1) The Core Idea: A Corporation as a “Creature of Law”

Under Philippine law, a corporation is an artificial juridical person created by operation of law—meaning it exists because the law recognizes it as a separate legal entity after compliance with statutory requirements. It acts through the individuals who represent it (primarily its board and duly authorized officers), but it is distinct from the people behind it.

In Philippine context, the principal statute is the Revised Corporation Code of the Philippines (RCC), Republic Act No. 11232. The RCC modernized corporate formation and governance, introduced the One Person Corporation, allowed perpetual corporate existence by default, strengthened minority protections, and expanded SEC supervisory powers, among other reforms.

2) Defining Features of a Corporation

A corporation is commonly understood through its attributes:

a) Separate Juridical Personality

A corporation has a legal personality separate and distinct from its shareholders, members, directors, and officers. Consequences include:

It can own property, enter into contracts, and sue or be sued in its own name.
Corporate obligations are generally not personal obligations of shareholders.

b) Limited Liability (General Rule)

Shareholders’ exposure is generally limited to the amount of their subscription (or the value of their investment), except in recognized circumstances (e.g., when the corporate veil is pierced; or when a person incurs personal liability through their own acts, warranties, or bad faith).

c) Perpetual Existence (Default Rule Under the RCC)

A corporation generally has perpetual existence unless its Articles of Incorporation provide a specific corporate term. This improves continuity and succession.

d) Centralized Management

Management is vested in the Board of Directors (stock corporations) or Board of Trustees (nonstock corporations). The board makes corporate policy decisions; officers execute them.

e) Transferability of Interests (Especially in Stock Corporations)

Shares are generally transferable, subject to the RCC, the corporation’s articles/bylaws, and special restrictions (e.g., close corporations; nationality requirements; restrictions on transfers in shareholder agreements).

3) Why the Distinction Matters: Corporation vs. The People Behind It

Because the corporation is a separate person, the law generally treats corporate acts and liabilities as corporate—not personal. However:

Directors/officers may still be personally liable for their own torts, bad faith, gross negligence, or unlawful acts, and for violations of specific laws imposing personal responsibility.
Shareholders may be liable beyond their investment only in exceptional situations (e.g., veil piercing; unpaid subscriptions; certain illegal distributions).

4) Sources of Corporate Existence and Authority

A corporation’s existence and powers are rooted in:

The Constitution (especially restrictions on ownership of certain activities and land).
The Revised Corporation Code (general corporate framework).
Special laws creating specific corporate forms or regulating industries (banks, insurers, utilities, cooperatives, etc.).
SEC rules and regulations (for entities within SEC supervision).
The corporation’s own Articles of Incorporation and Bylaws (internal “constitution” and rules).

5) Basic Corporate Powers

A Philippine corporation generally has powers such as:

To sue and be sued.
To have a corporate name.
To adopt and use a seal.
To acquire, own, hold, encumber, and dispose of property (subject to restrictions, including constitutional ones).
To enter into contracts, incur obligations, and conduct business necessary to carry out its purpose.
To issue shares (stock corporations) or accept members/contributions (nonstock).
To adopt bylaws, elect directors/trustees, and appoint officers.
To merge/consolidate, amend articles, and dissolve, subject to statutory procedures.

Important limitation: a corporation may do only acts that are expressly authorized by law or its articles, or those necessary or incidental to its purposes.

6) Corporate Purposes

The corporation’s purpose clause in the Articles defines what it is organized to do. Under the RCC framework:

A corporation may have a primary purpose and one or more secondary purposes.
Engaging in activities outside its purposes can raise issues of authority and compliance, especially where regulated industries or licenses are involved.

7) Types of Corporations Under Philippine Law

A) By Profit Orientation

Stock Corporation
- Has capital stock divided into shares.
- Distributes profits to shareholders as dividends.
Nonstock Corporation
- Has members, not shareholders.
- Income generally cannot be distributed as dividends; it is applied to corporate objectives (subject to legitimate reimbursements and compensation rules).

B) By Number of Organizers/Owners

Regular Corporation (multiple shareholders/members)
One Person Corporation (OPC)
- A single stockholder (natural person, trust, or estate) forms a corporation.
- Designed to provide limited liability with simpler governance.
- Certain sectors/activities may be restricted by regulation or special law.

C) By Ownership/Nationality

Domestic Corporation
- Organized under Philippine law.
Foreign Corporation
- Organized under foreign law.
- Generally must secure a license to do business in the Philippines if it is “doing business” as defined by law and jurisprudence.
- Without the required license, it typically cannot maintain suits in Philippine courts relating to its business transactions, subject to nuanced exceptions.

D) By Public/Private Character

Private Corporations (formed for private interests)
Public/Quasi-public Entities (e.g., government-owned or -controlled corporations; corporations created by special charters; regulated utilities)

E) Special Categories Recognized in Philippine Practice

Close Corporation (conceptually: a corporation with a small number of shareholders and restrictions on share transfers; subject to specific statutory rules).
Corporation Sole
- Traditionally used for religious organizations where a single officeholder and successors form a corporate entity for property administration.
Educational/Charitable/Religious/Professional and Other Regulated Entities
- These may require additional approvals, capitalization, governance, or licensing.

8) Formation and Incorporation: How a Corporation Comes to Life

A Philippine corporation is generally formed through incorporation with the Securities and Exchange Commission (SEC) (unless it is created by special law).

Key Foundational Documents

Articles of Incorporation Typically states:
- Corporate name
- Purpose(s)
- Principal office address
- Corporate term (if not perpetual)
- Names and details of incorporators
- Number of directors/trustees
- For stock corporations: authorized capital stock (and other capital-related details required), share structure, and other statutory particulars
Bylaws
- Internal governance rules (meetings, elections, quorum, duties, committees, etc.).
- The RCC allows flexibility on timing/requirements, but bylaws remain a core governance document.

Capital Concepts in Stock Corporations (Practical Overview)

Authorized Capital Stock: maximum shares the corporation may issue.
Subscribed Capital: portion taken up by shareholders (committed to be paid).
Paid-up Capital: amount actually paid.
Par value vs. no-par value shares: affects accounting and issuance rules.
Consideration for shares must comply with legal requirements; issuance for inadequate consideration can trigger liability and regulatory issues.

9) The Internal Structure: Who Runs the Corporation?

A) Board of Directors / Trustees

The board is the policy-making body.
Directors/trustees owe fiduciary duties—commonly discussed as duties of:
- Obedience (act within authority and purpose)
- Diligence/Care (act with appropriate prudence)
- Loyalty (avoid conflicts and self-dealing)

Board actions typically occur through meetings and resolutions. The corporation acts through:

board authority, and
officer authority or delegations.

B) Corporate Officers

Common officers include:

President
Treasurer
Secretary
Plus others as required by the bylaws or board (e.g., compliance officer where regulated)

Certain officers have statutory significance:

The corporate secretary is central to records and certification.
The treasurer is central to funds and financial responsibility.

C) Shareholders and Members

Shareholders (stock corporations) elect directors and vote on fundamental corporate acts.
Members (nonstock) elect trustees (unless otherwise structured by law/bylaws).

10) Meetings, Voting, and Corporate Democracy

A) Regular and Special Meetings

Stockholders/members meet to elect the board and approve reserved matters.
The board meets to set policies and approve corporate actions.

B) Quorum and Voting Thresholds

A quorum is the minimum presence needed to transact business.
The RCC and bylaws determine whether simple majority, supermajority, or specific thresholds apply—especially for fundamental acts like amendments, mergers, or dissolution.

C) Voting Mechanisms

Straight voting and cumulative voting (commonly relevant for electing directors in stock corporations).
Proxies may be allowed under conditions.
The RCC also modernizes participation via remote communication in appropriate circumstances, subject to SEC rules and internal procedures.

11) Fundamental Corporate Changes

Certain acts are considered “fundamental” and usually require both:

board approval, and
shareholder/member approval, often with notice and specific vote thresholds.

Examples:

Amendment of Articles
Increase/Decrease of Capital (stock corporations, subject to rules)
Merger/Consolidation
Sale of all or substantially all assets
Investment in another business outside the primary purpose
Voluntary dissolution

12) Rights and Remedies of Shareholders/Members (Key Protections)

Philippine corporate law provides meaningful shareholder/member protections, commonly including:

Right to vote on reserved matters.
Right to dividends when properly declared (stock corporations).
Appraisal right in specified fundamental changes (right to demand payment of fair value of shares, subject to conditions).
Inspection rights (access to certain corporate books and records, subject to reasonable limitations).
Derivative suits (suits brought by shareholders in behalf of the corporation under conditions, typically when wrongdoers control corporate decision-making).
Remedies for unfair dealing, fraud, and breach of fiduciary duties.

13) Corporate Distributions and Dividends

Dividends are not automatic; they require:

existence of unrestricted retained earnings (subject to accounting/legal rules),
board declaration,
compliance with restrictions designed to protect creditors and the corporation’s financial stability.

Improper distributions can expose directors and recipients to liability, especially where distributions impair capital or violate statutory restrictions.

14) Corporate Records, Reportorial Requirements, and SEC Supervision

Corporations must maintain statutory books and records, commonly including:

Articles and bylaws (and amendments)
Minutes of meetings and resolutions
Stock and transfer book (stock corporations)
Financial statements and general accounting records

Many corporations have regular reportorial obligations to the SEC (e.g., general information filings, financial reporting where required, and disclosures depending on classification), and must keep corporate information current.

15) Intra-Corporate Disputes and Enforcement

Disputes involving corporate relationships—such as contests over elections, fiduciary breaches by directors/officers, and enforcement of shareholder rights—are often treated as intra-corporate controversies. These are generally handled by designated commercial courts and governed by procedural frameworks aimed at efficient resolution.

Corporations may also be subject to:

administrative sanctions by regulators,
civil liability,
and, for certain violations, criminal liability under special laws or the RCC.

16) Piercing the Corporate Veil: When Limited Liability Fails

The rule of separate personality is not absolute. Courts may pierce the corporate veil when the corporate form is used to:

defeat public convenience,
justify wrongdoing,
protect fraud,
or defend crime, or when the corporation is merely an alter ego/instrumentality and recognizing separateness would sanction injustice.

This is highly fact-specific and is treated as an exceptional remedy.

17) Foreign Ownership and Constitutional/Statutory Limits (Philippine-Specific)

A corporation’s structure is deeply affected by Philippine restrictions, such as:

limitations on foreign ownership in certain industries (often tied to constitutional provisions and implementing statutes),
restrictions on land ownership (generally reserved to qualified Philippine nationals and entities meeting nationality requirements),
nationality and control requirements for certain regulated sectors (e.g., public utilities and other areas governed by special laws).

Compliance is often enforced through corporate structuring, shareholder arrangements, and regulatory approvals.

18) Corporate Dissolution and Winding Up

A corporation may end through:

voluntary dissolution (with or without creditors affected),
involuntary dissolution (e.g., for violations, fraud, or prolonged noncompliance),
expiration of term (if a fixed term is chosen),
or other statutory grounds.

After dissolution, the corporation undergoes winding up:

collection of assets,
payment of liabilities,
and distribution of remaining assets (to shareholders in stock corporations; or as provided by law/bylaws for nonstock).

19) Practical Significance: What a Corporation Is “For”

In Philippine legal practice, the corporation is used to:

allocate risk through limited liability,
pool capital and resources,
enable continuity beyond the founders,
establish a governance system for decision-making,
provide a recognized vehicle for contracting, owning property, employing workers, and raising funds.

But with those advantages comes legal discipline: proper governance, recordkeeping, disclosures, compliance with ownership rules, and accountability for fiduciary misconduct.

20) Summary Definition (Philippine Lens)

A corporation under Philippine law is a juridical person created under statutory authority—principally the Revised Corporation Code—with a separate legal personality, centralized board management, limited liability as a rule, and powers and life defined by law and its charter documents, operating under SEC regulation and subject to constitutional, statutory, and regulatory limits unique to the Philippine setting.