Introduction
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. In the Philippines, corporations are primarily governed by the Revised Corporation Code of the Philippines, or Republic Act No. 11232, which replaced the old Corporation Code under Batas Pambansa Blg. 68.
Philippine corporation law recognizes several classes of corporations depending on purpose, ownership structure, nationality, legal status, relationship with the State, manner of creation, and other legal characteristics. These classifications are important because they determine the corporation’s powers, liabilities, governance structure, regulatory requirements, tax treatment, capacity to own property, and eligibility to engage in certain activities.
I. Corporations According to Purpose
1. Stock Corporations
A stock corporation is a corporation that has capital stock divided into shares and is authorized to distribute dividends or allotments of surplus profits to its shareholders.
Two elements generally characterize a stock corporation:
First, it has capital stock divided into shares.
Second, it is authorized to distribute dividends to its stockholders.
Stock corporations are commonly organized for business or profit-making purposes. Examples include corporations engaged in retail, manufacturing, real estate development, banking, insurance, construction, transportation, and technology services.
Key Features
A stock corporation has shareholders or stockholders who own shares of stock. Their ownership interest is represented by shares, and their rights generally include voting rights, the right to receive dividends when declared, the right to inspect corporate records, and the right to participate in the distribution of remaining assets upon liquidation after corporate debts are paid.
The governing body of a stock corporation is the board of directors, which exercises corporate powers, conducts corporate business, and controls corporate property.
2. Nonstock Corporations
A nonstock corporation is a corporation that does not issue shares of stock and does not distribute any part of its income to members, trustees, or officers.
Nonstock corporations are usually organized for purposes such as charitable, religious, educational, cultural, civic, service, fraternal, scientific, social, trade, industry, agricultural, professional, or similar purposes.
Examples include foundations, churches, professional associations, civic organizations, chambers of commerce, homeowners’ associations, and charitable institutions.
Key Features
A nonstock corporation has members, not stockholders. Since it has no shares of stock, membership rights are governed by its articles of incorporation, bylaws, and applicable law.
Its governing body is the board of trustees, unless a different structure is allowed by law.
A nonstock corporation may earn income, but such income must be used for its lawful purposes and cannot be distributed as profits to members, trustees, or officers.
II. Corporations According to Number of Incorporators or Owners
1. Ordinary Corporations
An ordinary corporation is one formed by two or more persons, but not more than fifteen incorporators, except when special laws allow otherwise. Under the Revised Corporation Code, incorporators may be natural persons, partnerships, associations, or corporations, singly or jointly with others.
Unlike the old Corporation Code, which generally required at least five incorporators, the Revised Corporation Code allows a corporation to be organized by fewer incorporators, subject to the special rules on one person corporations.
2. One Person Corporation
A One Person Corporation, or OPC, is a corporation with a single stockholder. It was introduced under the Revised Corporation Code to allow a single person to enjoy the benefits of corporate personality without needing nominal incorporators.
Only a natural person, trust, or estate may form a One Person Corporation. Banks, nonbank financial institutions, quasi-banks, pre-need companies, trust companies, insurance companies, public and publicly listed companies, and non-chartered government-owned and controlled corporations may not incorporate as OPCs.
Key Features
An OPC has no board of directors in the usual sense because it has only one stockholder. The single stockholder acts as the sole director and president. It must appoint a treasurer, corporate secretary, and nominee and alternate nominee.
The nominee and alternate nominee are designated to manage the corporation in case the single stockholder dies or becomes incapacitated.
Liability
An OPC generally enjoys limited liability. However, the single stockholder must prove that the corporation was adequately financed and that corporate assets were independent of the single stockholder’s personal assets. Failure to do so may result in personal liability under the doctrine of piercing the corporate veil.
III. Corporations According to Legal Status
1. De Jure Corporations
A de jure corporation is a corporation that has been created in strict or substantial compliance with all legal requirements. It exists as a matter of law and cannot be collaterally attacked.
To be considered a de jure corporation, there must generally be:
A valid law authorizing incorporation;
A bona fide attempt to organize under that law;
Substantial compliance with legal requirements; and
Issuance of the certificate of incorporation by the Securities and Exchange Commission, where required.
A de jure corporation has full corporate powers and legal personality.
2. De Facto Corporations
A de facto corporation is one that exists in fact but not in strict law because there was a defect in its incorporation. Despite the defect, it is treated as a corporation with respect to the public and third persons until its existence is directly attacked by the State.
The requisites of a de facto corporation are generally:
There is a valid law under which the corporation could have been incorporated;
There was a bona fide attempt to incorporate under such law;
There was actual use or exercise of corporate powers; and
There was a defect in compliance with legal requirements.
The existence of a de facto corporation cannot usually be challenged collaterally by private parties. It may be questioned only in a direct proceeding by the State, typically through quo warranto.
3. Corporation by Estoppel
A corporation by estoppel arises when persons assume to act as a corporation without authority to do so, and third persons deal with them as if they were a corporation.
Under this doctrine, persons who hold themselves out as a corporation may be prevented, or estopped, from denying corporate existence to avoid liability. Likewise, a person who deals with an association as a corporation may also be estopped from denying its corporate existence in a suit involving that transaction.
Effect
The doctrine does not create a true corporation. It merely prevents parties from denying corporate existence when fairness and justice require that they be bound by their representations or conduct.
IV. Corporations According to Nationality
1. Domestic Corporations
A domestic corporation is one incorporated under Philippine laws. It is created by Philippine law and registered with the Securities and Exchange Commission.
Domestic corporations may be wholly Filipino-owned, partly foreign-owned, or wholly foreign-owned, subject to constitutional and statutory nationality restrictions.
For example, certain activities are reserved wholly or partly for Filipino citizens or Filipino-owned corporations, such as land ownership, operation of public utilities, mass media, advertising, educational institutions, and exploitation of natural resources, subject to specific constitutional and statutory rules.
2. Foreign Corporations
A foreign corporation is one formed, organized, or existing under laws other than those of the Philippines, and whose laws allow Filipino citizens and corporations to do business in its own country or state.
A foreign corporation may not transact business in the Philippines without securing a license from the Securities and Exchange Commission.
Doing Business in the Philippines
A foreign corporation that is “doing business” in the Philippines must obtain a license. The concept of doing business generally involves continuity of commercial dealings and performance of acts normally incident to the purpose for which the corporation was organized.
Examples may include maintaining an office, appointing representatives, participating in management, soliciting orders, entering into service contracts, or engaging in repeated commercial transactions in the Philippines.
Consequences of Not Obtaining a License
A foreign corporation doing business in the Philippines without a license may not sue or maintain an action in Philippine courts. However, it may still be sued or proceeded against before Philippine courts or administrative agencies.
A foreign corporation not doing business in the Philippines may generally sue in isolated transactions or to protect its intellectual property rights, depending on applicable law and jurisprudence.
V. Corporations According to Ownership and Relation to the State
1. Public Corporations
A public corporation is one formed or organized for the government of a portion of the State. It is created for political and governmental purposes.
Examples include provinces, cities, municipalities, and barangays.
Public corporations are governed primarily by political law, administrative law, the Local Government Code, and other public statutes rather than ordinary corporation law.
Characteristics
A public corporation exercises governmental powers. Its officers are public officers. Its purpose is public governance, not private profit. It exists as an instrumentality of the State in local or public administration.
2. Private Corporations
A private corporation is one formed for private purposes, benefit, or interest. Most corporations registered with the Securities and Exchange Commission are private corporations.
Private corporations may be stock or nonstock, domestic or foreign, profit or nonprofit, ordinary or special.
They are governed primarily by the Revised Corporation Code, their articles of incorporation, bylaws, and applicable special laws.
3. Government-Owned or Controlled Corporations
A government-owned or controlled corporation, or GOCC, is a corporation owned or controlled by the government. It may be created by special charter or organized under the general corporation law.
GOCCs are used by the State to perform governmental, proprietary, developmental, or commercial functions.
Examples include corporations engaged in banking, housing, insurance, gaming, infrastructure, energy, and economic development.
Chartered GOCCs and Non-Chartered GOCCs
A chartered GOCC is created by a special law or charter. It owes its existence directly to legislative enactment.
A non-chartered GOCC is organized under the general corporation law, usually through SEC registration, but is owned or controlled by the government.
The distinction matters because chartered GOCCs are often subject to specific rules under their charters and public law principles, while non-chartered GOCCs may be treated more similarly to private corporations, subject to applicable public accountability rules.
VI. Corporations According to Manner of Creation
1. Corporations Created by General Law
Most private corporations in the Philippines are created under a general law, specifically the Revised Corporation Code. Their existence begins upon issuance of the certificate of incorporation by the Securities and Exchange Commission.
Examples include ordinary domestic stock corporations, nonstock corporations, close corporations, and one person corporations.
2. Corporations Created by Special Law or Charter
Some corporations are created by special legislative acts. These are known as chartered corporations.
Examples include certain government corporations, public corporations, and entities created by special laws for public purposes.
A corporation created by special charter is governed primarily by its charter. The Revised Corporation Code may apply suppletorily if not inconsistent with the special law.
VII. Corporations According to Public Access to Shares
1. Publicly Listed Corporations
A publicly listed corporation is a corporation whose shares are listed and traded on the Philippine Stock Exchange.
Publicly listed corporations are subject not only to the Revised Corporation Code, but also to securities regulations, disclosure rules, corporate governance requirements, stock exchange rules, and regulations of the Securities and Exchange Commission.
Key Features
They must comply with continuing disclosure obligations, reportorial requirements, rules on public float, related-party transactions, tender offers, material information disclosure, and corporate governance standards.
Because their shares are publicly traded, they are subject to greater regulatory scrutiny than closely held private corporations.
2. Public Companies
A public company is not necessarily the same as a publicly listed corporation. A corporation may be considered a public company if it has assets and shareholders above thresholds prescribed by securities regulations, even if its shares are not listed on the stock exchange.
Public companies are subject to additional reporting and corporate governance requirements because they affect a broader investing public.
3. Closely Held or Private Companies
A closely held corporation is one whose shares are not publicly traded and are usually held by a small number of shareholders.
Closely held corporations are common in family businesses, professional enterprises, and small to medium-sized companies.
They are generally subject to fewer securities disclosure obligations than publicly listed corporations, although they remain subject to corporation law, tax law, labor law, and other applicable regulations.
VIII. Close Corporations
A close corporation is a special type of stock corporation under the Revised Corporation Code. It is designed for businesses where ownership and management are concentrated in a small group.
A close corporation must generally provide in its articles of incorporation that:
All issued stock, exclusive of treasury shares, shall be held by not more than a specified number of persons, not exceeding twenty;
All issued stock shall be subject to restrictions on transfer; and
The corporation shall not list its shares on any stock exchange or make any public offering of its shares.
Restrictions
Certain corporations cannot be close corporations. These include mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions, and corporations declared to be vested with public interest.
Special Rules
Close corporations may operate with greater flexibility. Their articles of incorporation may provide that the business of the corporation shall be managed by stockholders rather than by a board of directors. They may also impose restrictions on share transfers to preserve the closed nature of ownership.
Importance
Close corporations are useful for family-owned enterprises and small businesses that want corporate personality but do not intend to raise capital from the public.
IX. Corporations Vested with Public Interest
A corporation may be considered vested with public interest because of the nature of its business, the extent of public participation, or the public impact of its operations.
Under the Revised Corporation Code, corporations vested with public interest include, among others:
Publicly listed corporations;
Banks and quasi-banks;
Pre-need, trust, and insurance companies;
Public utilities;
Educational institutions;
Corporations engaged in businesses impressed with public interest;
Other corporations as may be determined by law or regulation.
Consequences
Corporations vested with public interest are subject to stricter corporate governance requirements. These may include independent directors, compliance officers, board committees, enhanced disclosure obligations, and additional reporting requirements.
The policy behind this classification is that some corporations affect the public so significantly that ordinary private-law rules are insufficient to protect stakeholders.
X. Educational Corporations
An educational corporation is a corporation organized to operate schools, colleges, universities, or other educational institutions.
Educational corporations may be stock or nonstock, depending on the legal structure allowed and the nature of the institution. However, many private educational institutions are organized as nonstock corporations.
They are governed not only by the Revised Corporation Code but also by the Constitution, education laws, and regulations of agencies such as the Department of Education, the Commission on Higher Education, and the Technical Education and Skills Development Authority, depending on the level and type of education offered.
Nationality Requirement
The Philippine Constitution imposes Filipino ownership and control requirements on educational institutions, subject to exceptions for schools established by religious groups and mission boards, and for foreign temporary students and other constitutionally recognized cases.
XI. Religious Corporations
Philippine law recognizes special forms of religious corporations.
1. Corporation Sole
A corporation sole is a special form of corporation composed of one person only, usually a religious leader such as a bishop, chief archbishop, or presiding elder, and that person’s successors.
It is created to administer and manage the temporalities or properties of a religious denomination, sect, or church.
Nature
A corporation sole is not the same as a one person corporation. It is an older and distinct legal institution designed for religious organizations. Its continuity lies in the office, not in the individual officeholder.
When the incumbent dies, resigns, or is replaced, the successor assumes the corporate personality and continues to hold and administer the religious property.
2. Religious Societies
A religious society may incorporate for the administration of religious affairs and property. Unlike a corporation sole, a religious society is formed by a group of persons belonging to a religious denomination, sect, or church.
It is commonly organized to manage church property, religious activities, charitable works, and institutional affairs.
XII. Aggregate and Sole Corporations
1. Corporation Aggregate
A corporation aggregate is a corporation composed of more than one member or stockholder.
Most corporations are corporations aggregate, including ordinary stock corporations, nonstock corporations, close corporations, and many nonprofit entities.
A corporation aggregate acts through its board, officers, agents, and authorized representatives.
2. Corporation Sole
A corporation sole, as discussed above, consists of one person and that person’s successors in a particular office. It is usually associated with religious organizations.
Its purpose is not ordinary business but the perpetual administration of religious property.
XIII. Parent, Subsidiary, and Affiliate Corporations
1. Parent Corporation
A parent corporation is one that controls another corporation, usually by owning a majority of its voting shares or otherwise exercising controlling influence.
The parent corporation and subsidiary remain separate juridical entities. However, in certain cases, courts may disregard separate personality if the subsidiary is merely an alter ego or instrumentality of the parent.
2. Subsidiary Corporation
A subsidiary corporation is controlled by another corporation. Control may arise from share ownership, voting agreements, contractual arrangements, or management domination.
Subsidiaries are common in corporate groups, conglomerates, multinational companies, and holding structures.
A subsidiary has its own legal personality, assets, liabilities, board, officers, and obligations, even if controlled by a parent corporation.
3. Affiliate Corporation
An affiliate corporation is one related to another corporation by common ownership, common control, or significant influence, but not necessarily in a parent-subsidiary relationship.
Affiliates are relevant in corporate governance, related-party transactions, taxation, competition law, banking regulations, securities law, and disclosure requirements.
XIV. Holding and Operating Corporations
1. Holding Corporation
A holding corporation is organized primarily to own shares in other corporations. Its principal purpose is investment, control, or management of subsidiaries and affiliates.
Holding companies are often used for group structuring, succession planning, risk segregation, and centralized control.
2. Operating Corporation
An operating corporation directly conducts business activities, such as selling goods, rendering services, manufacturing products, developing real estate, or operating facilities.
In a corporate group, the holding company may own the shares, while operating companies conduct specific business lines.
XV. Corporation as to Liability of Members
1. Limited Liability Corporations
Most corporations under Philippine law are limited liability entities. This means stockholders are generally liable only to the extent of their unpaid subscription or investment.
Corporate debts are debts of the corporation, not of its stockholders, directors, or officers.
Exceptions
Limited liability may be disregarded when there is fraud, bad faith, evasion of obligations, commingling of assets, undercapitalization, or when the corporation is used as an alter ego or mere instrumentality of an individual or another corporation.
This is known as piercing the veil of corporate fiction.
2. Corporations Where Personal Liability May Arise
Even in corporations, personal liability may arise in certain situations, including:
When directors or officers act in bad faith or with gross negligence;
When they consent to unlawful acts;
When they have conflict-of-interest transactions causing damage;
When they make themselves personally liable by contract;
When the corporation is used to commit fraud;
When labor, tax, environmental, or special laws impose personal accountability;
When unpaid subscriptions remain due.
The corporate form protects legitimate business activity, not abuse of juridical personality.
XVI. Corporations According to Share Structure
1. Corporations with Par Value Shares
A corporation may issue shares with a fixed par value stated in the articles of incorporation.
Par value represents the minimum issue price of the share, not necessarily its market value. Shares generally cannot be issued below par value.
2. Corporations with No-Par Value Shares
A corporation may issue no-par value shares, subject to legal restrictions.
No-par value shares do not state a nominal value. However, they must be issued for a consideration fixed by the corporation, and the entire consideration received is treated as capital and is generally not available for distribution as dividends.
Certain corporations may be prohibited from issuing no-par value shares, especially those subject to special regulation.
3. Corporations with Common Shares
Common shares usually represent the basic ownership interest in a corporation. Holders of common shares generally have voting rights and the right to participate in dividends and residual assets after preferred rights are satisfied.
4. Corporations with Preferred Shares
Preferred shares enjoy preferences over common shares, usually as to dividends, assets upon liquidation, or both.
Preferred shares may be voting or nonvoting, cumulative or noncumulative, participating or nonparticipating, redeemable, convertible, or subject to other terms stated in the articles of incorporation and certificate of stock.
5. Corporations with Redeemable Shares
Redeemable shares are shares that may be purchased or taken up by the corporation upon the expiration of a fixed period or upon the occurrence of a specified event, regardless of unrestricted retained earnings, subject to legal limitations and SEC rules.
6. Corporations with Treasury Shares
Treasury shares are shares that have been issued and fully paid, then reacquired by the corporation. They do not have voting rights and do not receive dividends while held by the corporation.
Treasury shares may later be reissued or sold for a reasonable price fixed by the board of directors.
XVII. Corporations According to Term of Existence
1. Corporations with Perpetual Existence
Under the Revised Corporation Code, corporations generally have perpetual existence, unless their articles of incorporation provide otherwise.
This is a major change from the old Corporation Code, which generally limited corporate terms to fifty years unless extended.
Corporations existing before the Revised Corporation Code are generally deemed to have perpetual existence unless they elect to retain a specific corporate term.
2. Corporations with Fixed Corporate Term
A corporation may choose to have a fixed term of existence by stating such term in its articles of incorporation.
At the end of the term, the corporation may extend its existence by amending its articles, subject to the requirements of law.
3. Expired Corporations
A corporation whose term has expired may no longer continue ordinary business except for purposes of winding up. However, the law may allow revival of corporate existence under certain conditions, subject to approval by the Securities and Exchange Commission and compliance with applicable requirements.
XVIII. Corporations According to Capitalization
1. Corporations with Authorized Capital Stock
A stock corporation has authorized capital stock stated in its articles of incorporation. This represents the maximum amount of shares it may issue without amending its articles.
The authorized capital stock is divided into shares, which may have par value or no-par value.
2. Corporations with Subscribed Capital
Subscribed capital refers to the portion of authorized capital stock that stockholders have agreed to take and pay for.
A subscription creates an obligation on the part of the subscriber to pay the corporation according to the terms of subscription and calls by the board.
3. Corporations with Paid-Up Capital
Paid-up capital refers to the portion of subscribed capital actually paid by stockholders.
Under the Revised Corporation Code, there is generally no minimum capital stock requirement unless a special law provides otherwise. However, specific industries such as banks, financing companies, insurance companies, lending companies, and certain foreign-owned enterprises may be subject to minimum capitalization rules under special laws.
XIX. Corporations According to Regulatory Regime
1. Ordinary SEC-Registered Corporations
Most corporations are registered with and regulated by the Securities and Exchange Commission. They must submit articles of incorporation, bylaws where required, general information sheets, audited financial statements where applicable, beneficial ownership declarations, and other reports required by law or regulation.
2. Specially Regulated Corporations
Some corporations are subject to special regulatory agencies in addition to the SEC.
Examples include:
Banks and quasi-banks regulated by the Bangko Sentral ng Pilipinas;
Insurance companies regulated by the Insurance Commission;
Public utilities regulated by relevant administrative agencies;
Educational institutions regulated by DepEd, CHED, or TESDA;
Telecommunications entities regulated by the National Telecommunications Commission;
Energy companies regulated by the Energy Regulatory Commission or Department of Energy;
Health maintenance organizations regulated by the Insurance Commission;
Financing and lending companies regulated by the SEC under special laws.
These corporations must comply both with corporation law and the special laws governing their industries.
XX. Corporations According to Compliance Status
1. Existing Corporations
An existing corporation is one whose certificate of incorporation remains valid and whose registration has not been revoked, suspended, expired, or dissolved.
It may exercise corporate powers and conduct lawful business within its stated purposes.
2. Delinquent Corporations
A delinquent corporation is one that has failed to comply with reportorial requirements or other legal obligations, resulting in delinquent status with the SEC.
Delinquency may arise from failure to submit required reports such as the General Information Sheet or financial statements.
A delinquent corporation may face penalties, restrictions, or eventual revocation if noncompliance continues.
3. Suspended Corporations
A corporation may be suspended from exercising certain rights or privileges due to violations of law, administrative orders, or regulatory requirements.
Suspension does not necessarily terminate corporate existence, but it may restrict the corporation’s authority to operate or transact.
4. Revoked Corporations
A revoked corporation is one whose certificate of registration has been revoked by the SEC or competent authority.
Once revoked, it loses authority to continue business, except for winding up and liquidation as allowed by law.
5. Dissolved Corporations
A dissolved corporation is one whose corporate existence has ended through voluntary dissolution, involuntary dissolution, expiration of term, merger, consolidation, or other lawful cause.
After dissolution, the corporation continues as a body corporate for a limited period, generally for purposes of prosecuting and defending suits, settling affairs, disposing of property, and distributing assets, but not for continuing the business for which it was established.
XXI. Corporations According to Business Form or Function
1. Professional Corporations
Philippine law generally regulates the practice of professions through constitutional, statutory, and professional regulatory rules. Certain professional services may be practiced through corporations only when allowed by law and subject to restrictions.
For example, legal practice is not treated as ordinary corporate business because the practice of law is a profession reserved to qualified natural persons. Law firms may operate as partnerships or professional associations, but corporate practice of law is restricted.
Other professions, such as accountancy, architecture, engineering, medicine, and allied professions, may be subject to special rules on ownership, management, licensing, and practice.
2. Real Estate Corporations
Corporations engaged in real estate development, brokerage, leasing, or property management are subject to corporation law and special real estate laws.
Land ownership is constitutionally restricted. Private corporations may acquire private land only if at least sixty percent of their capital is owned by Filipino citizens, subject to the constitutional rule on landholding.
Foreign corporations generally cannot own land in the Philippines, although they may lease land under conditions allowed by law.
3. Public Utility Corporations
Corporations operating public utilities are historically subject to Filipino ownership requirements and special regulation. The Constitution requires that public utilities be operated by Filipino citizens or corporations at least sixty percent owned by Filipino citizens.
Public utility corporations are also subject to franchise, rate, service, and regulatory requirements, depending on the industry.
The classification of what constitutes a public utility may depend on the Constitution, statutes, jurisprudence, and special laws.
4. Banking Corporations
Banks are corporations engaged in lending, deposit-taking, and related financial activities. They are heavily regulated because of their public interest function.
They are subject to the Revised Corporation Code, the General Banking Law, regulations of the Bangko Sentral ng Pilipinas, anti-money laundering laws, corporate governance rules, capitalization requirements, fit-and-proper rules for directors and officers, and prudential standards.
5. Insurance Corporations
Insurance corporations are regulated by the Insurance Commission and governed by the Insurance Code, the Revised Corporation Code, and applicable regulations.
They must meet capitalization, solvency, licensing, governance, and reporting requirements.
6. Lending and Financing Companies
Lending and financing companies are corporations engaged in granting loans, financing transactions, or credit facilities.
They are subject to special laws and SEC regulation, including licensing, capitalization, disclosure, and consumer protection rules.
XXII. Corporations According to Internal Governance
1. Board-Managed Corporations
The general rule is that corporate powers are exercised, business is conducted, and property is controlled by the board of directors or trustees.
Stockholders and members do not directly manage corporate affairs unless the law, articles, bylaws, or a special corporate form provides otherwise.
2. Stockholder-Managed Close Corporations
In close corporations, the articles of incorporation may provide that the business shall be managed by the stockholders rather than by a board of directors.
This allows small or family-owned corporations to operate more like partnerships while retaining corporate personality.
3. Founder-Influenced Corporations
The Revised Corporation Code allows founder’s shares, which may grant certain rights and privileges, including exclusive voting rights in the election of directors for a limited period, subject to statutory limitations.
Corporations with founder’s shares may therefore have a special governance structure during the period allowed by law.
XXIII. Corporations According to Existence of Legal Personality
1. Incorporated Associations
An incorporated association has juridical personality separate from its members. It may sue and be sued, own property, enter contracts, incur obligations, and enjoy succession.
This includes stock corporations, nonstock corporations, religious corporations, and other SEC-registered corporate entities.
2. Unincorporated Associations
An unincorporated association is not technically a corporation because it has no separate juridical personality unless the law grants one.
Members of an unincorporated association may be personally liable for obligations incurred in the association’s name, subject to agency, partnership, or other applicable principles.
This distinction is important because only duly incorporated entities acquire the benefits of corporate personality.
XXIV. Corporations in Relation to Mergers and Consolidations
1. Constituent Corporations
In a merger or consolidation, the corporations involved are called constituent corporations.
They participate in the plan of merger or consolidation and obtain the required approvals from directors, trustees, stockholders, members, the SEC, and other regulatory agencies when applicable.
2. Surviving Corporation
In a merger, one corporation survives and absorbs the other corporation or corporations. The surviving corporation acquires the assets, rights, privileges, liabilities, and obligations of the absorbed corporations by operation of law.
3. Consolidated Corporation
In a consolidation, two or more corporations combine to form a new corporation. The original corporations cease to exist, and the new consolidated corporation succeeds to their assets, rights, liabilities, and obligations.
XXV. Corporations According to Dissolution Method
1. Voluntarily Dissolved Corporations
A corporation may be voluntarily dissolved by action of its stockholders or members, with or without creditors affected, following the procedure under the Revised Corporation Code.
If no creditors are affected, the process is simpler. If creditors are affected, more formal proceedings are required to protect their rights.
2. Involuntarily Dissolved Corporations
A corporation may be dissolved involuntarily by the SEC or proper authority for grounds such as fraud in procuring incorporation, serious misrepresentation, non-use of corporate charter, continuous inoperation, refusal to comply with lawful orders, or other statutory causes.
3. Corporations Dissolved by Shortening of Corporate Term
A corporation may voluntarily shorten its corporate term by amending its articles of incorporation. Upon expiration of the shortened term, it is dissolved, subject to winding up.
4. Corporations Dissolved by Merger or Consolidation
A corporation absorbed in a merger or replaced in a consolidation ceases to exist separately. Its rights and obligations pass to the surviving or consolidated corporation.
XXVI. Corporations According to Tax and Nonprofit Treatment
1. Taxable Corporations
Most stock corporations are taxable entities. They are subject to income tax, value-added tax or percentage tax where applicable, withholding taxes, documentary stamp taxes, local business taxes, and other taxes depending on their activities.
The corporation is taxed separately from its stockholders. Dividends may also be subject to tax in the hands of recipients, depending on their status.
2. Nonprofit Corporations
A nonprofit or nonstock corporation is not automatically tax-exempt. Tax exemption depends on the Constitution, tax laws, special laws, BIR rulings, and actual use of income and property.
Charitable, religious, educational, and similar organizations may enjoy certain tax exemptions, but only if they meet legal requirements. Income from activities conducted for profit may still be taxable.
XXVII. Corporations According to Capital Ownership Restrictions
1. Wholly Filipino-Owned Corporations
These are corporations whose capital is entirely owned by Filipino citizens or qualified Filipino entities.
They may engage in businesses reserved exclusively to Filipinos, subject to licensing and other requirements.
2. Sixty-Forty Corporations
Some industries require at least sixty percent Filipino ownership and allow up to forty percent foreign ownership.
Common examples include corporations acquiring private land and corporations operating public utilities.
The nationality of a corporation is often determined by the nationality of its capital, and in some cases both voting shares and total outstanding capital may be considered, depending on applicable law and jurisprudence.
3. Partly Foreign-Owned Corporations
These corporations have both Filipino and foreign shareholders. Their ability to engage in business depends on the Foreign Investments Act, the Constitution, the Foreign Investment Negative List, special laws, and applicable nationality restrictions.
4. Wholly Foreign-Owned Domestic Corporations
A domestic corporation may be wholly foreign-owned if it engages in an activity not subject to Filipino ownership restrictions and complies with applicable investment laws.
Although incorporated in the Philippines, it may be treated as foreign-owned for purposes of nationality restrictions.
XXVIII. Important Doctrines Affecting All Classes of Corporations
1. Separate Juridical Personality
A corporation has a personality separate and distinct from its stockholders, members, directors, trustees, officers, and related corporations.
It may own property, incur obligations, sue and be sued, and continue despite changes in ownership or membership.
2. Limited Liability
Stockholders are generally not personally liable for corporate debts beyond their unpaid subscriptions.
This encourages investment and risk-taking, but it is not absolute.
3. Piercing the Veil of Corporate Fiction
Courts may disregard the corporation’s separate personality when it is used to defeat public convenience, justify wrong, protect fraud, defend crime, evade obligations, or confuse legitimate issues.
This doctrine applies regardless of the class of corporation when the corporate form is abused.
4. Ultra Vires Acts
An ultra vires act is an act outside the express, implied, or incidental powers of the corporation.
A corporation must act within its stated purposes and legal powers. However, modern corporation law gives corporations broad powers, and the doctrine is applied with consideration of fairness, estoppel, ratification, and protection of third persons.
5. Trust Fund Doctrine
The capital stock, property, and other assets of a corporation are regarded as a trust fund for the payment of corporate creditors.
This doctrine limits improper distribution of corporate assets to stockholders, especially when creditors may be prejudiced.
XXIX. Practical Importance of Classification
The classification of a corporation determines several legal consequences.
It affects who may form it, who may own it, how it is governed, whether it may issue shares, whether it may distribute dividends, whether it may own land, whether it may engage in nationalized activities, whether it must obtain special licenses, whether it is subject to strict disclosure rules, and how it may be dissolved.
For example, a nonstock charitable corporation cannot distribute profits to members. A foreign corporation doing business in the Philippines must obtain a license. A public utility corporation must comply with nationality and franchise requirements. A close corporation may restrict share transfers. A publicly listed corporation must comply with securities disclosure rules. A One Person Corporation may exist with only one stockholder but must comply with special nominee and governance requirements.
Thus, classification is not merely academic. It controls the rights, duties, powers, and limitations of the corporation and its participants.
Conclusion
Philippine law recognizes many classes of corporations. The most basic distinction is between stock and nonstock corporations, but this is only the beginning. Corporations may also be classified as domestic or foreign, public or private, de jure or de facto, ordinary or one person corporations, close corporations, religious corporations, corporations vested with public interest, GOCCs, publicly listed corporations, subsidiaries, holding companies, and many others.
The proper classification of a corporation affects its formation, governance, ownership, powers, nationality, regulatory obligations, liability rules, tax treatment, and dissolution. Under Philippine law, every corporation must therefore be understood not only as a juridical person, but as a legal entity whose rights and obligations depend on the class to which it belongs.