Corporation Law: The Revised Corporation Code of the Philippines - Sec 3 and 4 (September 11, 2023)

THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE I - GENERAL PROVISIONS 

Definitions and Classifications 

SEC 3. Classes of Corporations. – Corporations formed or organized under this Code may be stock or nonstock corporations. Stock corporations are those which have capital stock divided into shares and are authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. All other corporations are nonstock.

SEC. 4. Corporations Created by Special Laws or Charters. – Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.

1. Revised Corporation Code Classification

The RCCP recognizes different classifications of corporations.

  • Sec. 3
    • Stock Corporation
    • Non-stock Corporation
  • Sec. 4
    • Corporation created by special law
    • Corporation created under a general law
  • Others
    • Domestic Corporation
    • Foreign Corporation
    • Religious Corporation
    • Educational Corporation
    • Close Corporation
    • One Person Corporation
    • Corporations vested with public interest
2. Classifications in Other Statutes and Jurisprudence
  • As to the number of components (ASO)
    • Aggregate Corporation
      • corporation consisting of more than one member 
      • an artificial body of men, composed of diverse individuals, the ligaments of which body, the franchises and liberties bestowed upon it, bind and unite all into one, and consists the whole frame and essence of the corporation
    • Corporation Sole 
      • consisting of only one person or member
      • one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect or church for the purpose of administering and managing, as trustee, the affairs, property, and temporalities of such religious denomination, sect, or church.
    • One Person Corporation
      • a corporation with single stockholder
  • As to functions (PP)
    • Public Corporation 
      • a corporation organized for the government of a portion of a State (like cities and municipalities) for the purpose of serving general good and welfare
    • Private Corporation
      • a corporation formed for some private purpose benefit, aim or end
      • may be stock or non-stock corporations.
  • As to manner of creation (SGP)
    • Corporation created by special law 
      • a corporation directly created by Congress through a special law
      • government-owned or controlled corporation
    • Corporation created under general law 
      • a corporation created under the:
        • RCCP
        • Corporation Code of the Philippines or
        • old Corporation Law
    • Corporations by prescription
      • a corporation that was not formally organized as such but has been duly recognized by immemorial usage as a corporation, with rights and duties enforceable under the law
  • As to legal status (JFE)
    • De Jure Corporation
      • a corporation organized in accordance with requirements of law
    • De Facto Corporation
      • a corporation that is formed where there exists a flaw in its incorporation but there is colorable compliance with the law
    • Corporation by estoppel
      • 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 cannot be permitted to deny its existence in an action under said contract
      • no juridical personality
  • As to existence of stocks (SN)
    • Stock Corporation
      • a corporation with capital stock is divided into shares and is authorized to distribute to holders thereof such shares, dividends, allotments of the surplus profits on the basis of the shares held
    • Nonstock Corporation
      • a corporation that has no capital stock, does not issue stocks and does not distribute dividends to their members
  • As laws of incorporation (DF)
    • Domestic Corporation
      • a corporation formed, organized or existing under Philippine laws
    • Foreign Corporation
      •  a corporation 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
  • Special Types of Corporations under the Corporation Code (CS)
    • Close Corporation
      • a corporation whose articles provide that:
        • All the corporations issued stock of all cases, exclusive of treasury shares shall be held of record by not more than a specified number of persons, not exceeding 20;
        • All the issued stock of all cases shall be subject to one or more specified restrictions on transfer permitted by Title XII of the RCCP;
        • The Corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
    • Special Corporation 
      • includes an educational corporation and a religious corporation
      • religious corporations include corporation sole and religious societies
  • Ecclesiastical and Lay Corporations (EL)
    • Ecclesiastical Corporation
      • composed entirely of spiritual persons like bishops, deacons and the like and are established for the furtherance of religion and for perpetuating the rights of a church.
    • Lay Corporation
      • all corporations other than ecclesiastical are lay corporations
  • Eleemosynary and Civil Corporation (EC)
    • Eleemosynary or Charitable Corporation
      • a corporation created not for private gain or profit but for charitable purposes for the administration of charitable trust
      • not an ecclesiastical corporation but a lay corporation
    • Civil Corporation
      • a corporation not for the purpose of charity but for the benefit, pecuniary or otherwise, of its members
  • As to relationship (SAP)
    • Subsidiary
      • a corporation more than 50% of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby become a parent company
    • Affiliate
      • a corporation that directly, or indirectly, through one or more intermediaries is controlled by another corporation which thereby becomes its parent company 
    • Parent 
      • a corporation that has control over another corporation directly or indirectly through one or more intermediaries
      • corporation that owns all or substantially all or the controlling shares in the subsidiary.
3. Going Public and Going Private
  • Going Public
    • when it decides to list its shares in the stock exchange
    • Public company
      • when the shares of a corporation are listed in the stock exchange under the rules that implement the Securities Regulation Code (SRC)
      • any corporation with a class of equity securities listed on an Exchange or with assets in excess of 50M and having 200 or more holders, at least 200 of which are holding at least 100 shares of a class of its equity securities
      • public company is not a public corporation. 
  • Going Private
    • when it would restrict the shareholders to a certain group
    • includes close or closely held corporations
4. Corporation by Prescription
  • The Roman Catholic Church is a corporation by prescription
5. Stock and Nonstock Corporations 
  • Stock Corporation
    • Requisites:
      • A capital stock divided into shares
      • An authority to distribute to the holders of such shares, dividends, or allotments of surplus profits on the basis of the shares held.
  • Non-stock Corporation
    • Requisites:
      • There must be members
      • Corporation must not distribute any part of their income to the members.

6. Public and Private Corporations
  • Public Corporation
    • corporation created for the purpose of the government and management of public affairs founded by the State and managed by it for governmental purposes
    • corporations are considered public corporations according to the purpose for which they were organized.
Q: What should be considered in the application of the Doctrine of Immunity from Suit?A: Whether or not the agency is engaged in private or proprietary function or governmental or sovereign function. Suits against State agencies in relation to matters in which they have assumed to act in a private or non-governmental capacity are not regarded as suits against the State. By engaging in business operations through a corporation, the State divests itself of its sovereign character, and by implication consents to suits against the corporation.


7. Quasi-public Corporations 
  • corporations engaged in private business affected with public interest 
    • Ex: railroad and canal corporations. 

8. Government-Owned or Controlled Corporations (GOCCs) 
  • Paragraph 13, Section 2 of the Administrative Code of 1987:
    • Any agency organized as a stock or nonstock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly or where applicable as in case of stock corporations to the extent of at least 51% of its capital stock.
  • Partly governed by Republic Act No. 10149 otherwise known as the "GOCC Governance Act of 2011." 
  • Requisites:
    1. There must be an agency organized as a stock or non-stock corporation;
    2. The corporation must be vested with functions relating to public needs whether governmental or proprietary in nature; and
    3. The corporation must be owned directly by the government or through its instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least 51 % of it's capital stock. 
  • GOCCs are regarded as private corporations
    • as one[s] organized under the Corporation Law, those corporations are regarded as private corporations in the context of the Corporation Code.
  • Two types:
    • Charted GOCCs 
      • with original charter or created by special law
      • the SEC has no jurisdiction because their charters primarily govern them
      • RCCP may apply suppletorily either by operation of law or through express provisions in the charter.
    • Non-charted GOCCs 
      • incorporated under a general law (the Corporation Code, now the RCCP)
      • SEC is authorized to implement the provisions of the Corporation Code under Sec. 143 (Sec. 179 of RCCP) specifically for the purpose of regulating the entities created pursuant to its provisions
      • include corporations in which the controlling shares are owned by the government or its agencies
  • Not all corporations which are not GOCCs are ipso facto considered private corporations 
    • Public corporations 
      • agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to a criteria relating to their public purpose/interests or constitutional policies and objectives and their administrative relationship to the government
8.01 Creation Through Special Laws
  • Sec. 16, Article XII of the 1987 Constitution: 
    • Prohibits the creation or establishment of private corporations through special laws except GOCCs
    • Purpose: ban private corporations created by special charters, which historically gave certain individuals, families or groups certain privileges denied to other citizens
    • Requirements for the exceptions:
      1. The private corporation must be government-owned or controlled;
      2. The creation of the corporation through special law must be in the interest of the common good; and
      3. The creation must meet the test of economic viability
  • The test of economic viability applies to GOCCs that perform economic or commercial activities, and need to compete in the marketplace. 
  • The employees of GOCCs created by special law or charter are subject to civil service laws. The Labor Code covers the employees of GOCCs that are created under the Corporation Code.
8.02 GOCC v. Government Instrumentality 
  • GOCC
    •  must be organized as a stock or nonstock corporation 
  • Government Instrumentality
    • when the law vests the government instrumentality with corporate powers, it does not become a corporation. 
      • Ex: MIAA, PPA, UP, BSP
    • may have corporate powers
      • Government Instrumentality with Corporate Powers (GICP) / Government Corporate Entities (GCE)
        • neither corporations, nor agencies integrated within the departmental framework, but vested by law with special functions or jurisdiction endowed with some if not all corporate powers administering special funds, and enjoying operational autonomy usually through a charter 
        • Ex: MIAA, PPA, PDIC
8.03 Government Financial Institutions (GFI)
  • Financial institutions in which the government directly or indirectly owns majority of the capital stock 
  • Either:
    • registered with or directly supervised by the Bangko Sentral ng Pilipinas
    • collecting or transacting funds or contributions from the public and places them in financial instruments or assets such as deposits, loans, bonds and equity 
      • Ex: GSIS, SSS
8.04 Affiliates
  • Refer to corporation 50% or less of the outstanding capital stock of which is controlled directly or indirectly by the GOCC
8.05 Philippine National Red Cross as Sui Generis
  • The PNRC was created through special law and there is no dispute that it is a corporation. 
  • However, it was declared that it is not a subdivision, agency or instrumentality of government nor a government-owned or controlled corporation or a subsidiary thereof. 
  • PNRC is not a private corporation, its charter (special law creating it) is not unconstitutional under Section 16 of Article XII of the Constitution.
  • The structure of the PNRC is sui generis, being neither strictly private nor public in nature.
  • It is supposed to be a private institution and at the same time a public service organization that is an auxiliary of the government in the humanitarian field in accordance with its commitments under international law.
  • Civil Service Commission has jurisdiction over the PNRC in the enforcement of labor laws and penal statutes because, for such purposes, it is deemed a GOCC with original charter.
8.06 Corporation Vested with Public Interest. 
  • Sec. 176: In recommending to the Congress which corporations, businesses, and industries will be declared as vested with public interest, "the NEDA [National Economic and Development Authority] shall consider the type and nature of the industry, size of the enterprise, economies of scale, geographic location, extent of Filipino ownership, labor intensity of the activity, export potential, as well as other factors which are germane to the realization and promotion of business and industry." 
  • Sec. 22: The following as corporations are vested with public interest:
    • Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The Securities Regulation Code," 
      • namely those whose securities are registered with the SEC, corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more shareholders, each holding at least one hundred (100) shares of a class of its equity shares; 
    • Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries; and
    • Other corporations engaged in businesses vested with public interest similar to the above, as the SEC may determine, taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.

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