I. Corporation: Introduction

KINDS OF BUSINESS ORGANIZATIONS IN THE PHILIPPINES

1. SOLE PROPRIETORSHIP – one conducted for profit by a lone or single individual who owns all assets, personally owes and answers all the liabilities or suffers all the losses and enjoys all the profits to the exclusion of others.

2. PARTNERSHIP – a contract where two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Art. 1767, Civil Code)

3. JOINT VENTURE – a one-time grouping of two or more persons, natural or juridical, in a specified undertaking.

4. CORPORATION – an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence (Sec. 2, Revised Corporation Code [CC])

Attributes of a Corporation

• Artificial being – it has a juridical personality, separate and distinct from the persons composing it.
• Created by operation of law – the formal requirement of the State’s consent through compliance with the requirements imposed by law is necessary for its creation such that the mere agreement of the persons composing it or intending to organize it does not warrant the grant of its independent existence as a juridical entity;
• Right of succession – unlike in a partnership, the death, incapacity or civil interdiction of one or more of its stockholder does not result in its dissolution;
• Powers, attributes and properties expressly authorized by law or incident to its existence – it can exercise only such powers and can hold only such properties as are granted to it by the enabling statutes unlike natural persons who can do anything as they please.

Q. IS A CORPORATION ENTITLED TO THE AWARD OF MORAL DAMAGES?
A. No. Moral damages may be awarded in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, and similar injury. (Tamayo vs. University of Negros, 1962)A corporation, as an artificial being and existing only in contemplation of the law has no feelings. It has no emotions and no senses. Thus, it cannot experience mental anguish and physical suffering.

EXCEPTIONS OR INSTANCES WHEN MORAL DAMAGES MAY BE AWARDED:

A corporation may have a good reputation which is besmirched may also be a ground for the award of moral damages. (Mambulao Lumber vs. PNB, 1968)

For corporations, Article 2219 applies for recovery of moral damages in cases of libel, slander or any other form of defamation. This provision of the Civil Code does not qualify whether the plaintiff is a natural or a juridical person. Thus, a juridical person can validly complain for libel and any other form of defamation and claim for moral damages. (Filipinas Broadcasting vs. Ago Medical Center, 2005, Art. 2219, (7), NCC)

When the corporation has a reputation that is debased resulting in its humiliation in the business realm, moral damages may be awarded. (MERALCO vs. Team Electronics Corporation, 2007)

DOCTRINE OF LIMITED CAPACITY
In the corporate form of business. Unlike a natural person, it can only do such acts and things as allowed by law and by its articles of incorporation including those which are incidental to such conferred powers or those reasonably necessary to accomplish its purpose and those which are incidental to its existence. Thus, if it does anything beyond this limit, it shall be considered as ULTRA VIRES

ADVANTAGES OF THE CORPORATE FORM OF BUSINESS

1. CAPACITY TO ACT AS A SINGLE UNIT – without regard to the number of persons, they may unite in a single enterprise without using their names and with the valuable right to contract, to sue and be sued, and to hold or convey property, in the corporate name, without difficulty or inconvenience;
2. LIMITED SHAREHOLDER‘S LIABILITY – stockholders are not personally liable for the debts of the corporation;
3. CONTINUITY OF EXISTENCE – the rights and obligations of a corporation are not affected by the death, incapacity or replacement of its members;
4. FEASIBILITY OF GREATER UNDERTAKING – it enables the individuals to cooperate in order to furnish the large amounts of capital necessary to finance large scale enterprises;
5. TRANSFERABILITY OF SHARES – shares of stocks, being personal properties, can be transferred by the owner to another without the consent of the other stockholders, unless reasonably restricted;
6. CENTRALIZED MANAGEMENT – the vesting of powers of management and appointing officers and agents in the board of directors give to a corporation the benefit of a centralized administration which is a practical business necessity in any large organization; and
7. STANDARDIZED METHOD OF ORGANIZATION, MANAGEMENT, AND FINANCE – The corporation statutes enter into the charter contract and these are constantly being interpreted by courts. An established system of management and protection of shareholders and creditors’ rights has thus been and are being evolved.

DISADVANTAGES

1. Formal proceedings (i.e. board meetings) are required to have a valid and binding corporate act.
2. The corporation’s business transactions are limited to its purpose or to the State of its incorporation, and may not act as such corporation in other jurisdiction unless it has a license or authority from the foreign state.
3. The shareholders’ limited liability tends to limit the credit available to the corporation as a separate legal entity;
4. Transferability of shares may result in uniting incompatible and conflicting interests;
5. The minority shareholders have practically no voice in the conduct of corporate affairs;
6. In large scale enterprises, stockholders’ voting rights may become merely fictitious and theoretical because of disinterest in management, wide-scale ownership and inaccessible place of meeting;
7. Doubt taxation may be imposed on corporate income; and
8. Corporations are subject to governmental regulations, supervision, and control including submission of reportorial requirements not otherwise imposed in other business form.

GOVERNMENT POWERS IN RELATION TO CORPORATIONS

The Corporation Code places all corporations registered under its provision to be under the control and supervision of the Securities and Exchange Commission (Sec. 18 and TITLE XVI of the Revised Corporation Code). Its powers and functions are clearly spelled out in PD 902-A, as amended by RA No. 8799, otherwise known as the Securities Regulation Code.

CORPORATION VS. PARTNERSHIP