The Kinds of Corporations

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By Kelvin Lee

Question of Law

Wednesday, July 9, 2014


I WAS once asked if there was only one kind of corporation. Actually, the law provides for many different kinds of corporations.

If you refer to those who organize a corporation, there is the public corporation - which is a corporation organized by the state such as PAGCOR, or private corporation - which is a corporation organized by private persons or with the state. (Sundiang, Commercial Law, p. 244).

If you refer however to the kinds of corporations based on their legal status, you have the de jure and de facto corporation. A de jure corporation is a corporation organized in accordance with the requirements of the law. (Sundiang, Id at 245.)

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On the other hand, a de facto corporation is a corporation that has a flaw in its incorporation (Id.; see also Sec. 20 of the Corporation Code). The requisites for a de facto corporation are that (i) there must exits a valid law under which the corporation was incorporated; (ii) there was an attempt in good faith to incorporate, and (iii) use of corporate powers. (Sundiang, Id.)

The Corporation Code also provides for a corporation by estoppel. This is essentially a group of persons which holds itself out as a corporation and enters into a contract with a third person on the strength of such appearance. As a result, this group cannot be permitted to deny its existence in an action under the contract. (Sec. 21, Corporation Code). As such, this is not considered a real corporation and those who took part in this form of fraud may be held liable for the contracts they took advantage of. (Lim v. Philippine Fishing, 317 SCRA 728).

There is also the most prevalent kind of corporations, the stock corporation, and its opposite, the non-stock corporation. The stock corporation is a corporation in which capital stock is divided into shares and is authorized to distribute to holders thereof of such shares dividends or allotments of the surplus profits on the basis of the shares held. (Sec. 3, Corporation Code). Examples of Corporations like this are the ones you see in the stock market, among others. It is this type of corporation which usually exists for the purpose of generating income and profit.

A non-stock corporation is a corporation which does not issue stocks and does not distribute dividends to their members. (Sundiang, Id. At p. 245). Examples of these kinds of corporations are NGOs, foundations and the like.

The Corporation Code also provides for Close Corporations, Educational Corporations and Religious Corporations.

A Close corporation is one where its articles of incorporation states that: it limits ownership of its shares of stock by not more than twenty persons, that the issues stock of all classes shall be subject to specified restrictions, and that the corporation shall not list in the stock market (Sec. 96, Corporation Code).

The Corporation Code also provides for Educational Corporations which are governed by special laws and by the requirement that it must have the favorable recommendation of the Department of Education, Culture and Sports (DECS, now known simply as Department of Education). (See Sec. 106 and 107, Corporation Code)

Then there are the Religious Corporations, which may be a corporation sole or religious societies (Sec. 109, Corporation Code). A Corporation Sole is interesting because it essentially makes a person a one man corporation.

The Corporation Code provides that "for the purposes of administering and managing as a trustee, the affairs, property and temporalities of any religious denomination, sect or church, a corporation sole may be established by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious denomination, sect or church." (Sec. 110, Corporation Code).

For religious societies under the corporation code, these are essentially religious societies that have incorporated in accordance with the law. (See Sec. 116, Corporation Code).

As you can see, there are many numbers of corporations under the law. But by far the most prevalent remains the stock corporation, which is what is used by many business people throughout the Philippines.

***

The opinions expressed herein are solely of Atty. Lee. This column does not constitute legal advice nor does it create a lawyer-client relationship with any party. You can reach Atty. Lee at lvlawoffices@gmail.com

Published in the Sun.Star Davao newspaper on July 10, 2014.

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