRA 306) b.) Yes. When two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. In the present case, it may be true that A Company is a single proprietorship and not a corporation. However, the two business enterprises' attempt to isolate themselves from and hide behind the supposed separate and distinct personality of A Company so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. The manner, by which, X was made to resign from A company and how he became and employee of B Corporation, suggests the perverted use of the legal fiction of the separate corporate personality. He was made to resign from A Company and apply with B Corporation only to be unceremoniously terminated shortly. There was a clear intent to violate X's rights as an employee, particularly his right to security of tenure. The entities' scheme reeks of bad faith and fraud. Hence, A Company and B Corporation should be merged as a single entity, compelling the latter to credit and recognize X's length of service with A Company. (Sarona v. NLRC, 663 SCRA 394)

a) Jennifer Lopez, president of ABSCEN, a corporation whose term has expired, asks you as its legal counsel if it may apply for a revival of its corporate existence under the new Revised Corporation Code. What will your legal advice be? b) Supposing ABSCEN is a bank, will your answer be the same despite the fact that it has not secure the favorable recommendation of the Bangko Sentral ng Pilipinas?

a.) As ABSCEN's legal counsel, I will tell Ms. Lopez that A corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of incorporation and subject to all of its duties , debts and liabilities existing prior to its revival. Upon approval by the Commission, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its application for revival provides otherwise. b) No, my answer will not be the same. Under the RCC, No application for revival of certificate of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs), pawnshops, corporations engaged in money service business, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency. (Sec. 11, RRC)

Nelson owned and controlled Sonnel Construction Company. Acting for the Company, Nelson ordered the construction of a building adjacent to Sonnel's main branch. Without first installing a protective net atop the sidewalks adjoining the construction site, the company proceeded with construction work. One day, a heavy piece of lumber fell from the building. It smashed a taxicab which at that time had gone off the road and onto the sidewalk in order to avoid the traffic. The taxicab driver dies as a result. a.) Assume that the company had no more account and property in its name. As counsel for the heirs of the victim, whom will you sue fro damages, and what theory will you adopt? b.) If you were the counsel for Sonnel Construction, how would you defend your client? What would be your theory?

a.) As counsel for the heirs of the victim, I will sue Nelson as owner of Sonnel Construction Company using the Doctrine of Piercing the Veil of Corporate Fiction. As a general rule, the liability of the corporation is separate and distinct from that of the persons comprising it. As an exception to the rule, however, the veil of corporate fiction may be pierced when the separate personality of the corporation is used as a shield to avoid a clear legal obligation. In such an event, it is treated as a mere association of persons upon whom liability attaches. In the given case, Sonnel Construction Company has a clear legal obligation to the heirs of the victim for its negligence in not installing a protective net atop the sidewalk before beginning construction. Nelson, as the owner of the company, cannot use the separate entity rule in order to avoid liability. This is especially true when the company had no more account or property under its name. b.) If I were the counsel of Sonnel Construction, I would raise the defense of due diligence in the selection and supervision of its employees. Under the doctrine of vicarious liability of employers, the employer may be relieved of relieved of responsibility for the negligent acts of their employees if they can show that they observed all the diligence of a good father of a family to prevent the damage. In this case, Sonnel Construction, as employer may prove due diligence in the selection and supervision of its employees by establishing that prior to hiring, it examined them as to their qualifications, experience and service records. Moreover, during the course of employment, it formulated standard operating procedures, monitored their implementation, and imposed disciplinary measures for breaches thereof.

Mr. Okada, controlling stockholder and President of Hashtag Holdings (Hashtag), was able to convince Tom, Dick, and Harry to lend/invest money with Hashtag. For the money loaned, Mr. Okada issued postdated checks (representing the principal amount with interest) to the investors. Mr. Okada claims that said money will be invested in Hashtag's sister company Girl Trends Realty (GT Realty). Unfortunately, the coronavirus pandemic swept across the globe causing a global financial crisis. As a result, Hashtag defaulted in the payment of its loans/investments and the postdated checks issued to the investors were dishonored. Tom, Dick and Harry filed charges against Hashtag and Mr. Okada, making them solidarily liable for the investments that were not recovered. And it was also discovered that as the pandemic was ravaging the economy, Mr. Okada was able to withdraw a substantial amount of the money invested by Tom, Dick and Harry for the former's personal account and entered into the books of hastag as "Advances to Stockholders." Mr. Okada alleged for his defense that he cannot be made personally liable on the claim of the investors under the doctrines of "separate juridical personality" and "limited liability." a.) What are the doctrines of "Separate Juridical Personality" and "Limited Capacity" b.) Is Mr. Okada's defense against being made liable for Hashtag's obligation tenable?

a.) The Doctrine of Separate Juridical Personality provides that a corporation has a legal personality separate and distinct from that of the people comprising it. By virtue of the doctrine, stockholders of a corporation enjoy the principle of limited liability; the corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the property also of the corporation. (Bustos v. Millians Shoe Inc., 824 SCRA 67) Under the Principle of Limited Liability, the corporate debt is not the debt of the stockholder of a corporation. Thus, being an officer or a stockholder of a corporation does not make one's property the property also of the corporation. b.) No, Mr. Okada's defense against being made liable for Hashtag's obligation is not tenable. Although a corporation has a personality separate and distinct from those of its stockholders, directors, directors or officers, such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. The corporate personality may be disregarded, and the individuals composing the corporation may be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. (Hally v. Printwell, 649 SCRA 116) In the instant case, Mr. Okada used his corporate entity hashtag as a cloak or cover for his defrauding the investors and avoiding any liability to them by withdrawing a substantial amount of the investment made to Hashtag for his personal account.

a.) Is a corporation's goodwill considered in the sale of all or substantially all its assets? b.) How do you determine the sale of all or substantially all the corporation's properties?

a.) Yes. A sale of all or substantially all of the corporation's properties and assets, including its goodwill, must be authorized by the vote of the stockholders representing at least 2/3 of the outstanding capital stock, or at least 2/3 of the members, in a stockholders' or members' meeting duly called for the purpose. b.) The determination of whether or not the sale involves all or substantially all of the corporation's properties and assets must be computed based on its net asset value, as shown in its latest financial statements. A sale or other disposition shall be deemed to cover substantially all the corporate property or assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. (Sec. 39, RCC)