Business Laws and Regulations

• Partnership


  Contract where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves
• Characteristics of Partnership

  • Consensual
  • Nominate
  • Bilateral
  • Onerous
  • Commutative
  • Principal
  • Preparatory
• Classification of Partnership


  • As to subject matter
  • As to the liability of partners
  • As to its duration
  • As to the legality of its existence
  • As to representation to others
  • As to publicity
  • As to purpose
• Kinds of Partners


  • As to the nature of contribution
  • As to liability
  • As to management
  • As to exposure to public perception
  • As to membership
  • As to value of contribution
  • As to nature of membership
  • As to state of survivorship
• Commencement of a Partnership


  Exists from the moment of the celebration of the contract by the partners
• Dissolution/Termination of the Partnership


  Partnership of a fixed term or particular undertaking is dissolved and a new one, a partnership at will, is created, the continued existence of which will depend upon the will of the partners
• Stages of Ending a Partnership


  • Dissolution
  • Winding Up
  • Termination
• Dissolution


  Change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business; partnership is not terminated but continues until the winding up of partnership affairs is completed
• Grounds for Dissolution by Decree of Court


  • Partner declared insane in any judicial proceeding or shown to be of unsound mind
  • Incapacity of partner to perform his part of the partnership contract
  • Partner guilty of conduct prejudicial to business of partnership
  • Willful or persistent breach of partnership agreement or conduct which makes it reasonably impracticable to carry on partnership with him
  • Business can only be carried on at a loss
  • Other circumstances which render dissolution equitable
• Winding Up


  The process of settling the business or partnership affairs after dissolution
• Persons Authorized to Wind Up


  • Partners designated by the agreement
  • In absence of agreement, all partners who have not wrongfully dissolved the partnership
  • Legal representative of last surviving partner not insolvent
• Termination


  That point when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life
• General Partners

  • Personally liable for partnership obligations
  • When manner of management is not agreed upon, all general partners have an equal right in the management of the business
  • Contribute cash, property, or industry
  • Proper party to proceedings by/against partnership
  • Interest not assignable without consent of other partners
  • Name may appear in firm name
  • Prohibition against engaging in business
  • Retirement, death, insolvency, insanity of general partner dissolves partnership
• Contributions of Limited Partners


  • Cash
  • Other property (but not services)
• Corporation


  Artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law
• Rights of Limited Partners

  • Equal right in the management of the business
  • No participation in management
  • Contribute cash, property, or industry
  • Contribute cash or property only, not industry
• Contributions of Limited Partners (Article 1845)


  • Cash
  • Other property (but not services)
• Corporation


  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
• A corporation has a separate personality distinct from its stockholders and members
• Tests to Determine Nationality

  • Incorporation test
  • Control test (Wartime Test)
• Attributes of a Corporation

  • Right of succession
  • Creature of law
  • Artificial being
  • Creature of enumerated powers, attributes, and properties
• Advantages of a Corporate Form of Business


  • Strong separate juridical personality
  • Centralized management
  • Limited liability to investors
  • Free transferability of units of investment
• Disadvantages of a Corporate Form of Business


  • To have valid and binding corporate act, formal proceedings, such as board meetings, are required
  • The business transactions of a corporation are limited to the State of its incorporation and may not act as such corporation in other jurisdiction unless it has obtained a license or authority from the foreign state
  • The shareholders' limited liability tends to limit the credit available to the corporation as a separate legal entity
  • By the very nature of shares of stock, which are personal properties, transferable at will by the owners thereof, transfers of share may result to uniting incompatible and conflicting interests
  • The minority shareholders have practically no say in the conduct of corporate affairs
  • In large scale enterprises, stockholders' voting rights may become merely fictitious and theoretical because of disinterest in management, wide-scale ownership, and inaccessible place of meeting
  • Double taxation may be imposed on corporate income
  • Corporations are subject to governmental regulations supervision and control, including submission of reportorial requirements not otherwise imposed in other business forms
• Classification of Corporations

  • As to stock: Stock, Non-stock
  • As to organizers: Public, Private
  • As to purpose: Public, Private, Government owned or controlled corporation, Quasi-public
  • As to legal right to corporate existence: De jure, De facto, Corporations by estoppel
  • As to laws of incorporation: Domestic, Foreign
  • As to whether they are open to the public or not: Close, Open
  • As to relationship of management and control: Holding, Subsidiary, Affiliates
  • As to number of persons who compose them: Aggregate, Sole
  • As to purpose: Ecclesiastical, Lay, Eleemosynary, Civil
• Articles of Incorporation


  The basic contract document in corporate law, defining the charter of the corporation
• Components of a Corporation


  • Corporators
  • Incorporators
  • Stockholders
  • Members
  • Promoters
  • Subscribers
  • Underwriters
• Classes of Shares

  • Par and no-par value shares: Par value shares, No par value shares
  • Voting and non-voting shares: Voting shares, Non-voting shares
  • Common and preferred shares: Cumulative preferred share, Non-cumulative preferred share, Participating preferred share, Non-participating preferred share, Cumulative participating
  • Other Classes: Redeemable shares, Treasury shares, Founders' share, Escrow stock, Over-issued stock, Watered stock, Convertible share, Fractional share, Promotion share, Scripless shares
• If a corporation does not formally organize and commence its business within five (5) years from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of the 5-year period
• If a corporation has commenced its business but subsequently becomes inoperative for at least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation under delinquent status
• Kinds of Powers


  • Express powers
  • Implied/necessary powers
  • Incidental/inherent powers
• Express Powers - General Powers (Sec. 35)


  • To sue and be sued in its corporate name
  • To have perpetual existence unless the certificate of incorporation provides otherwise
  • To adopt and use a corporate seal
  • To amend its articles of incorporation in accordance with the provisions of this Code
  • To adopt by-laws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code
  • In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation
  • To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution
  • To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity
  • To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees
  • To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation
• Express Powers - Specific Powers


  • Power to extend or shorten corporate term (Sec. term (Sec.36)
  • Power increase or decrease capital stock; incur, create, or increase bonded indebtedness (Sec. 37)
  • Power to deny pre-emptive right (Sec. 38)
  • Sale or other disposition of assets (Sec. 39)
  • Power to acquire own shares (Sec. 40)
  • Power to invest corporate funds in another corporation or business or for any other purpose (Sec. 41)
  • Power to declare dividends (Sec. 42)
  • Power to enter into management contract (Sec. 43)
• Subscription Contract


  The subscription contract is a consensual contract that is perfected upon the meeting of the minds of the parties.
• Corporate purposes


  Includes payment of a previously contracted debt, sale or other disposition of assets, power to acquire own shares, power to invest corporate funds, power to declare dividends, power to enter into management contract
• Board of Directors


  Has the discretion to declare dividends, decision of the board alone is necessary to declare cash or property dividends
• Management contract


  No management contract shall be entered into for a period longer than five (5) years for any one (1) term
• Warrant


  A type of security which entitles the holder the right to subscribe to, the unissued capital stock of a corporation or to purchase issued shares in the future, evidenced by a Warrant Certificate, whether detachable or not, which may be sold or offered for sale to the public
• Types of Warrants

  • Subscription warrant
  • Covered warrant
  • Warrant certificate
  • Warrant instrument
  • Detachable warrant
  • Nondetachable warrant
  • Beneficiary securities
  • Underlying shares
• Pre-Incorporation Subscription Agreements (PISA)


  Despite the non-existence of the corporation, the subscription contract before incorporation is valid and binding, valid, binding, and irrevocable for six (6) months, and also irrevocable after the filing of the Articles of Incorporation with the SEC
• Corporate reorganization


  One whereby those variously interested financially in a distressed business seek, through continuance of that business as a going concern, to work out of the difficulty for themselves and thus gain more than they could by a sale of the assets or of the business to others