Hi guys and welcome to another episode of Attorney Ja Vlogger, Law for the Everyday Layman. Today we continue with part 2 on the Revised Corporation Code. Now take note, I will not be discussing the old corporation law. If ever I do mention it, it will only be in reference, for reference purposes. I will be devoting the discussion to the current law or Republic Act 11232, otherwise known as the Revised Corporation Code.
So if you like my videos and you want to see more, please hit the like button on this video and subscribe to my channel. Please also remember that this is only for educational purposes and is not a substitute for proper legal advice or for studying and understanding the law, okay? Now we will talk about classes of corporations, the different kinds.
Now I began the discussion on this in the last episode where I mentioned the difference between public and private. and private corporations. Now remember that a corporation is created by operation of law as stated in the definition.
So to exist, a corporation requires a special grant from the state which comes from the legislature or congress. So this special grant for a corporation to exist can either come through a general law for the case of private corporations or it comes... And that general law is Republic Act 11232 or the Revised Corporation Code. Okay?
So that's for private corporations. Now in case of public corporations, they can only exist, again, through the special grant from the legislature, which in the case of public corporations is through a special law or charter. Okay?
That goes for public corporations or GOCCs or government. owned and controlled corporations okay so public corporations are organized by the state to perform functions to govern portions of the state or functions properly belonging to the state but are non-governmental in nature and under section 4 of the code they shall be governed primarily by the provisions of the special law or charter creating them or applicable to them supplemented only by provisions of the revised corporation code meaning the revised corporation code you do not apply that right away to the public corporation okay the law that will apply to them their rules they will be governed by the special law but if that special law is lacking or if there is a provision that in the corporation code that may be applied suppletorily to fill in a gap or to buy analogy no then that's the only time you use the revised corporation code okay they may only be used if it is applicable okay remember also that as i mentioned in the previous video that the test of whether a corporation is a gocc or not is whether or not the government owns it okay pursuant to liban versus gordon okay and in case of a stock corporation you If the government owns majority of the stock, and if non-stock corporation, majority of the members. Okay?
Now, an example of a public corporation, no? Would be, of a GOCC rather, no? Would be a GSIS, no?
Government Service Insurance, no? System. Okay? So, now we also have what is known as a quasi-public corporation, no?
These are private... corporations which have accepted from the state the grant of a franchise okay or contract no franchise or contract involving the performance of public duties okay public duties but they are organized for profit okay they perform public functions but they are organized for profit okay it is a private corporation performing functions with a public interest okay It's different from a different but somehow similar to a quasi-corporation, no? Quasi-public and now we also have a quasi-corporation, no? And a quasi-corporation which is a body or a municipal society which even though it is not vested with the general powers of a corporation it is recognized by either statutes or immemorial usage as an aggregate corporation with precise duties which may be enforced or privileges which may be maintained under the law okay so the That's it for public corporations. Private corporations, on the other hand, they are simply corporations organized by private persons.
And Section 3 of the law classifies them as either stock or non-stock corporations. Stock corporations are those which have capital stock divided into shares and authorized to distribute to the holders of those shares dividends. Or, I don't know.
allotments of the surplus profits on the basis of the shares held okay so there is capital in that corporation then you let's say uh one million and then you divide that into shares you give the shares to the stockholders and on the basis of the shares that the stockholders have they receive dividends no that's the return of their investment okay all other corporations according to section three which are which do not fall under the previous definition all other corporations are non-stock corporations however of course you may say that that definition is vague so this is further defined by section 86 which defines a non-stock corporation as one where no part of its income is distributable as dividends to its members trustees or officers okay walang income okay so a stock corporation that's incorporated for profit okay the stockholders get the profit through dividends no while a non-stock corporation is organized primarily for charitable religious educational fraternal literary trade industry or agriculture chambers no or any combination of those things i mentioned okay now stock corporations may further be classified into par value corporations not par value where the par value of the shares, the par value is stated in the articles of incorporation and that value, it remains generally unchangeable. Why? Because it's stated in the articles.
It's written. So you do not change the value unless you amend the articles probably. We'll go to that later on. So we have par value corporations and we have no par value stock corporations.
These are... the ones who have stocks where the issue value of those stocks change from time to time okay and is left to the discretion of the corporation to determine okay we'll talk about shares uh later on probably in the next uh in the succeeding videos okay so uh let's move on now we also have uh what is known as uh the jury corporation the jury j-u-r-e okay these are created following the strict or substantial conformity with the mandatory statutory requirements. So they follow the requirements of the law. The requirements of the law for incorporation.
So their right to exist as a corporation cannot be attacked or questioned by any party even in a direct proceeding for that purpose. So you cannot simply go... and say, you cannot go to court and ask the court to say that this corporation does not exist, no?
Okay? They can successfully resist that, no? Okay? While in contrast, we have a de facto corporation. Okay?
If we have the Jure, we have de facto. Okay? A de facto corporation is defectively formed. May defect sa paggawa niya. Okay?
It's defectively formed from a bona fide attempt to... to incorporate under the law and it exercises corporate powers. Okay? So let's say there's a list of requirements and it has substantially complied with that but it missed out on certain something that is not necessary for the corporation to exist. In that case, it's a de facto corporation.
It is organized with colorable compliance with the requirements of the law and the effect is... its existence cannot be inquired into collaterally. In other words, you can only question its existence in what is known as a quo-waranto proceeding. Quo-waranto. Q-U-O-waranto.
So a common exam or recitation question involving the Hure versus de facto corporations involves a scenario where... a corporation is being incorporated then it transacted business but for one reason or another it failed to file its bylaws on time with the securities and exchange commission or the sec okay it's usually the bylaws no because the bylaws are not uh mandatory requirement for uh incorporate i'll talk about this in another video okay uh just take note of what i'm saying now okay so in that case where the the corporation is being incorporated and the incorporators failed to file the bylaws on time, there is still nevertheless substantial compliance with the law on incorporation, provided of course the mandatory requirements are met. And since the corporation transacted business, it will now be considered a de facto corporation. So let's say you know all that.
Knowing the law is different from knowing how to apply the law. Which is the point if you want to be good lawyers or you want to pass your accounting exam. It's not enough that you memorize, you have to know how to apply it.
So what if you know that the corporation is a de jure corporation or is a de facto corporation or a corporation which does not exist. So here in the case that I just mentioned, that the corporation failed to file its bylaws, right, I said that it's a de facto corporation. So what's the implication? The implication is that any party cannot attack the existence of the corporation collaterally. Okay?
What does that mean, collaterally? It just means that the existence of the corporation cannot be attacked, let's say, like a side dish. You have a dish, you have a side dish. Egg, for example. Or if you like samgyupsal, whatever, a side dish.
Okay? In other words, like if the main case... is for collection of a sum of money against this corporation. That's your main case.
Please pay me this. You cannot, as a side argument, say, by the way, this corporation does not exist. Cannot do that. Because you respect the separate juridical personality of the corporation.
You can only attack the existence, the legitimacy of the corporation, of a de facto corporation, through a co... warrant or proceeding okay that's important now another common question is where let's say a stockholder or an officer of the de facto corporation is being held liable in his personal capacity okay so uh let's say there's an obligation and then the uh the obligor the creditor the creditor no is asking to be paid hey pay me he's asking this certain stockholder who he talked to to pay him personally. So in that case, if those are the facts of the case, you have to check whether the corporation is truly a de facto corporation or if it was never incorporated at all.
Remember, if it misses out on a mandatory requirement, like it does not fill the articles of incorporation, the corporation did not exist because it failed to. comply with one of the mandatory requirements. That's an important difference. Because if the corporation is a de facto corporation, it will still have a separate juridical personality. And if it has a separate juridical personality, this gives rise to the limited liability principle on the part of the stockholders or officers.
Remember in my previous episode, no, Limited liability means that the debts of the corporation are not the debts of its stockholders or members. Now, if it is a de facto corporation because let's say it failed to file the bylaws on time. So, the implication of that is that there is a separate juridical personality.
The corporation exists. That's just de facto. And since it exists, it has a separate personality, and therefore the stockholder should not be held personally liable. You understand? Okay, I hope you understand.
So let's say what was not filed, on the other hand, is one of the mandatory requirements, like the Articles of Incorporation. That's a mandatory requirement for incorporation. So there is no substantial compliance with the law for incorporation.
Therefore, the implication of failing to comply with that mandatory requirement is that no corporation exists at all. It was never created. There is no separate personality and therefore that individual stockholder can be held personally liable because there's no corporate will, there's no corporation. So you hold that person.
liable okay however also take note the uh for better protection of the third person or the creditor okay uh for the better protection of the third person or creditor he is the one who can hold either the stockholder or the even the fake corporation liable through how through the principle of corporation by estoppel okay that's the principle we'll go to right now okay now a corporation by estoppel okay is a happens where a group of persons no let's say these four people no five people no okay a group of persons they assume to act as a corporation okay but these people they know that they're not a corporation okay they didn't file the aoi whatever or they didn't even do anything at all okay now they enter into a transaction with this guy okay on the third person no pretending that they are a corporation okay now if this guy wants to hold them liable as a corporation or even individually they cannot say that hey no there's no corporation so you cannot hold this liable no okay the law will protect the interests of this third person who relied on the representation of these people that there was a corporation okay it can this uh these people cannot be permitted to deny their the existence of the corporation if an action is filed against them for the transaction okay so uh in this case that corporate that corporation by estoppel is neither a de jure nor a de facto corporations, not anyone of those. Okay? And under section 20 of the code, all persons who assume to act as a corporation, knowing it to be without authority to do so, shall be liable as general partners for all debts, liabilities, and damages incurred or arising as a result thereof. Liable as general partners.
If you watch my series on that, it just means that these people, these five people. can be held subsidiarily liable subsidiarily meaning after the fake corporation's assets have been exhausted they can be held subsidiarily liable with their separate property kahit sa bahay lupa, kotse, etc nila okay now also take note that the section 20 says that when any such ostensible corporation is sued on any transaction entered by it okay as a corporation or any tort quasi-delic committed by it as such it shall not be allowed to use on any uh it shall not be allowed to use its lack of corporate personality as a defense okay meaning let's say it committed a tort no or uh it's sued for a transaction no it cannot say hey you cannot hold me liable because we do not exist no okay The law will protect the interests, again, of the third person and treat them as a corporation by estoppel in order to hold their assets liable and also to hold them individually liable. Anyone who assumes an obligation to an ostensible corporation as such cannot resist performance thereof on the ground that there was in fact no corporation. So that part now says, If this third person is the one indebted to this corporation, he's the one who's supposed to pay, he cannot now say, I don't have to pay you because there's no corporation. He still has to pay.
So do not be confused. It is not the fake corporation or the members of that fake corporation that can claim, hey, we're a corporation by Estopel. The corporation by Estopel principle is meant for the protection of third persons no and it is therefore the injured third person okay take note that injured he must have suffered injury in the last example i mentioned no that third person is the one who's indebted to the corporation and he's claiming hey corporation you're there's no such corporation so i'm not liable to you in that case he cannot claim it why he's not injured okay he has to have suffered damage here he is the one who owes the corporation so he will still be liable Okay, now on the other hand The members of the corporation cannot also claim that, hey, we're a corporation by estoppel to evade their obligation to the third person, no? If they're the ones indebted to him, okay?
It is not a defense. So do not be confused, no? It is only the injured party who has suffered damage who can claim that there is a corporation by estoppel and I want to hold you liable, okay?
I am holding you liable as a corporation. and in case your assets are not enough with your separate properties to pay for the damage you have caused by making me believe that you are a corporation. Okay? So again, a corporation, although irregularly organized, and even if not actually existing, may be sued.
Okay? It can be sued. Okay?
It can be sued as a legal person in order to hold it and its members liable. under the principle of estoppel. Now we also have what is known as a corporation by prescription or one which has exercised corporate powers for an indefinite period of time without interference from the sovereign power. One example would be the Roman Catholic Church.
We also have classifications of corporations according to the laws of incorporation okay uh meet laws of the place of incorporation and i discussed the tests in my previous episode no so uh we have a domestic corporation no which is uh of course domestic no uh it's formed organized or exists under philippine laws okay and the foreign corporation under section 140 is one formed organized or existing you under any laws other than the laws of the Philippines and whose laws allow Filipino citizens and corporations to do business in their own country or state. Again, I explained this in a previous video, we follow the incorporation test, the place of incorporation test, unless the question pertains to investment or determination of compliance. with the rules on allowable foreign equity like the 60-40 requirement or no foreign equity requirement etc under the constitution and the foreign investments act okay in which case we do not use the place of incorporation test instead we use the control test as supplemented by the grandfather rule main test control test you And grandfather rule, only if there is doubt as to the percentage of Filipino equity. Now, as to whether they are open to the public or not, we have open corporations which are open to any person who may wish to become a stockholder or member by buying stocks.
And we also have a closed corporation, which under Section 95 of the Code, has articles of incorporation which provide that first no all the corporations issued stock of all classes except treasury shares shall be held off record by not more than a specified number of persons not to exceed 20 okay 20 or less second all the issued stock of all classes shall be subject to one or more specified restrictions you on transfer permitted by this title may restrictions on transfer hindi basta pwedeng hindi basta basta kahit sino pwedeng maging member no there are restrictions as stated no uh stated uh in the share no stay saying that if you're gonna transfer this share only to these kind of people no you cannot transfer it to uh these kinds of people etc okay i'll talk more about those corporations you in another episode okay and finally the next requirement in the articles is that the corporation shall not list in any stock exchange or it will not make any public offering of its stocks okay of any class. For easy closing, closed corporation, just you, this is common in family corporations where only the members of the family are also the members or stockholders of that corporation okay take note that the law expressly prohibits mining oil companies stock exchanges banks insurance companies public utilities education institutional institutions and corporations declared to be vested with public interest from being organized as a closed corporation okay those corporations cannot be closed corporations okay now corporations may also be classified according to management and control okay we have holding corporations no and these control subsidiary subsidiaries no by the power to elect the management of those subsidiary The holding corporation, they hold stocks in other companies for control rather than mere investment. A subsidiary corporation is one which is so related to another corporation that the majority of its directors can be elected either directly or indirectly by such other corporation and therefore is always controlled.
It is a corporation... more than 50% of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which is usually the parent company. Okay?
Now, an affiliate corporation is one which is related to another by owning or being owned by common management or by a long-term lease of its properties or some other... control device no that long-term lease is a control device no so it may be controlled it may be the controlled or the controlling corporation and it can even be under common control and finally we have the parent corporation simply put it's the one that has the controlling financial interest in one or more corporations okay now as to the number of persons composing a corporation we have an aggregate corporation which can have more than one person or member but we also have okay we also have corporations which only have one person okay first we have a corporation soul and under section 108 of the code okay a corporation soul consists of only one person or member okay and it may be formed by the chief archbishop bishop priest minister rabbi or other presiding elder of such religious denomination okay denomination sect or church for the purpose this is what you take note of the purpose of administering and managing as a trustee okay the affairs property and temporalities of any religious denomination sect or church okay i'll talk about that more later on okay but take note under the current law we have another kind of corporation that allows for only one member. This is a new development in the law.
We have what is known as a one-person corporation. Which is previously, if you wanted to be the only one doing the business, you would just have to be a sole proprietorship. In which case, the downside to it compared to a corporation is there is no separate corporate veil which...
separate personality which will give you limited liability meaning in a sole proprietorship you can be held liable even after the assets of the proprietorship have been exhausted you can be held liable for debts and obligations up to your own separate property no your house your car etc no but now we have a one person corporation under the current law which gives the added protection of the separate corporate personality no in which case the corporation's liabilities are its own and the stockholders liabilities are his own he will not be held liable for the debts of the corp the one-person corporation no unless of course there is a reason to pierce the veil okay so the one-person corporation is defined under section 116 of the code no simply as a corporation with a single stockholder okay now this one person corporation can only be formed by a natural person okay by a trust or by an estate no estate of the disease okay now i'll talk about the one person corporation in a different video no i'll explain more about that it's incorporation etc okay but just take note that the law expressly prohibits banks quasi banks pre-need trust insurance public and publicly listed companies and non-chartered government-owned and controlled corporations from forming one-person corporations. Those cannot form one-person corporations, okay? Also, take note further that a natural person who is licensed to exercise a profession like being a lawyer or an accountant, a CPA, they may not engage, they may not organize. as a one-person corporation for the purpose of exercising their profession.
Like mag isa ka lang law firm. They may not organize except as otherwise provided under a special law. In other words, the only time that a lawyer, let's say, can make a law firm as a one-person corporation is if there is a special law allowing that lawyer to create a one-person corporation.
Okay? Okay? Now, corporations may be organized for religious purposes, in which case they are ecclesiastical corporations.
And if for non-religious purposes, they are simply lay corporations. If a corporation is established for or devoted to a charitable purpose, then it is an LEMOcenary Corporation. Okay? Thank you.
If it is established for profit, it's a civil corporation. And finally, we also have condominium corporations, which are private corporations organized for the construction of a building with complete living or office units, which it sells, creating therein full ownership for the buyers of the units sold and a co-ownership over the land and the common areas of the building, which is why... you pay association dues to take care of those common areas.
Okay so that's it for the classifications or classes of corporations. I hope you may have picked up a thing or two and I hope to see you next time guys. Okay see you soon bye