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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
- A corporation is a juridical person to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Article 44, Civil Code)
- 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. (Section 2, Revised Corporation Code)
Article 44 of the Civil Code states that a corporation has a separate and distinct personality from that of its stockholders, officers, or any other legal entity to which it is related. It is presumed to be a bona fide legal entity that has its own powers and attributes. Its assets and properties are its own, and it is liable for its own acts and obligations.
The law says:
“Section 2. Corporation Defined. – 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.” (Section 2, Revised Corporation Code)
Jurisprudence says:
“A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.” (Maricalum Mining Corporation v. Ely Florentino, et.al., G.R. No. 221813, July 23, 2018)
This rule holds true even if a single stockholder or a single corporation wholly owns all the capital stock of the corporation.
Jurisprudence says:
“The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.” (MR Holdings, LTD. v. Sheriff Carlos Bajar, et.al., G.R. No. 138104, April 11, 2002)
The case of Philippine National Bank v. Ritratto Group, Inc. (G.R. No. 142616, July 31, 2001) outlines the circumstances which are useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:
(a) “The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation’s own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed” (Philippine National Bank v. Ritratto Group, Inc., G.R. No. 142616, July 31, 2001)
Related article: WHAT ARE THE KINDS OF POWERS OF A CORPORATION?
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