Prelims Flashcards
What is a corporation?
A corporation is an artificial being, created by operation of law having the right of succession and powers, attributes and properties expressly authorized by law or incidental to its existence.
What are a corporation’s attributes?
1) an artificial being
2) is created by operation of law
3) it has right of succession
4) it has powers, attributes and properties expressly authorized by law or incidental to its existence
What is the grandfather rule?
Explain the doctrine of piercing the veil of corporate entity
What are the obligations of directors and officers of a corporation?
What are the circumstances that may be considered to justify the application of the doctrine to make parent corporation liable for the obligations of its subsidiary
When the corporate identity is used to defeat public convenience, justify wrong, protect fraud or defend crime.
Where the corporation is a mere alter ego or business conduit of a person.
Where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Is ownership of substantial portion of the outstanding capital in a corporation enough justification to apply the doctrine
What are the elements that must be present to justify the piercing of the veil of corporate fiction on the ground that the corporation is a were alter ego
Explain the right of succession.
Distinguish de jury corporation from de Facto corporation
Distinguish stock us nonstock corporation
Corporation vs partnership
as to capitalization - corporation accepts shares of stocks from anyone thus there is unlimited opportunities for increase capitalization while partnership is based on delectus personae where partners are chosen based on trust and confidence thus capitalization is limited to the contribution of partners and creditors.
as to manner of creation - a corporation is created through a legal process and requires SEC approval and a certificate of incorporation while partnership is created by mere agreement and the SEC registration is required only for convenience and does not determine validity of contract.
As to liabilities - a corporation enjoys limited liability where its stockholders cannot be held liable up to its personal assets while in a partnership liability generally extends to the personal assets of the partners
as to management - a corporation is managed by a BOD acting together while in a partnership generally every partner is an agent of the business organization and can bind the partnership
as to transferability of interest- in a corporation, shares of stocks can be transferred without seeking consent of the other stockholders while in a partnership transfer of partners interest requires the consent of all partners
as to succession - right of succession exists in corporation while this is not so in partnerships
TYPES OF BUSINESS ORGANIZATION
Sole Proprietorship
Partnership
Corporation
Joint Venture
Cooperatives
What is sole proprietorship?
It is a form of business organization with only one proprietary owner; a single individual conducts business under his own name or under a business name.
What is a partnership?
There is a partnership when two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves.
What are the similarities between partnerships and corporations?
a. Both have juridical personality distinct from their components;
b. Both are groups of persons(generally);
c. There is distribution of profits in stock corporations and in partnerships;
d. They both act only through their agents; and
e. They are both registered with SEC.
what is a joint venture?
Joint Venture is an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks.
what is a cooperative?
A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.
what is the doctrine of separate personality/separate legal entity?
Under the doctrine of separate legal entity, a corporation is considered to have a legal personality distinct and separate from its directors, individual stockholders or members (bustos vs Millians)
as a general rule, the assets and liabilities of the corporation are not owned by the stockholders even if they own the capital stock of the corporation and vice-versa. Hence in cases of satisfaction of debt, a creditor of the corporate cannot claim the assets of its stockholders, and a creditor of a stockholder cannot claim the assets of the corporation.
What is a franchise?
“A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens of the country generally as a matter of common right
Distinguish between primary franchise and secondary franchise
(1) primary or general franchises, the franchise to exist as a corporation; and
(2) special or secondary franchises, certain rights and privileges conferred upon existing corporations, such as the right to use the streets of a municipality to lay pipes or tracks, erect poles or string wires.
The primary franchise of a corporation that is, the right to exist as such, is vested “in the individuals who compose the corporation and not in the corporation itself“and cannot be conveyed in the absence of a legislative authority so to do.
but the specific or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property except such special or secondary franchises as are charged with a public use.
What is the nature of stockholders interest n the properties of the corporation?
The interest of the shareholder in the properties of the corporation is indirect, contingent and inchoate.
When does the interest of the shareholder become actual, direct and existing?
The interest of the shareholder on a particular property becomes actual, direct and existing only upon liquidation of the assets of the corporation and the same property is assigned to the shareholder concerned.
What are the constitutional rights of a corporation?
- A corporation has a right to due process
- right to equal protection of the law and
- protection against illegal search and seizure
Can a corporation be held criminally liable?
No. Corporations cannot be proceeded against criminally because there are no existing laws, criminal intent cannot be determined and it is impossible to impose imprisonment to corporations.
When may a stockholder be held criminally liable for acts committed by the corporation?
Before a stockholder may be held criminally liable for acts committed by the corporation, 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.
What are the tests to determine the application of the alter ego theory
“instrumentality” or “control” test - This test requires that the subsidiary be completely under the control and domination of the parent.
“fraud” test - This test requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful.
“harm” test - This test requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered
What is the three-pronged control test?
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;
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 rights; and
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
What is reverse piercing or reverse corporate piercing or piercing the corporate veil “in reverse”?
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 (of traditional corporate veil-piercing) and makes the corporation liable for the debt of the shareholders.”
What are the two types of 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.
In contrast, in insider reverse piercing, the controlling members will attempt 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.
Who may pierce the corporate veil?
Only the Courts (or other tribunals like NLR) can pierce the veil of corporate fiction. To pierce the veil, the corporation must be impleaded as a party and it must be determined after a full-blown trial.
What are the classes of corporation?
SEC. 3. Classes of Corporations. – Corporations formed or organized under this Code may be stock or nonstock corporations.
What is a stock corporation?
Stock corporations are those which have capital stock divided into shares and are authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. All other corporations are nonstock corporations.
What is a de jure corporation?
De Jure Corporation – a corporation organized in accordance with requirements of law.
What is a de-facto corporation?
De Facto Corporation – a corporation that is formed where there exists a flaw in its incorporation but there is colorable compliance with the requirements of law.
What is a corporation by estoppel?
Corporation by Estoppel – a 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.
What is a subsidiary?
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 thereby becomes a parent company.
What is an affiliate?
a corporation that directly or indirectly, through one or more intermediaries, is controlled by, or is under the control of another corporation, which thereby becomes its parent company.
What is a parent corporation?
a corporation that has control over another corporation directly or indirectly through one or more intermediaries.
What tests are used in determining whether a corporation is Filipino or foreign?
a. The Aggregate Test (The Control Test) – requires looking into the nationality, domicile, or residence of the individuals who control the corporation.
Full beneficial ownership of the stocks, coupled with voting rights is essential.
b. The Entity Test (Place of Incorporation Test) – looks to the nation where the corporation was incorporated.
When may the place of incorporation test be disregarded?
The place of incorporation may be disregarded during wartime. Courts will look into the nationality of the controlling interest (majority interest) in wartime. If the controlling stockholders are citizens of the enemy country then the corporation will be deemed a public enemy corporation.
If a Philippine corporation has corporate stockholders, how does one determine whether such Philippine corporation is a Philippine national?
Two tests have been employed in the Philippines: (a) the grandfather rule; and (b) the control test.
What is the grandfather rule and when is it used?
What is the doctrine of secondary meaning?
