SARACHO, Nicole R.

15-5017

Uniformity in Corporate Law Between Nations & its

Applicability in the Philippine Corporate Setting

Despite very real differences in some aspects of Corporate Law

across jurisdiction between different nations, it can be observed that
there is an underlying uniformity of the corporate form and the
principles of Corporate Law. As discussed in the paper, Essential
Elements of Corporate Law, Business corporations have a
fundamentally similar set of legal characteristics-and face a
fundamentally similar set of legal problems in all jurisdictions 1. This
paper will discuss if the principles of Corporate Law of other nations is
applicable in the Philippine Corporate setting.
Corporate Law has two purpose: (1) To assure that the corporation
serves the best interests of its shareholders or, more specifically, to
maximize financial returns to shareholders or, more specifically still, to
maximize the current market price of corporate shares; (2) Advancing
overall social welfare2. This purpose of Corporate Law is also embodied
in the Philippines. The provisions of the Corporate Code as discussed in
a session in the Congress, demonstrate that while corporations intend
to serve the personal interests of stockholders or manages it is also a
social institution that serves the social welfare and is a valuable social
institution3.
Corporation or firms are often described as nexus for contracts in a
sense that the important relationships within a firm-particularly those
among the firms owners, managers, and employeesare essentially
contractual in character, and hence based on consent 4. The
relationships among the participants in a corporation are, to an
important degree, contractual. The principal contract that binds them
is the corporations charter (or articles of association or constitution,
as it is termed in some jurisdictions). The charter sets out the basic
terms of the relationship among the firms shareholders, and between

1 Armour, J., Hansmann, H., & Kraakman, R. (n.d.). The Essential Element of Corporate Law: What is
Corporate Law? (Vol. 643). Cambridge, MA: John M. Olin Center for Law, Economics and Business.
2 Ibid
3 Records of the Batasan, Second Regular Session, 1979-1980, Vol. III, pp.1212-1213, hereinafter referred
to as III Record of the Batasan, pp.1212-1213.
4 Ibid
the shareholders and the firms directors and other managers 5. This
contract theory is also embodied in our Corporation Code, which
provides that incorporation is deemed to involve contracts among
members, between the members and the stockholders, and between
the members or the corporation and the State. The contract between
the Corporation and the State gives the corporation a right against
impairment of contracts and that the State cannot take the life of
corporation without due process. The contract between stockholders
and members is embodied in the Articles of Incorporation and the By-
Laws.
All large-scale business firms adopt a legal form that possess all the
five core characteristics in a business corporation namely: (1) Legal
Personality; (2) Limited Liability; (3) Transferrable Shares; (4)
Delegated management under a board structure; (5) Investor
Ownership6. These characteristics are also embodied under the
Philippine Corporate Law.
The first characteristic, Legal Personality is embodied in our
Corporate Code in the Doctrine of Separate Personality. Article 44(2) of
the New Civil Code provides that corporations as among those
considered as juridical persons with juridical personality, separate and
distinct from that of each shareholder or member. Also envisioned in
the Doctrine of Separate Personality as discussed in the case of
Stockholders of Guanzon & Sons, Inc. v Register of Deeds of Manila 7,
the properties of the corporation are not the properties of its
shareholders, members or officers. Properties registered in the name of
the corporation are owned by it as an entity separate and distinct from
those who composed it.
The second characteristic, Limited Liability as discussed in the
paper provides that the creditors are limited to making claims against
assets that are held in the name of (owned by) firm itself, and have
no claim against assets that the firms shareholders hold in their own
names. This doctrine allows corporation and creditors alike to monitor
the value of the firms and share the risk of transactions. The Limited
Liability Rule is also applicable in the Philippine Corporate Setting.
The third characteristic, Transferrable Shares. Fully transferable
shares in ownership are yet another basic characteristic of the

5 Ibid.
6 Ibid.
7 G.R. No. L-18216, 30 October 1962.
business corporation.8. Transferability in shares allows a corporation to
continue running its business as the identity of its owner changes. Free
tradability maximizes the liquidity of shareholdings and the ability of
shareholders to diversify their investments. It also gives the firm
maximal flexibility in raising capital.9 In our jurisdiction transferable
shares is governed by Section 6310 of the Corporation Code. It is
considered as a Quasi-Negotiable instrument because they can be
transferred by indorsement coupled with delivery11. Transfers can be
made voluntarily or through other modes such as succession.
The fourth and fifth characteristic, Delegated Management under
a Board Structure and Investor Ownership is also embodied in the
Philippine Corporate setting. As discussed in the paper, there may be
standard legal forms for business organization, wherein there is a
governance structure in which dictates how a corporation will run and
fundamental decisions are made. In the Philippines, Section 5 of the
Corporation Code provides for the Components of the Corporation
which are: (1) Shareholders or members; (2) Directors or trustees; (3)
Officers. One of the basic features in the delegation of management is
the board of a corporation is elected in substantial part by the firms
shareholder, Moreover, in Investor Ownership, both the right to
participate in controlwhich generally involves voting in the election of
directors and voting to approve major transactions and the right to
receive the firm s residual earnings, or profits, are typically
proportional to the amount of capital contributed to the firm 12. The
Philippines, as discussed in the case of Heirs of Wilson Gamboa v
Teves13 and Section 24 of the Corporation Code 14, provides that the
8 Ibid.
9 Ibid.
10 Section 63. Certificate of stock and transfer of shares. - The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be
issued in accordance with the by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of
the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred. No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation

11 De los Santos v MacGrath, G.R. No. L-4818, 28 February 1955.

12 Ibid.
13 G.R. No. 176579, 28 June 2011
14 Section 24. Election of directors or trustees. - At all elections of directors or trustees, there must be
present, either in person or by representative authorized to act by written proxy, the owners of a majority
of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote.
The election must be by ballot if requested by any voting stockholder or member. In stock corporations,
shareholders participate in controlling the affairs of the corporation by
exercising their right to vote. The shareholders can elect the directors
who will actually govern the corporation and they can vote on or
approve the structural changes and major decisions that are
specifically approved by the Corporation Code.
In the foregoing discussion, it can be inferred that there is really
uniformity in Corporation Laws between nations. Different nations
follow these basic structures of Corporation Law. It can be said that
there is harmony between different Corporate Laws of different
countries. This harmony gives an advantage to different nations in a
sense that there will be more efficient and effective international
corporation relation between countries.

every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares
of stock standing, at the time fixed in the bylaws,in his own name on the stock books of the corporation, or
where the by-laws are silent, at the time of the election; and said stockholder may vote such number of
shares for as many persons as there are directors to be elected or he may cumulate said shares and give
one candidate as many votes as the number of directors to be elected multiplied by the number of his
shares shall equal, or he may distribute them on the same principle among as many candidates as he shall
see fit: Provided, That the total number of votes cast by him shall not exceed the number of shares owned
by him as shown in the books of the corporation multiplied by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of
incorporation or in the by-laws, members of corporations which have no capital stock may cast as many
votes as there are trustees to be elected but may not cast more than one vote for one candidate.
Candidates receiving the highest number of votes shall be declared elected. Any meeting of the
stockholders or members called for an election may adjourn from day to day or from time to time but not
sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by
proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital
stock, a majority of the member entitled to vote.