Introduction

Question 1

What is a corporation?

Answer 1

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 incidental to its existence.

Question 2

What is the doctrine of separate juridical personality with regards to a corporation?

Answer 2

A corporation has a personality separate and distinct from that of its stockholders or members, and the officers that represent it.

Applying said doctrine, the corporation alone shall be liable for its corporate acts and liabilities.

Question 3

What is the Theory of Limited Capacity?

Answer 3

A corporation can only act or exercise the following powers:
(a) Express powers which are expressly provided in the articles of incorporation
(b) Implied powers which are reasonably necessary to accomplish its express powers
(c) Incidental powers which are inherently necessary by reason of it being a corporation.

Question 4

What is the Limitied Liability Rule?

Answer 4

A corporate loss will not exceed the amount invested in a partnership. In other words, stockholders private assets are not at rights if the corporation fails.

Question 5

What is the rule with regards to the power of Congress to create corporations?

Answer 5

General Rule: Congress cannot pass a special law for the creation of a private corporation. It may only create a private corporation through a general law.

Exception: Congress, through a special charter, may create government-owned or controlled corporations, subject to the common good, and subject to the test of economic viability.

Question 6

What is the Theory of Concession?

Answer 6

A corporation is an artificial creature without any existence until it has received the imprimatur of the state acting according to law. In other words, a corporation cannot exist without the approval of the State.

Question 7

What is the doctrine of piercing the veil of corporate fiction?

Answer 7

The doctrine of piercing the veil of coroporate fiction tates that the separate juridical personality of the corporation may be disregarded, or the veil of corporate fiction may be pierced, attaching personal liability against responsible person if the corporation’s personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws.

Question 8

What is the legal effect of Piercing the Veil of Corporate Fiction?

Answer 8

Piercing the veil of corporate fiction does not deny the corporation of legal personality for any and all purposes, but only for the purposes of that particular transaction.

Question 9

What are the three classifications of piercing the veil of corporation fiction?

Answer 9

When the separate juridical personality is used in the following means, such juridical personality may be disregarded. These are:

(a) To defeat public convenience, justify wrong, protect fraud or defend crime
(b) A a device to defeat the labor laws
(c) when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.

Question 10

What are the three-pronged test of piercing the veil of corporate fiction?

Answer 10

The three-pronged test are the following:
(a) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

(b) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right;

(c) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

Question 11

What are the two types of piercing the veil of corporate fiction?

Answer 11

In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate insider.

In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider.

Question 12

What are the two types of Reverse Piercing the Veil of Corporate Fiction?

Answer 12

Outsider Reverse Piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant.

Insider Reverse Piercing on the other hand,
the controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets.

Question 13

What are the two types of corporations?

Answer 13

Stock corporations which has capital stock divided into shares and are authorized to distribute such shares to the holders on the basis of shares held.

Non-stock corporations do not issue stock and distribute dividends to their members; they are created not for profit but for the public good and welfare.

Question 14

What is the difference between a corporator and an incorporator?

Answer 14

A corporator is a person composing a corporation. Either he is a stockholder in a stock corporation, or a member of a non-stock corporation.

An incorporator on the other hand, is a person mentioned in the articles of corporation as originally forming and composing the corporation. He is a signatory to it.

Question 15

What is the rule with regards to the voting rights of a share? Can a holder of non-voting share be legible to vote?

Answer 15

Generally, no share may be deprived of voting rights except those classified as “preferred” or “redeemable” shares.

The holder of a non-voting share shall nevertheless be entitled to vote on the following matters:

Amendment of the articles of incorporation
Adoption and amendment of by-laws
Sale, lease, exchange, mortgage, or other disposition of all or substantially all of the corporate property
Incurring, creating, or increasing bonded indebtedness
Increase or decrease of authorized capital stock
Merger or consolidation of the corporation with another corporation or other corporation
Investment of corporate funds in another corporation or business in accordance with the Corporation Code.
Dissolution of the Corporation

Question 16

What is the difference between PAR value share, and non-PAR value share?

Answer 16

PAR value shares has a fixed arbitrary amount stated in the articles of Incorporation and the stock certificate.

Non-PAR value shares on the other hand, are shares without such arbitrary amount.

Question 17

What is the difference between a common share and a preferred share?

Answer 17

Common shares are basic class of stocks ordinarily and usually issued without privileges or advantages except that they cannot be deprived of the right to vote.

Preferred shares on the other hand, are shares of stocks given certain preferences such us priority on dividends and or asset distribution as may be provided in the articles of corporation, but may be denied the right to vote.

Question 18

What is a founder’s share?

Answer 18

A founder share may be given certain rights and privileges not enjoyed by the owners of other stocks, such as the exclusive right to vote or be voted for in the election of directors.

Question 19

What are redeemable shares?

Answer 19

Redeemable shares are shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period.

Question 20

What is a treasury share?

Answer 20

Shares which are issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means.