The Separate Personality of a Corporation

Separate Juridical Personality of Corporations

A corporation is defined by the Corporation Code as an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Consequently, as an artificial being, a corporation has a personality separate and distinct from its stockholders. Hence, the general rule is that a corporation may not be made to answer for acts or liabilities of its stockholders and vice versa. To illustrate, the corporation, and not its stockholders, is personally liable for its corporate debts and liabilities. The stockholders are liable only to the extent of their subscribed capital. This means that if a creditor sues a corporation and the debt is much more than the subscribed capital of the stockholders, then the stockholders will not be held liable for the deficit. Its liability for debt will be limited only to the extent of the stockholder’s subscribed capital.

Like a person, a corporation may acquire, possess and lease property in its name. Thus, the stockholders are not the owners of corporate property which is owned by the corporation as a distinct person. Thus, while a foreigner, for example, is generally not permitted to own land in the Philippines, a foreigner can own even 99.99% of the shares of stock in a corporation whose assets consist entirely of real property. This is because of the separate personality granted to the corporation.

However, the above rule is not absolute. The veil of corporate fiction may be pierced when the fiction of corporate entity is being used as a cloak or cover for fraud or illegality or to defeat public convenience, justify wrong, protect fraud or defend crime. Nevertheless, in order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. The same rule holds true even if the incorporators of two corporations are substantially identical.

The separate juridical personality of the corporation enables it to act as though it were a person. As an artificial being, it may own properties, transact and commit acts expressly authorized by law or incidental to its existence. Unless otherwise provided by law, the corporation can only act through its board of directors (for stock corporations) or board of trustees (for non-stock corporations). These acts are usually embodied in board resolutions and confirmed in the certificates issued by the corporate secretary. However, it bears great emphasis that the board of directors may expressly delegate specific powers to any of its officers. Nonetheless, the power of the board is not without limitation. There are certain corporate acts which require the approval of the stockholders such as extending or shortening the corporate term, increasing or decreasing the capital stock and investing in a business for a purpose other than the primary purpose for which the corporation was organized, among others. It is recommended that you secure the services of a retainer firm or counsel to advise you on corporate matters.

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