Government Regulation of Corporations
By the Legislature
Basis: police power of the state (Northern Ry Co. v. State of Washington, 300 U.S. 154) and the fact that corporations owe their existence to the state Manner: by amending or repealing the Corp. Code or any part thereof
By the SEC
Basis: Sec. 3, PD 902-A and Sec 5.1(a), RA8799.
The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or licenses or permits granted by the government, to operate in the Philippines;
Note: Under Sec. 5.2 of RA8799, SEC’s jurisdiction over all cases enumerated under Sec. 5, PD 902-A was transferred to the Regional Trial Court which has jurisdiction over the principal office of the corporation, partnership or association concerned.
According to the Interim Rules of Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC), which took effect on April 1, 2001, the Regional Trial Court has jurisdiction over cases involving the following:
1. Devices or schemes employed by, or any act of, the BOD, business associates,
officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners or members of any corporation, partnership, or association;
2. Controversies arising out of intracorporate, partnership, or association relations, between and among stockholders, members or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members or associates, respectively;
3. Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
Corporation vs Partnership
1. Extent of Liability—partners are personally liable for the debts of the partnership;
stockholders cannot be made to personally answer to corporate creditors
2. Creation—mere agreement of the parties, w/c can be composed of just 2 persons,
gives rise to the juridical personality of the partnership, whether or not registered w/
the SEC (Art. 1768, NCC); a corp., w/ a minimum of 5 incorporators, derives its juridical personality from the certificate issued by the SEC.
3. Management—In most cases, all the owners in a partnership actively participate
in management, w/ capacity to bind it by any usual contract (Art. 1818, NCC); in a
corp., management is centralized in the board of directors w/c has exclusive power
to bind the corp. (§23)
4. Nature of Relationship—partnership is based on mutual trust and confidence
(delectus personae) so that its existence is precarious because of the facility w/ which
it can be dissolved (i.e. through the death or unilateral act of a partner); a corp. has
more stability as it enjoys the right of succession and is not affected by the death
or insolvency of a stockholder; also, dissolution before a corp.’s term requires a 2/3rds vote of the stock (Secs. 118 and 119, Corp. Code), always subject to SEC
intervention
5. Powers—a corporation has only such powers as are expressly granted to it and
such as are necessary to the exercise of the powers so granted or for the accomplishment of its purpose(sec.2, 36 (11), and 45); In a partnership, as long as
the parties have agreed to it, the partnership can perform any act as long as it does not violate any law or right of others.
These are the advantages of corporation, not merely a partnership.
1) Separate juridical personality – personality separate and distinct from individual
stockholders and member
2) Limited liability to investors – stockholders are liable only to the extent of their contribution
General rule: Where a corporation buys all the shares of another corporation, this will
not operate to dissolve the other corporation and as the two corporations
still maintain their separate corporate entities, one will not answer for the debts
of the other. [Nell v Pacific Farms (15 SCRA 415), Nov. 23, 1965]
Exceptions:
o If there is an express assumption of liabilities;
o There is a consolidation or merger;
o If the purchase was in fraud of creditors;
o If the purchaser becomes a continuation of the seller;
o If there are unpaid subscriptions (stockholder is liable for the unpaid balance).
3) Free transferability of units of ownership – stockholders hold their shares as personal
property with rights to dispose, assign orencumber them as they may desire.
4) Centralized Management – all corporate powers are exercised by the board of directors
Has the powers, attributes and properties expressly authorized by law or incident to its existence: as it is a mere creature of the law, it can exercise only such powers as the law may choose to grant it, either expressly or impliedly
Created by operation of law:
1. mere consent of the parties to form a corporation is not sufficient: the State must give its
consent either through a special law (in the case of a gov’t corp.) or a general law (for
a private corp.)
2. the general law under w/c a private corp. may be formed or organized is the Corporation Code
Has the right of succession:
1. its continued existence during the term stated in its articles of incorp. cannot be affected by any change in the members or stockholders
2. nor is it affected by the transfer of shares by a stockholder to a 3rd person
A Corporation is 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.
A corporation is a creature of:
- A general enabling statute (requirements of the law must be complied with); and The agreement of individuals who seek to incorporate (internal contractual arrangements: articles of incorporation and by-laws).
What are negligent torts? = Involve voluntary acts or omissions which result in injury to others without intending to cause the same or because the actor fails to exercise due care in performing such acts or omissions.
Definition of Summary Judgment in Civil Cases
What is Summary Judgment? – One granted by the court for the prompt disposition of civil actions wherein it clearly appears that there exist no genuine issue or controversy as to any material fact.
If the complaint states no cause of action, a motion to dismiss should be filed and no motion for judgment on the pleading.