Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

In the Philippine legal context, corporations are defined and regulated under the Revised Corporation Code of the Philippines (Republic Act No. 11232), enacted in 2019. The Code categorizes corporations based on various factors such as purpose, membership, capital structure, and whether they are publicly listed or privately held. This classification system ensures that corporations operate within a defined structure, maximizing legal clarity and business efficiency.

Here is a comprehensive discussion on the kinds of corporations under Philippine law:

1. Classification Based on Legal Structure and Purpose

  • Stock Corporations
    Stock corporations are organized primarily for profit and have capital divided into shares. Shareholders hold ownership through stocks, entitling them to profits in the form of dividends. The Revised Corporation Code (RCC) specifies that stock corporations are required to distribute any profits to their shareholders, following the proportion of their shares.

  • Non-Stock Corporations
    Non-stock corporations are established for purposes other than profit, typically for social, charitable, educational, cultural, or similar objectives. Instead of shares, these corporations have members who contribute to the corporation’s purpose. They do not distribute dividends but use their income to further their mission.

2. Classification Based on Nationality

  • Domestic Corporations
    A corporation is classified as domestic if it is incorporated under Philippine law. A domestic corporation is a juridical entity created and existing under the Philippines' jurisdiction and is bound by all the laws applicable within the country.

  • Foreign Corporations
    A corporation organized and existing under the laws of a foreign country is classified as a foreign corporation. Foreign corporations seeking to do business in the Philippines are required to obtain a license from the Securities and Exchange Commission (SEC) and adhere to Philippine regulatory requirements.

3. Classification Based on Control and Ownership

  • Close Corporations
    Close corporations limit the number of shareholders, often capped at 20, and restrict the transferability of shares. These corporations allow shareholders more flexibility in governance as they often have exemptions from certain formalities, like board meetings, provided they conform to the conditions set forth in the RCC. In close corporations, directors and shareholders are often the same individuals.

  • Publicly Held Corporations
    Publicly held corporations (or publicly listed corporations) offer shares to the general public and are listed on the Philippine Stock Exchange (PSE). They are subject to stringent regulatory oversight by the SEC and the PSE, focusing on transparency, disclosure, and governance standards. Publicly held corporations must meet specific requirements, including minimum public ownership thresholds and regular disclosure obligations.

  • One-Person Corporation (OPC)
    An OPC is a corporation with a single shareholder, who may be a natural person, trust, or estate. OPCs were introduced in the RCC to facilitate easier business formation, especially for sole proprietors. They provide the benefit of limited liability to the single stockholder, with fewer compliance requirements than other corporate structures.

4. Classification Based on Regulatory Function

  • Quasi-Banking Corporations
    Quasi-banking corporations, such as financing and investment companies, are authorized to perform quasi-banking functions like lending, deposit-taking, or similar financial services under the supervision of the Bangko Sentral ng Pilipinas (BSP). These corporations must meet specific capital adequacy requirements and adhere to BSP regulations to protect public interest and ensure financial stability.

  • Government-Owned or Controlled Corporations (GOCCs)
    GOCCs are corporations with the Philippine government as the primary or controlling shareholder. They operate under both the Revised Corporation Code and special laws specific to their mandate, such as the Government Owned or Controlled Corporations Governance Act (R.A. 10149). GOCCs serve national interests and are accountable to government agencies, including the Governance Commission for GOCCs (GCG).

5. Special Types of Corporations under the Revised Corporation Code

  • Educational Corporations
    Educational corporations are organized exclusively for educational purposes, following the Revised Corporation Code and the Department of Education (DepEd) or Commission on Higher Education (CHED) regulations. Non-stock, non-profit corporations often register as educational corporations, meeting specific standards related to their educational mission.

  • Religious Corporations
    Religious corporations are established for religious purposes and operate within the specific guidelines of the RCC. There are two primary types:

    • Corporation Sole: A single member, typically a bishop or religious leader, serves as the corporation's head and legal entity.
    • Religious Societies: These are more collective organizations with a board of trustees, like other non-stock corporations.

6. Classification Based on Existence and Tenure

  • De Jure Corporations
    A de jure corporation is one that fully complies with all legal requirements under the Revised Corporation Code, making it a valid and legally recognized entity. De jure corporations have the benefit of corporate protections against claims questioning their legitimacy.

  • De Facto Corporations
    De facto corporations are those that operate as corporations despite certain procedural defects in their formation. Philippine law recognizes de facto corporations if they meet three conditions:

    1. A valid law under which the entity could be incorporated.
    2. An effort to comply with the legal requirements.
    3. Actual use of corporate powers. This status provides temporary protection, but the corporation is vulnerable to challenges in court.
  • Corporations by Estoppel
    Corporations by estoppel arise when individuals act as a corporation without legally incorporating. While they are not recognized as legitimate corporations, parties involved in corporations by estoppel may be held personally liable for corporate obligations if their actions mislead third parties.

7. Classification Based on Public Benefit and Impact

  • Public Corporations
    Public corporations are entities created for government or municipal functions, such as barangays, municipalities, and provinces. They exist to serve the public and often do not pursue profit, operating under their enabling laws rather than under the Revised Corporation Code.

  • Private Corporations
    Private corporations are established for private benefit, such as commercial enterprises, and fall under the provisions of the RCC. These corporations have no governmental purpose and operate independently of public entities, serving the interests of their shareholders.

8. Classification Based on Duration

  • Perpetual Corporations
    Under the RCC, all corporations now have perpetual existence unless otherwise specified in their articles of incorporation. This provision marks a significant shift from prior law, which required corporations to renew their corporate life periodically.

  • Fixed-Term Corporations
    Corporations may also choose to set a limited duration in their articles of incorporation, particularly if they aim to operate for a defined project or purpose. Upon expiration of their term, they may renew by amending their articles, subject to SEC approval.

9. Classification Based on Investment Type

  • Holding Companies
    A holding company is formed to hold and manage equity investments in other corporations. These companies usually do not produce goods or services but exist to control and manage their subsidiary companies.

  • Subsidiary Corporations
    A subsidiary corporation is a company controlled by another corporation, known as the parent company, which owns a significant portion (usually more than 50%) of the subsidiary’s stock. They operate as independent entities but align with the parent company’s overall strategy.

Summary

The Revised Corporation Code provides a detailed and structured approach to categorizing corporations to meet various business and regulatory needs in the Philippines. Each type serves a specific function, allowing businesses to select structures that align with their goals and operational needs while ensuring compliance with Philippine law.