Corporation Flashcards
Three prong test
(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.
Jurisdiction over alternate corporations
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
Indicators of dummy status
- That the foreign investors practically provide all the funds for the joint investment undertaken by these Filipino businessmen and their foreign partners;
- That the foreign investors undertake to provide practically all technological support for the joint venture;
- That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies
Attributes of limited capacity of a corporation
- It is an artificial being with separate and distinct personality
- Created by operation of law
- Has the right of succession
- It has powers, attributes and properties expressly authorized by law or incident to its existence
Doctrine of separate personality
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
Limited liability rule
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
Rights of a corporation
Rights belonging to the corporation cannot be invoked by the stockholders even if they own majority of the shares and Vice versa
Is a corporation liable for torts
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
Grandfather Rule
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
Can a corporation be held criminally liable?
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)
May a corporation be awarded moral damages?
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
Doctrine of piercing the corporate veil
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
Traditional veil piercing action
A court disregards the existence of the corporate entity so a claimant can teach the asset of a corporate insider
Stock Corporation
A corporation in which capital stock is divided into shares and is authorized to distribute to its hundred dividend it allotment of surplus profits
De Facto Corporation
A corporation where there is a flaw in its incorporation
Corporation by estoppel
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
Corporation by prescription
A corporation that was not formally organized as such but had been duly recognized by immemorial usage with rights and duties maintainable at law
Going private vs. going public
Public - decides to list it shares in the stock exchange
Private- restrict the shareholders to a certain group
Incorporators
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
Corporators
Those who compose a corporation whether as stockholders or members as the case May be
Distinguishability Test
- 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 - 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
Priority of adoption rule
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
Powers of SEC in relation to corporation names
- Reject the AOI
- Summarily order the corporation to cease and desist from using a name
- Summarily order the corpo to register a new name and amend the AOI accordingly
- Cause the removal of signages, marks and advertisements
Corporate Term
As a general rule, a corporation has a perpetual existence unless the AOI provides otherwise
Revival of Corporate Term
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
Authorized Capital Stock
Amount fixed in the AOI to be subscribed and paid by the stockholders
Subscribed Capital
That portion of the authorized capital stock that is covered by subscription agreements whether fully paid or not
Paid up capital
Portion of authorized capital stock that has been subscribed and actually paid
Paid in capital
Amount of outstanding capital stock and the additional paid in capital or premium paid over the par value of the shares
Outstanding Capital Stock
Total shares of stock issued to subscribers or stockholders, under binding subscription contracts, whether fully or partially paid EXCEPT treasury shares
A corporation seeking to prevent another corporation from using its name must prove the following:
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
How the Court distinguished the names
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
Priority of adoption rule and existence of confusing similarity in corporate name
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
Corporate name as a property right
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
When products with similar names flow through 2 different channels
The evident disparity of the products means they are both allowed to use the name
Doctrine of secondary meaning
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
Requisites before a DOE of a corp can be held personally liable for corporate obligations
- Complaint must allege that DOE assented to patently unlawful acts of the corporation, or DO was guilty of gross negligence or bad faith
- Must be prove such unlawful acts or bad faith through clear and convincing evidence
When piercing the veil of corporate fiction is allowed DEAF
- Used to defeat public convenience or evade existing operations
- In fraud cases where it is used to justify a wrong
- Alter ego cases where it is used as a mere instrumentality
Instances when non voting shares may vote. ASAMIIID
- Amendment of AOI
- Adoption and amendment of By-Laws
- Sale, lease, exchange, mortgage or pledge or otherwise Disposition of all or substantially all corporate property
- Incurring, creating or increasing bonded indebtedness
- Increase or decrease authorized capital stock
- Merger or consolidation of the corporation
- Investment of corporate funds in another corporation or business
- Dissolution of the corporation
Grounds where the court may pierce the veil of 2 corporations FAB
- First corporation is dissolved
- Assets of first corporation is transferred to a second corporation to avoid obligations of the first corporation
- Both corporations are owned and controlled by the same person such that the second corporation is a continuation of the first
