COPORATION LAWI. BRIEF HISTORY OF CORPORATION LAWConstruction reasonable and literal construction which will best execute its purpose.Sociedad AnonimasDerived from Spanish Code of commerce.A commercial partnership, a sort of corporation, where upon the execution in the public instrument in which the articles of incorporation appears, and the contributions of funds and personal property, becomes a juridical person.The same as corporation in terms of juridical entity, limited liability and centralized management, but different in terms of organizations, distribution of dividends and those in which equity intervened for the benefit of creditors. However, American colonized the Philippines and removed the traced of Spanish laws. Thus, under our Corporation Law, a sociedad anonima existing at the time of the passage of the law was authorized at its option to either continue doing business a such entity or to transform and be organized and by the virtue of the provisions of the coporate law. If opted to reorganized, its assets will be transferred to the new corporation.If did not opted to organized under the Corporation code, they will be governed by the law inforced before the passae of the Philippine Corporate law.Cuentas en ParticipacionBourns vs Carman, described it as a sort of an accidental partnership constituted in such a maner that its existence was only known to those who had interest in it, there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that here were other people besides the one who ostensibly managed and conducted the business, governed under Art. 238 of Code of Commerce.Legal consequences of Cuentas en Participacion those who contract with the person whose name the business of cuentas en partipacion was conducted, only had a right of action against such person and not against the other persons interested in the venture.The Corporation Law, RA. 1459The first corporate statue in PH jurisdiction, became effective on April 1, 1906. The Corporation Code, BP, 69Became effective on May 1, 1980. Clarified the obligations of corporate directors and officers, expressed in statutory language, established principles and doctrines, and provided a chapter for closed corporations.Purpose of Corporation Code, to establish a new concept of business corporation so that they are not merely entities established for private again but effective partners of National Government spreading the benefits of capitalism for social and economic development of the nation.

II. NATURE ATTRIBUTES AND CLASSIFICATIONS OF CORPORATIONSCorporation is an artificial being created by n operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. A. THORIES OF FORMULATION1. Theory of ConcessionTayag vs Benguet Consolidated, a corporation is an artificial being, created by operation of law, and that it owes its life to the state, its birth being purely dependent on its will. Under this theory, a corporation as known tto the Philippine jurisprudence is a creature without any existence until it has received imprimatur of the state acting according to the law. It is logically inconceivable therefore that it will have rights and privileges of higher priority than its creation. It rejects the genosenschaft theory which states that it is independent of concession from the State.Thus, the state may compel a corporation to issue replacements of certificate of stocks even though it will violate their by-laws.Torres vs Court of Appeals declared that all corporations, big or small, must abide with the provisions of Corporation Code. Thus, the corporation is simply a creature of State and has limited capabilities.

2. Theory of Enterprise EntityUnder the enterprise theory, the corporate entity is viewed as taking its significance primarily from the reality of the underlying enterprise, formed or in formation; that the States approval of the corporate form set ups a prima facie case that the assets, liabilities and operations of the corporation are those of enterprise.A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body.Example, the state would not destroy a corporation without observing the due process close.The theory is embodied also in corporation code, section 10, that there be no corporation of less than 5 members but not more than 15.Tri-level Existence of the Corporate settingFirst, the corporation as a juridical entity or fiction, which views relationship between the state and the corporation.Second, the corporate setting provides for contractual relationships on 4 sub levels, namely:a. Between corporation and its agents and representatives to act in the real world, such as directors and its officers, governed suppletory by the Law on Agencyb. Between the corporation and its shareholders and membersc. Between and among the shareholders in common ventured. Between the corporation and third parties or outsiders, which essentially governed by the Contract Law, and Labor Law when it comes to relationship of officers to its employees.Third, the corporation becomes in its operation a business economic unit, a business enterprise, or what is called in Accounting as a Going Concern.B. CONSTITUTIONAL PROVISIONS AND CIVIL CODE PROVISIONS ON CORPORATION LAW1. Constitutional Provisions The power to create corporation is one of the attributes of sovereignty. The legislature may, subjective to restrictions of Constitution, create a particular corporation. Under Sec. 16, Art XII of the 1987 Constitution, the congress cannot, except by general law, provide for the formation, organization, or regulation of private corporations. Thus, they can also create public corporations through special charter and not private corporations.Additional Constitutional Provisions:Secs. 1, 10, and 12 of Art. XII, 1987 ConstitutionSection 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full of efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.In the pursuit of these goals, all sectors of the economy and all region s of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.Nationalized UndertakingsSecs. 19 and 20, Art. II of ConstiSection 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.Section 20. The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments.Sec. 17, Art. XII of ConstiSection 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest.2. Civil Code ProvisionsUnder the Art. 44 of the Civil Code, other than the State and its political subdivisions and other corporations, institutions and entities for public interest or purpose, the law recognizes corporations, partnerships, and association for private interest or purpose to which are granted a juridical personality, separate and distinct of each shareholder, partner or member.Art. Article 45 of the Civil Code, the juridical persons organized as public corporations are governed by the laws creating and organizing them, while private corporations are governed by the laws of general application on the subject, i.e. Corporation Code. C. FRANCHISES OF CORPORATIONSCorporate/General/Primary Franchise franchise to exist as a corporationSecondary or special franchise are certain rights and privileges conferred on existing corporations, such as right to use streets of a municipality to lay pipes or tracks, erect poles, or string wiresD. ATTRIBUTES OF A CORPORATION1. Artificial being it is a fiction of law which creates the person of the corporation, with the same attributes of an individual with full capacity to enter into contractual relations.2. Create of the law the juridical existence of a corporation is dependent on the consent or grant of the state. A corporation cannot come into being by mere consent of the parties, there must be a law granting it, and once granted, forms the primary franchise of the corporation. 3. Right of succession Under the Sec. 3 of the Corporation Code, the corporation has the capacity for continuous existence despite the death and replacement of its shareholders or members, for it has personality separate and distinct from those who compose it. 4. Creature of enumerated powers, attributes and properties Under the classic concession theory, once a corporation has been granted a juridical personality by the State, it is allowed and can legally exercise only such powers granted by the law for its creation, as opposed to a natural person who has the ability to exercise any power an denter into any business activity and the only limitation would be that an individual has no right to enter into transaction contrary to law, moral and public policy. On other jurisdiction, they adopted the creature of unlimited powers that a corporation is organized with full powers to undertake any venture and engage in any transaction, provided it is not contrary to laws, morals, and public policy.However, this notion of unlimited powers under Sec.2 is buttressed (strengthened) by the Sec 45 of the Corporation Code which defines ultra vires all acts or transactions effected outside the express, implied or incidental powers of the corporation.A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence.

E. ADVANTAGES OF THE CORPORATE MIDUM VIS A VIS OTHER FORMS OF BUSINESS ORGANIZATION1. Strong juridical personality The corporation has legal capacity to act and to contract as distinct person and it has continuity of existence.Also, the jurisprudential law governing corporations are more established.2. Centralized management a corporations management is centralized in the Board of Directors, to whom also granted are all corporate powers under Sec. 23 of the Corporation Code. Note Stockholders are not agents of corporation, nor can they bind the corporation unlike the partnership.3. Limited liability to investors The liability of investors in a corporation is limited to their shares as distinguished from partnerships where even if the assets of the partnership are already exhausted, creditors can still go after the individual properties of partners.4. Free transferability of units of investment As a general rule, its certificate of stocks can be transferred without the consent of other stockholders.5. Advantages over unregistered associations these are perpetual succession of its corporate name and in an artificial form; it has the capacity to take and grant property, and contract obligations; it can sue or be sued under its corporate name as juridical person; it has the capacities to receive common grants of privileges and immunities; and its stockholders or members generally have no liability beyond the value of their shares.Note if their articles of incorporation are kept secret among the members, it has no juridical personality and they shall be governed by the rules on co-partnership Art. 1755.Disadvantages of corporate medium1. Commplicated and costly formation and maintenance there is greater degree of governmental control and supervision than other forms of business organizations2. Lack of personal element and abuse of corporate management3. Limited liability hits innocent victims However, the abuse has been countered by the doctrine of piercing of corporate veil.4. Double taxation it is traditionally subjected to heavier taxation than other forms of business organization; the profits of the corporation which are already subjected to corporate income tax when declared and distributed as dividends and are again subjected to further income tax.Q: Does defective corporation result in a partnership?A: It depends. The parties who had intended to participate or actually participated in the business affairs of the proposed corporation would be considered as partners under a defacto partnership, and would be liable as such in an action for settlement of partnership obligations.Parties who took no part except subscribe to shares of stock in the intended corporation, do not become partners with other subscribers who engaged in business under the name of pretended corporation, and are not liable for an action for settlement of alleged partnership contribution.Business trusts as compared to corporation, business trust is created under the terms of deed of trust which is easier and less expensive to constitute for it is not bounded by the legal requirements of the former, it does not have a separate juridical personality and mainly governed by the law of contracts.Joint ventures a joint venture is a form of partnership and should thus be governed by the law on partnerships which would then include features of separate juridical personality, mutual agency among co-ventures, and unlimited liability.Joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks.Cooperatives 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 own products and services, and by accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.Unlike ordinary corps, they are governed by democratic control and shall have one-member-one-vote principle; where the board of directors manages its affairs of cooperative, the General Assembly of full membership exercises all rights and performs all obligations of the cooperative, and under the control of Cooperative Development Authority and not the SEC.The objective of cooperative is self-help, to improve the quality of life of its members.F. ENTITLEMENT OF CORPORATION TO CONSTITUTIONAL GUARANTEES

1. Due process close Philippine bill of rights are universal in application to all persons within its territorial jurisdiction without regard to any differences of race, color or nationality. The word person includes aliens private corporations, likewise are persons within the scope of guaranties in so far as their property is concerned.2. Unreasonable search and seizure it is recognized that the corporations are protected by the constitutional guarantees against unreasonable search and seizures.In Stonehill vs Diokno, the Court ruled that the officers of a corporation from which documents, papers, and things were sized have no cause of action to assail the legality of the seizures, regardless of the amount of the shares of stock or of the interested of each of them in the corporation and whatever the offices they hold therein maybe, because the corporation has a personality separate and distinct from those of said officers. IT held that the legality of seizure can be contested only by the party whose rights have been impaired thereby and anobjection to an unlawful search is purely personal and cannot be availed of third parties, such as officers of the corporation who interpose it for their personal interests.3. Right Against Self IncriminationIn Bache vs Co, the court denied that corporation have a right to claim on constitutional right against self-incrimination. This was affirmed in the Bataan Shipyard vs PACGG, and held that while an individual may lawfully refuse to answer incriminating questions, unless protected by immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abused of such privilege.Corporations rights to act as corporation are only preserved to it so long as it obeys its creator. Unlike the right against unreasonable seizures, the right of self-incrimination does not really result in physical intrusion into the premises of corporation, because it would require only the corporation, through its agents, produce records and books before the courts.G. LIABILITY ON TORTSThe liabilities of the corporation for tort committed by tits agent must generally follow the rules provided in law of agency. Firstly, a corporation must be held liable for all contracts and default that arise from those entered into by its agent within the scope of his authority, or even outside but ratified by the corporation. Secondly, the acting officer is solidarily liable with the corporation for damages resulting from his negligence as joint-tortfeasor.In Philippine National Bank vs Court of Appeals set out clearly the nature of the liability of the corporation for the tortious acts of its directors or officers. In that case, it was shown that the PNB, through unreasonableness of its Board in refusing to timely approve the lease of sugar quota allocation mortgaged with the bank, caused its borrower to lose the lease income it was to earn therefrom, which rentals were more than enough to fully paid the loan obligations of the borrower with the bank. The lower court found the bank, through the unreasonable intransigence of its directors, as being guilty of torts under Art. 19 of Civil Code which mandates that every person must in the exercise of his rights and in the performance of its duties, act with justice give everyone his due and observe honestly and good faith.NOTE Can a corporation be held liable even without express direction from the board or ratification? Yes. When the tortious act arises from or is connected with the business of the corporation, it would be safe to assume thar the corporate principal would also be liable under the premise that when acting in the legal or commercial world, every corporation must necessarily rely upon the intervention of individuals to act on its behalf, and therefore human imperfection that cause loss or damage as a result of negligence and even fraud, a reasonable business risk that every corporate principal must assume to be an integral part of the costs of doing business and for which the corporate coffers must stand to cover when it does arise. Ano daw?In such case, the remedy of the corporation, acting through its board, is to recover the damages from the acting corporate officer who was directly responsible.

H. CRIMINAL LIABILITY OF CORPORAITONNote in Philippine jurisdictions, corporations cannot be held criminally liable even though there are laws that they may violate.The primary reason why corporations cannot be proceeded against as defendants or accused in criminal proceedings is that there are no existing laws by which to support such process.Note, in People vs Concepcion, when a criminal statute forbids a corporation itself from doing an act, it actually forbids its board of directors.Note however, that the corporation would still be civilly liable from civil obligations arising from criminal act. Note that under the Trust Receipts law, and if the entrustee is the corporation, the law expressly made the officers, or employees or other persons responsible for the offense liable to suffer the penalty. Note, regarding the Anti-Money Laundering law, the corporation may be an accused, and in case of violation, the court may suspend or revoke its license.I. ENTITLEMENT TO MORAL DAMAGESThe court has inconsistent decisions regarding this matter. In Mambulao Lumber vs PNB, the court held that since corporation is artificial person, and cannot experience physical sufferings, there would be no basis for moral damages.In Primewhite Cement vs IAC, the supreme court help that if the corporations reputation and good will have been prejudiced, there can be no reward for moral damages.In Asset Privitization Trusts vs CA, the court held that the corporation may receive moral damages for besmirched reputation.However, the Supreme Court in the case of ABS CBN vs Court of Appeals, held that they are not entitled of moral damages, and the pronouncement in previous cases are mere obiter.In the case of Meralco vs Team Electronics, the Supreme Court goes back to its previous ruling that as a general rule there can be no moral damages, but if there is a damaged reputations, moral damages can be granted.However, in the recent case Crystal vs BPI, 2007, the Supreme Court affirmed the decision in ABS CBN vs CA, that they are not entitled of moral damages. Indeed, while the court may allow the grant of moral damages to corporations, it is not automatically granted, there must be a proof of existence of the factual basis of the damage and its casual relations to defendants acts. This is because moral damages though incapable of pecuniary estimation, are in the category of an award to compensate the claimant for actual injury suffered and not to impose a penalty to a wrongdoer.

J. NATIONALITY OF A CORPORATION

Place of incorporation test a corporation is a national of the country under whose laws it has been organized and registered. It has been embodied in Sec. 123 of Corporation Code which provides that a foreign corporation is one formed, organized or existing under any laws other than those of Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state.Control test the nationality of corporation is determined by the nationality of the majority of the stockholders on whom equity control is vested, on the theory that they would be able to elect the majority of Board of Directors.The SEC has confirmed in an opinion, that in application of control test, all capital stock of the corporation, whether common or preferred shares, and whether voting or non-voting, must be included.Note as a general rule, control test cannot overcome the place of incorporation test, i.e. a foreign corporation even when 100% of its equity is owned by Filipino citizen continues to be considered as foreign corporation. The only exception to this rule recognized by the SEC in an opinion, is that found in the provision of Foreign Investments Act of 1991 that a corporation organized abroad and registered as doing business in the PH under the Corp Code 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos.Note The reacquisition of Fil citizenship of former Filipino who had been naturalized as American Citizen, under the Citizenship Retention and Reacquisition Act of 2003 had the legal effect of converting his equity holdings in domestic corporation to be re-classified as Filipino investment.Place of principal business test is applied to determine whether a state has jurisdiction over the existence and legal character of a corporation. Note The constitutional provision on limiting the exploitation of natural resources to corporation of which at least 60% of the capital stock is owned by the Filipino citizens, does not contain the place of incorporation test. It is presumed that the control test is to be applied. It also does not distinguished whether it be a voting or non-voting shares.CASE: Register of Deeds of Rizal vs Ung Sui Si Temple the Court disqualified a non-incorporated religious organization, whose trustees and whose members were Chinese nationals, from acquiring by donation a piece of land. It declared that the purpose of the sixty per centum requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land or exploit natural resources are controlled by Filipinos. CASE: Roman Catholic Administration of Davao vs LRC the Court held that a corporation would have no nationality at all to disqualify it from owning a land in the Philippines even though its only corporator was a Canadian citizen. But the Court went to say, that even if nationality is ascribed to a corporation sole, the nationality of the constituents of the diocese, and not the nationality of the actual incumbent o the parish, must be taken into consideration, because the corporation ordinarily holds the property in trust for the benefit of Roman Catholic faithful of their respective locality or diocese. 2. Owning and Operating Public UtilitiesSection 11, Art. XII of the Constitution provides that no franchise certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of Philippines or to corporations or associations organized under the laws of Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.CASE: People vs Quasha, the Court held that the Constitution does not prohibit the mere formation of public utlity corporation without the required proportion of Filipino capital. What it does prohibit is the granting of franchise or other form of authorization for operation of public utility to corporation already in existence but without the requisite proportion of Filipino capital. It distinguish the primary and secondary franchise.Thus, foreign nationals can create corporations for public utility however, they are barred to operate such. Operation and formation are different.3. Mass MediaUnder Section 11, Art. XVI of the 1987 Constitution, the ownership of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives, and associations, wholly-owned and managed by such citizens. Although the constitutional provision governing mass media does not expressly include the place of incorporation test, the same shall be deemed included under the same principle governing exploitation of natural resources.In fact, the ancillary control test for mass media under Constitution is more stringent than in other defined areas, since it requires not only 100% of Filipino ownership of capital stock of the corporation, but also 100% Filipino management of the entity.4. Advertising Industry Only Filipino citizens or corporations or associations at least 70% of the capital of which is owned by such citizens shall be allowed to engage in the advertising company.

5. War-time TestCASE: Filipinas Compana de Seguros vs Christern, the Court held that in times of war, the nationality of a private corporation is determined by the character or citizenship of its controlling stockholders. The Court considered the juridical entity as an enemy based on the fact that the majority of the stockholders of the respondent corporation were German subjects. It rules that the control test was applicable only in war-time. It refused the sole application of the place of incorporation test during war-time to determine the nationality of an enemy corporation.6. Investment Test and Grandfather RuleGrandfather rule where various nationality tests shall first be applied on shareholders of the holding companies, to determine the nationality of the equity in the target corporation, and thereby arrive at the nationality of the target corporation. It provides where corporation and its non-Filipino stockholders own stocks in SEC registered enterprise, at least 60% of the capital stock of outstanding and entitled to vote of both corporations must be owned and held by such citizens of the Philippines and at least 60% of the members of the Board of Directors of both corporation must be citizens of the PH to be considered as Philippine National.How many level the Grandfather rule be applied?CASE: Palting s San Jose Petroleum the SC refused the registration and sale into Philippines of Secutiries of Pnamanian registered company the proceeds of which were to be exclusively used to finance the oil exploration efforts of a domestic corporation, which was owned by Panamanian company. It was the contention of Panamanian company that since its majority shareholdings are owned by another Panamanian company, which in turn was owned 100% by two Venezuelan companies whose shares were being traded in stock exchanges of US, then it was qualified to exercise privileges granted under the Laurel-Langley agreement.In refusing to apply the long chain of ownership source to find control to be American citizens in the US who have bought shares of the two Venezuelan companies, the court held that with a long chain of intervening foreign corporations is to unduly stretch and strain the language and spirit of the law. For, to what extent must the word indirectly be carried? Must we trace the ownership or control of these various corporation ad infinitum for purpose of determining the americian ownership control requirement be satisfied?In short, in this case, the application of the grandfather rule to determine the nationality of the ultimate controller of a subject corporation cannot go beyond the level of what is reasonable. Note in 1997 internal memorandum of Sec, for publicly held corporation, it shall be two tier, and in closed corporation, it shall be 3 levels. In banking institutions, it is 4 level as per monetary board.CASE: Narra Nickel Mining vs Redmond-Commercial law; Tests to determine the nationality of a corporation. There are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopts 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. The first part of paragraph 7, DOJ Opinion No. 020, stating 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, pertains to the control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality, pertains to the stricter, more stringent grandfather rule.Application of the Grandfather Rule. Based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.Existence of doubt. The assertion of petitioners that doubt only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where doubt as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have 60% Filipino Ownership at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Constitution.CASE: Gamboa v. Teves etal., GR No. 176579, October 9, 2012Meaning of Capital - The Court said that the Constitution is clear in expressing its State policy of developing an economy effectively controlled by Filipinos. Asserting the ideals that our Constitutions Preamble want to achieve, that is to conserve and develop our patrimony hence, the State should fortify a Filipino-controlled economy. In the 2011 decision, the Court finds no wrong in the construction of the term capital which refers to the shares with voting rights, as well as with full beneficial ownership (Art. 12, sec. 10) which implies that the right to vote in the election of directors, coupled with benefits, is tantamount to an effective control. Therefore, the Courts interpretation of the term capital was not erroneous. Thus, the motion for reconsideration is denied.K. CLASSIFICATIONS OF CORPORATIONS1. In relation to the StatePublic corporations those created for political purpose connected with public good in administration of civil government. Primary for the government and portion of a state. Created by its charter.Note GOCC are also created by a special charter, but shall still be considered as private corporation.Note a municipal corporation has two character, the public or governmental, or the private or proprietary character.Private corporations created for private purposes. It is divided into stock corporations and non-stock corporations. Created by general corporation law. Quasi public corporations are private corporation that serves public utility services.Note Employees of GOCC created by a special law are governed by the Civil Service law, and not by the Labor code. But if GOCC is created in accordance of general corporation law, it is governed by the law in Labor Code.CASE: Philippine Society for Prevention of Cruelty to Animals vs COAThe court held that although the corporation had its own charter, it was still a private corporation and not agency of government since a reading of its charter showed that it is not subject to control to agency of the State and the fact that its employees are registered and covered in SSS. 2. As to place of incorporationDomestic corporations incorporated under the laws of the PhilippinesForeign corporations incorporated abroad, and licensed by the SEC to do business in the Philippines and their state also allows Filipino or Philippine corporations to transact there.3. As to legal statusDe Jure Corporation if there is a full or substantial compliance with the requirements of an existing law permitting organization of such corporation as by proper incorporation duly executed and filed. Generally, its juridical personality is not subject to attack in courts from any source even in quo warranto proceeding.Corporation de facto if there is a bona fide attempt to incorporate, colorable compliance with the statute and user of corporate powers.Corporation by Estoppel these are the 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. These persons, by estoppel or admission, are precluded from denying its corporate existence.Corporation by Prescription acknowledged juridical personality inasmuch as it is an institution which antedated by almost a thousand years of any other personality in Europe, and which existed when Grecian eloquence still flourished in Antioch and when idols were worshipped in the temple of Mecca.4. As to existence of shares of stocksStocks Corporation those which have a capital stock divided into shares and authorized to distribute such shares.Note even if not authorized, it can still issue dividends because it is one of the expressed powers of the corporation.Non-stock is one where no part of its income is distributable as dividends to its members ,trustees, or officers, subject to the provisions on dissolution. CASE: Collector of Internal Revenue vs Club Filipino The Filipino club was a civic organization created for recreational purposes, and neither in the articles of incorporation nor in the by-laws was there a provision relative to dividends and their distribution. All profits of the club was used to defray its expenses and to improve its golf course. ISSUE: is the golf club required to pay business taxes?Ruling: No. The ordinary meaning of business is restricted to activities where the purpose is for profit, and the club is not as such because it was organized only to develop and cultivate sports.

5. As to relationship of management and control Holding company one that controls another as a subsidiary or affiliate by the power to elect its management. One which old stocks in other companies for purposes of control rather than investment.Affiliate company which is a subject to common control of a mother or holding company and operated as part of a system.6. Parent and subsidiary companyWhen a corporation has controlling financial interest in one or more corporations, the one having control is known as parent company and the others are known as the subsidiary companies.

RE: FUNA vs MECO Manila Economic and Cultural OfficeIn a 33-page ruling of the SC en banc written by Associate Justice Jose Perez, the SC partially granted the petition for mandamus filed by Atty. Dennis Funa seeking to compel the COA to audit and examine the funds of MECO and the latter to submit to such audit and examination.Exercising delegated functions, the MECO is the Philippines representative office at Songjiang Rd., Zhongshan Dist., Taipei City 104, Taiwan (R.O.C.).The Philippines has no embassy in Taiwan due to the existing "One China Policy".The MECO was created in 1975 and is organized as a non-profit and non-stock private corporation under Philippine law.Promoting, trade, investments, tourism, labor, scientific and cultural cooperation with Taiwan, the MECO provides assistance to Filipinos and provides visas, legal and consular services.It coordinates with the Philippine government agencies and the private sector to fulfill this mandate.Funa filed in 2009 a leading constitutional test case, the case of Funa vs. Executive Secretary et al.He was appointed as the National Deputy Director for Bar Discipline of the Integrated Bar of the Philippines (IBP) on Sept. 6, 2011.Funa and several other officers of a news daily were sued by former President and now Manila Mayor Joseph "Erap" Ejercito Estrada for publishing the news series purportedly narrated allegations of money-laundering by some Philippine government officials.He filed the petition before the SC in his capacities as a taxpayer, a concerned citizen, a member of the Philippine Bar and law book author.Funa impleaded both the COA and the MECO.He argued that by failing to audit the accounts of the MECO, the COA is neglecting its duty under Section 2(1), Article IX-D of the Philippine Constitution to audit the accounts of an otherwise bona fide Government-Owned and Controlled Corporation (GOCC) or government instrumentality.It is Funa's adamant claim that the MECO is a GOCC without an original charter or, at least, a government instrumentality, the funds of which partake the nature of public funds.According to Funa, the MECO possesses all the essential characteristics of a GOCC and an instrumentality under Executive Order No. 292, s. 1987 of the Administrative Code.Funa stressed that the MECO performs functions that are equivalent to those of an embassy or a consulate of the Philippine government.He said that a reading of the authorized functions of the MECO, as found in EO No. 15, s. 2001, reveals that they are subtanstially the same functions performed by the Department of Foreign Affairs (DFA), through its diplomatic and consular missions, per Administrative Code.In its ruling, the SC said that "the mandamus petition was able to craft substantial issues presupposing the commission of a grave violation of the Constitution and involving paramount public interest, which need to be resolved nonetheless."The SC ruled that the petition "raises issues of transcendental importance, involved as they are with the performance of a constitutional duty, allegedly neglected, by the COA. Hence, we hold that the petitioner, as a concerned citizen, has the requisite legal standing to file the [mandamus petition.]"It said that the MECO is not a GOCC or government instrumentality.The SC added that "government instrumentalities are agencies of the national government that, by reason of some special function or jurisdiction they perform or exercise, "are allotted operational autonomy and are not integrated within the department of framework."However, it stressed that the MECO is a non-profit and non-stock private corporation.The ruling said that the MECO "is a sui generis private entity especially entrusted by the government with the facilitation of unofficial relations with the people in Taiwan with jeopardizing the country's faithful commitment to the One China Policy of the PROC [People's Republic of China.]""However, despite its non-governmental character, the MECO handles government funds in the form of the verification fees it collects on behalf of the [Department of Labor and Employment] and the consular fees it collects under Section 2(6) of EO No. 15, s. 2001," it added.Hence, the SC said that under existing laws, "the accounts of the MECO pertaining to its collection of such verification fees and consular fees should be audited by COA.""Wherefore, premises considered, the petition is partially granted. The [MECO] is hereby declared a non-governmental entity. However, the accounts of the [MECO] pertaining to: the verification fees contemplated by Section 7 of Executive Order N. 1022 issued on May 1, 1985, that the former collects on behalf of the DOLE, and the fees it was authorized to collect under Section 2(6) of [E.O.] No. 15 issued 16 May 2001, are subject to the audit jurisdiction of the COA," the SC ruling said. (PNA)- See more at: http://www.zambotimes.com/archives/news/86105-SC-declares-MECO-a-non-governmental-entity.html#sthash.jAuMv41U.dpuf