Corporation

Question 1

Three prong test

Answer 1

(i) 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;

(ii) 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 plaintiffs legal right; and

(iii) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

Question 2

Jurisdiction over alternate corporations

Answer 2

A corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction—in that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Kukan International Corporation vs. Reyes, 631 SCRA 596, G.R. No. 182729 September 29, 2010

Question 3

Indicators of dummy status

Answer 3

1. That the foreign investors practically provide all the funds for the joint investment undertaken by these Filipino businessmen and their foreign partners;
2. That the foreign investors undertake to provide practically all technological support for the joint venture;
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies

Question 4

Attributes of limited capacity of a corporation

Answer 4

1. It is an artificial being with separate and distinct personality
2. Created by operation of law
3. Has the right of succession
4. It has powers, attributes and properties expressly authorized by law or incident to its existence

Question 5

Doctrine of separate personality

Answer 5

Property- A corporation is entitled to own properties in its own name and is properties are not the properties of its stockholders, directors or officers

Obligations - A corporation can incur obligations and it’s obligations are not the obligations of its SDO’s

Question 6

Limited liability rule

Answer 6

A stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription

OPC’s - has the burden of affirmatively showing that the corporation was adequately financed

Question 7

Rights of a corporation

Answer 7

Rights belonging to the corporation cannot be invoked by the stockholders even if they own majority of the shares and Vice versa

Question 8

Is a corporation liable for torts

Answer 8

A corporation is liable for tort. It is liable when the act was committed by the officer or agent under express direction or authority of the corporation

Question 9

Grandfather Rule

Answer 9

Method of attributing the shareholdings of a given corporate shareholder to the second or even subsequent tier of ownership to determine the ultimate ownership of a corporation

Question 10

Can a corporation be held criminally liable?

Answer 10

GR: Corporations cannot be held to be companies liable because there is no law making them criminally liable. They are incapable of intent

Under the RCCP, if the offender is a corporation, a penalty may be imposed at the discretion of the court

XP: A law may be passed to provide that a corporation can be held criminally liable ( payment of a fine)

Question 11

May a corporation be awarded moral damages?

Answer 11

GR: No, corporations can’t be awarded moral damages. They do not have feelings nor have a nervous system

XP: Under Art 2219 (7) if it was a victim of defamation

Question 12

Doctrine of piercing the corporate veil

Answer 12

When the veil of a corporation is used as a shield to:
a. Perpetuate fraud
b. Defeat public convenience
c. Justify wrong
d. Defend a crime

The fiction shall be disregarded and the individuals composing it will be treated identically

Question 13

Traditional veil piercing action

Answer 13

A court disregards the existence of the corporate entity so a claimant can teach the asset of a corporate insider

Question 14

Stock Corporation

Answer 14

A corporation in which capital stock is divided into shares and is authorized to distribute to its hundred dividend it allotment of surplus profits

Question 15

De Facto Corporation

Answer 15

A corporation where there is a flaw in its incorporation

Question 16

Corporation by estoppel

Answer 16

Group of persons which holds itself out as a corporation and enters into a contract with a third person on the strength of such appearance cannot be permitted to deny its existence in an action under said contract

Question 17

Corporation by prescription

Answer 17

A corporation that was not formally organized as such but had been duly recognized by immemorial usage with rights and duties maintainable at law

Question 18

Going private vs. going public

Answer 18

Public - decides to list it shares in the stock exchange

Private- restrict the shareholders to a certain group

Question 19

Incorporators

Answer 19

Those stockholders originally mentioned in the Articles of Incorporation

Must not be more than 15, natural persons must be of legal age

If non-stock, must be a member
If stock, must own or subscribe 1 share

Question 20

Corporators

Answer 20

Those who compose a corporation whether as stockholders or members as the case May be

Question 21

Distinguishability Test

Answer 21

1. No corporate name shall be allowed by the SEC if:
   a. It is not DISTINGUISHABLE from that already reserved or registered for the use of another corporation
   b. It is already protected by law
   c. It’s use is contrary to existing laws, rules and regulations
2. The corporate name is not distinguishable even if it contains one or more of the following:

a. The word “corporation”, company, incorporated, limited, limited liability or any abbreviation of such words
b. Punctuations, articles, conjunctions, contractions, preparations, different tenses

Question 22

Priority of adoption rule

Answer 22

The first to adopt the name has a better right. It must show that:
a. It acquired prior right to use the name; and
b. The name is distinguishable from other corporations

Question 23

Powers of SEC in relation to corporation names

Answer 23

1. Reject the AOI
2. Summarily order the corporation to cease and desist from using a name
3. Summarily order the corpo to register a new name and amend the AOI accordingly
4. Cause the removal of signages, marks and advertisements

Question 24

Corporate Term

Answer 24

As a general rule, a corporation has a perpetual existence unless the AOI provides otherwise

Question 25

Revival of Corporate Term

Answer 25

No extension can be made after the expiration of the term. The remedy is revival of its corporate existence, together with all its rights and privileges under its certificate of incorporation and subject to all its rights, duties and liabilities existing prior to its revival

Question 26

Authorized Capital Stock

Answer 26

Amount fixed in the AOI to be subscribed and paid by the stockholders

Question 27

Subscribed Capital

Answer 27

That portion of the authorized capital stock that is covered by subscription agreements whether fully paid or not

Question 28

Paid up capital

Answer 28

Portion of authorized capital stock that has been subscribed and actually paid

Question 29

Paid in capital

Answer 29

Amount of outstanding capital stock and the additional paid in capital or premium paid over the par value of the shares

Question 30

Outstanding Capital Stock

Answer 30

Total shares of stock issued to subscribers or stockholders, under binding subscription contracts, whether fully or partially paid EXCEPT treasury shares

Question 31

A corporation seeking to prevent another corporation from using its name must prove the following:

Answer 31

A. The corporation has acquired a private right over the use of such corporate name

B.
a. The name is not distinguishable from that already reserved or registered for the use of another corporation;
b. the name is already protected by law
c. The use of the name is contrary to existing law, rules and regulations

Question 32

How the Court distinguished the names

Answer 32

Petitioner’s corporate name is “Industrial Refractories Corp. of the Phils.”, while respondent’s is “Refractories Corp. of the Phils.” Obviously, both names contain the identical words “Refractories”, “Corporation” and “Philippines”. The only word that distinguishes petitioner from respondent RCP is the word “Industrial” which merely identifies a corporation’s general field of activities or operations. We need not linger on these two corporate names to conclude that they are patently similar that even with reasonable care and observation, confusion might arise. Industrial Refractories Corporation of the Philippines vs. Court of Appeals, 390 SCRA 252, G.R. No. 122174 October 3, 2002

Question 33

Priority of adoption rule and existence of confusing similarity in corporate name

Answer 33

Priority of adoption - it has been held that the right to the exclusive name of a corporation with freedom from infringement by similarity is determined by priority of adoption

Existence of confusing similarity in corporate names - whether the similarity is such as to mislead a person using ordinary care and discrimination

The courts must look at the records and names themselves

Question 34

Corporate name as a property right

Answer 34

A right to use a trade and corporate name is a property right, a right in rem, which it may assert and protect against the whole world

Question 35

When products with similar names flow through 2 different channels

Answer 35

The evident disparity of the products means they are both allowed to use the name

Question 36

Doctrine of secondary meaning

Answer 36

A word or phrase originally incapable of exclusive appropriation with reference to an article in the market, might have been used so LONG AND EXCLUSIVELY by one producer with reference to the article that that word or phrase has come to mean his product

Question 37

Requisites before a DOE of a corp can be held personally liable for corporate obligations

Answer 37

1. Complaint must allege that DOE assented to patently unlawful acts of the corporation, or DO was guilty of gross negligence or bad faith
2. Must be prove such unlawful acts or bad faith through clear and convincing evidence

Question 38

When piercing the veil of corporate fiction is allowed DEAF

Answer 38

1. Used to defeat public convenience or evade existing operations
2. In fraud cases where it is used to justify a wrong
3. Alter ego cases where it is used as a mere instrumentality

Question 39

Instances when non voting shares may vote. ASAMIIID

Answer 39

1. Amendment of AOI
2. Adoption and amendment of By-Laws
3. Sale, lease, exchange, mortgage or pledge or otherwise Disposition of all or substantially all corporate property
4. Incurring, creating or increasing bonded indebtedness
5. Increase or decrease authorized capital stock
6. Merger or consolidation of the corporation
7. Investment of corporate funds in another corporation or business
8. Dissolution of the corporation

Question 40

Grounds where the court may pierce the veil of 2 corporations FAB

Answer 40

1. First corporation is dissolved
2. Assets of first corporation is transferred to a second corporation to avoid obligations of the first corporation
3. Both corporations are owned and controlled by the same person such that the second corporation is a continuation of the first