Acquisition of Juridical Personality and Legal Existence of a Corporation

April 8, 1960 BIR RULING NO. 159-60 The President Braiding & Textile Industries of the Philippines, Inc. Pasong Tamo & Yakal Streets Makati, Rizal S i r : Reference is made to your letter dated April 8, 1960, stating the following: cdta "Braiding Industries of the Philippines is a single proprietorship owned and managed by the undersigned. Because the operations of this firm has become complex, I have decided to incorporate same and on July 1, 1959, a corporation among five individuals has been formed called "Braiding & Industries of the Philippines, Inc., the undersigned and his spouse being the principal and majority stockholders of same. On the same day, a Joint Deed of Assignment of all the assets of Braiding Industries of the Philippines was executed by the spouses C.A. Yupangco in favor of the new corporation. However, for some reason, the Articles of Incorporation of the new corporation has not been filed with the Securities and Exchange Commission until March 3, 1960 and up to this writing we have not received the Certificate of Registration. "In view of the above and for purpose of payment of income tax from July 1 to December 31, 1959, we now wish to get an official legal opinion from your office as to whether we should pay the income tax for the period aforementioned as a corporation or as an unregistered association or as a single proprietorship." In reply thereto, I have the honor to inform you as follows: An association, in the process of incorporation cannot be considered a corporation at the stage and hence has no juridical capacity to enter into contracts. (Cagayan Fishing Dev. vs. Sandike, 36 Off. Gaz. 1118, May 3, 1938). A corporation acquires juridical personality and legal existence only from the time of issuance of the certificate of incorporation by the Securities and Exchange Commission. (Merges vs. Alternbraund, 45 Mont. 355, 123 Pac. 21). There are also those associations of persons who may constitute a corporation by estoppel. While as against the state a corporation cannot be created by the mere agreement or other act or omission of private persons, yet as between private litigants they may, by their agreements, admissions, or conduct, place themselves where they would not be permitted to deny the fact of the existence of the corporation. (Ingle System Co. vs. Norris and Hall, 132 Tenn. 472, S.W. 1173). Such corporations are known as corporations by estoppel. (Brown vs. Atlanta Ry Co., 113 Ga. 462, 39 S.E. 71). Likewise, persons who assume to form a corporation or business association, and exercise corporate functions, and enter into business relations with third persons, are estopped from denying that they constitute a corporation. Going now to your case, it appears that you have transacted business as a corporation as of July 1, 1959. You have executed your articles of incorporation on same day but filed the same only on March 3, 1960. Insofar as these persons who have transacted business with you to which class the BIR insofar as your liability to tax is concerned may belong, you may at most be considered a corporation by estoppel. And at this stage, considering that you have already accomplished all the required acts incident to incorporation, you may now be considered at least a corporation de facto . But in law or of right you shall acquire juridical personality and legal existence only from the time of issuance of the certificate of incorporation by the Securities and Exchange Commission. (Merges vs. Alternbraund, supra ). At any rate, this Office believes that for income tax purposes the question of when you have actually acquired a juridical personality is not of any moment. This is for the reason that under the National Internal Revenue Code, an unregistered association is subject to income tax as a corporation. Accordingly, even if you cannot be considered a de facto corporation or a corporation by estoppel, still you are subject to tax as an unregistered association from July 1, 1959. In the light of the foregoing, this Office is of the opinion and so holds that for the period from July 1, 1959 to December 31, 1959, you must file an income tax return under your assumed corporate name as an unregistered association and pay the corresponding corporate income tax. For the period from January 1, 1959 to June 30, 1959, you must file an income return in your individual capacity. In this connection, please be informed that this ruling is being made on the basis of your uncorroborated statement that your business was operated as a corporation from July 1, 1959. This Office reserves the right to verify the true status of your business and to modify this ruling accordingly. cdt Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue