General Principles
What are the different forms of business organizations
in the Philippines?
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Sole Proprietorship |
A form of business
organization with only one proprietary owner A single individual
conducts business under his own name or under a business name Specialist of
primitive society were the first proprietors Sole proprietorship
is the oldest, simplest and most prevalent form of business enterprise Sole proprietorship
may be the only choice for certain income-generating undertakings because
there are activities that are not open to a corporate form A sole
proprietorship is neither a creature of statute nor of contract; hence it
involves none of the complexity or expense required of business associations The sole proprietor
manages and exercises complete control over the conduct of his business A sole
proprietorship has no legal personality separate from its proprietor or owner
of the enterprise. The owner has unlimited personal liability for all the
debts and obligations of the business, and it is against him or her that a
judgment against the enterprise is to be enforced. |
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Partnerships |
Under the CC, there
is a partnership when 2 or more persons bind themselves to contribute money
property or industry to a common fund, with the intention of dividing the
profits among themselves ELEMENTS: (1) Two or more persons bound themselves to
contribute money, property, or industry to a common fund; and (2) They intend to divide the profits among
themselves |
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Joint Accounts or Sociedad de Cuentas en Participacion |
Present when there
is an arrangement whereby merchants may interest themselves in the
transaction of other merchants, contributing thereto the amount of capital
they may agree upon, and participating in the favourable or unfavourable
results thereof in the proportion they may determine. This is also
commonly called as “accidental partnership. In Bourns v. D.M.
Carman, et al., the SC defined a joint account as a partnership constituted
in such a manner that “the existence of which is only known to those who had
an interest in the same, there being no mutual agreements between the
partners, and without a corporate name indicating to the public in some way
that there were other people besides the one who ostensibly managed and
conducted the business. CHARACTERISTICS: (a) Has no juridical personality (b) No commercial name (c) General partners are all managers in this
partnership (d) Only the ostensible partner – the person
carrying on the joint business – can be sued by and is liable to all persons
transacting with the former |
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Business Trusts |
It is a legal
relation whereby one person called the “trustor,” conveys a property
to another for the benefit of a person called the “beneficiary.” The
person in whom confidence is reposed as regards the property is called the “trustee.” Trusts are either express
or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trust comes into being by operation
of law. |
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Joint Venture |
Joint venture is an
association of persons or companies jointly undertaking some commercial
enterprise; generally all contribute assets and share risks. It requires a
community interest in the performance of the subject, a right to direct and
govern the policy connected therewith, and duty, which may be altered by
agreement to share both in profit and losses. RATIONALE FOR JOINT VENTURES: (1) Joint ventures reduce the investment required
of any one company and distribute the risk of undertaking an expensive and
risky venture because some projects are of such magnitude that they strain
the financial reserves of corporations; (2) Joint ventures pool “know-how,” thereby
permitting the members to achieve diversification that it would have
difficulty achieving alone; (3) A member of the joint venture may gain
possible legal, political or public relations advantages by organizing and
incorporating where activities are to be conducted; and (4) A member may avoid government scrutiny of
corporate expansion. In Aurbach v. Sanitary Wares Manufacturing
Corporation, the SC adopted the view that a joint venture is an organization
formed for some temporary purpose. “It is hardly distinguishable from the
partnership, since their elements are similar – community of interest in the
business, sharing profits and losses, and mutual right of control.” It was
further explained that: “it would seem that under Philippine law, a joint
venture is a form of a partnership and should thus be governed by the law of
partnerships. Corporations can enter into joint venture
agreements. Two or more corporations may enter into a joint venture through a
contract or agreement if the nature of the venture is in line with the
business authorized by their charters. It follows that Joint Ventures may result in
the formation of joint venture corporation. However, the joint venture
corporation itself is subject to corporate law not to partnership law. |
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Cooperative |
A cooperative is an
autonomous and duly registered association of persons, with a common bond of
interest, who have voluntarily joined together to achieve their social, economic,
and cultural needs and aspirations by making equitable contributions to the
capital required, patronizing their products and services and accepting a
fair share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles. The governing law
is RA 9520 also known as “The Philippine Cooperative Code of 2008.” Although
cooperatives are not primarily governed by the Corporation Code, they are
also treated as a corporate entity with their own acts and liabilities. A
cooperative is vested with powers and capacities under Art. 9 of the
Philippine Cooperative Code, including the power to sue and be sued and the
right of succession. The law also expressly provides that a duly registered
cooperative shall have limited liability. |
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Syndicate |
A syndicate is a
group of people who come together to work for a common aim. This unincorporated
business association is often encountered among insurance companies who may
be underwriting a large risk or banks that are lending a huge amount. Syndication is
therefore the practice of dividing investment risk between several persons in
order to minimize individual risks. |
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Corporation |
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. (sec. 2) |
Partnership v. Corporation
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PARTNERSHIP |
CORPORATION |
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Manner of creation |
Mere agreement of the parties |
By law or by operation of law |
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Number of incorporators |
May be formed by 2 or more natural persons |
Can compose of 1 person (One Person Corp) The 5-incorporator rule was removed in the
RCCP |
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Commencement of juridical personality |
Moment of execution of the contract of partnership |
From the date of the issuance of the certificate of incorporation by the SEC |
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Powers |
May exercise any power authorized by the
partners provided it is not contrary to law, morals, good customs, public order, or public policy |
Powers expressly granted by law or implied from those granted or
incident to its existence |
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Management |
When management is not agreed upon, every partner is an agent of the partnership |
Power to do business is vested in the board
of directors or trustees |
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Effects of mismanagement |
A partner can sue a copartner who mismanages |
The suit against a member of the board of directors or trustees who mismanages must be in the name of the corporation |
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Right of succession |
Based on mutual trust and confidence such
that the death, incapacity, insolvency, civil interdiction or mere withdrawal
of one partner would result in its dissolution. |
Has the right of succession which presupposes
that it continues to exist despite the death, withdrawal, incapacity or civil
interdiction of the stockholders or members |
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Transferability of interest |
A partner cannot transfer his rights or
interest in the partnership so as to make the transferee a partner without
the consent of the other partners. |
Any stockholder can ordinarily transfer, sell
or assign his shares of stock without the consent of the other stockholders. |
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Extent of liability to 3rd persons |
All partners are liable pro rata with all
their property and after all the partnership property has been exhausted, for
all partnership liability. |
The liability of the stockholders or members
is limited to the extent of their subscription or their promised
contribution. |
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Terms of existence |
May exist for an indefinite period. |
Perpetual unless limited by their Articles of
Incorporation The 50 year limit was removed by the RCCP |
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Capacity to be partner/stockholder |
A partnership can be an
incorporator/stockholder of a corporation (Sec. 10, RCCP) |
A corporation can now also enter into a
partnership or joint corporation (Sec. 35, RCCP) |
SIMILARITIES
(1)
Both have
juridical personality distinct from their components;
(2)
Both are
groups of persons (XPN: OPC);
(3)
Capitals
of both are derived from their components;
(4)
There is
distribution of profits in stock corporations and in partnerships;
(5)
They both
act only through their agents; and
(6)
They can
be organized only where there is a law authorizing their organization.
History of corporation
Corporations have
their origin in Roman law. The republic – Populus Romanus, Senaturs, Popolusque
Romanus, Res public – is said to be the “orginal” corporation. It was during
the early republic that corporate forms and other organizations gradually
developed.
How did the Revised Corporation Code started?
PURPOSE OF THE RCCP
(1)
Enhance
the ease of doing business in the Philippines;
(2)
Prioritizing
corporate and stockholder protection;
(3)
Instilling
corporate and civic responsibility; and
(4)
Strengthening
the country’s policy and regulatory corporate framework
WHY DID CONGRESS REVISED
THE CORPORATION CODE?
(a)
Formation
of new businesses, especially small and medium sized-enterprises in the local
market.
(b)
To
strengthen good corporate governance by prescribing restriction to insure
transparency in corporate management and transactions
(c)
To expand
the powers, authority and jurisdiction of the SEC so that it can effectively
enforce the new law and implement its rules and regulations.
WHAT IS A CORPORATION?
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. (sec. 2,
RCCP)
An artificial being,
invisible, intangible, and existing only in contemplation of law. (Dartmouth
College v. Woodward, 4 Wheat [U.S.] 518)
A corporation was also defined as a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested by the policy of the law with the capacity of acting in several respect as an individual, according to the design of the institution or the powers conferred upon it either at the time of its creation or any subsequent period of its existence. (Clark on Corporations)
ADVANTAGES OF
CORPORATIONS
(1)
The
capacity to act as a legal unit;
(2)
Limitation
of or exemption from individual liability of shareholders;
(3)
Continuity
of existence;
(4)
Transferability
of shares;
(5)
Centralized
management of board of directors;
(6)
Professional
management;
(7)
Standardized
method of organization, and finance; and
(8)
Easy
capital generation
DISADVANTAGES
OF CORPORATIONS
(1)
It is
prone to “double taxation”;
(2)
They are
subject to greater governmental regulation and control;
(3)
A
corporation may be burdened with an inefficient management if stockholders
cannot organize to oppose management;
(4)
Limited
liability of stockholders may at times translate into limited ability to raise
creditor capital;
(5)
It is
harder to organize compared to other business organizations;
(6)
It is
harder or more complicated to maintain; and
(7)
The
“owners” or stockholders do not participate in the day-to-day management.
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