Corporation
Corporations are artificial beings. They are usually composed of Board of Directors (BODs) up to 15 members. It is a legal and separate entity apart from those company officers and employees that runs the company. Shareholders enjoy limited liability - this means that if a corporation incurs an obligation through the actions of officers and employees, the entity itself is liable of those obligations. Generally, officers and employees are not liable for incurred obligations of the corporation, except if unlawful acts such as fraud or other illegal actions has been committed. This is where the doctrine of Piercing the Veil of Corporate Entity comes in. In this doctrine, the court disregards the principle of corporations as a separate juridical entity, it instead views the corporation as the whole individuals running the company. There are cases when corporations are used to commit unlawful acts by the persons running the company. And thus, corporate veil is pierced, which treats the corporation as one person making those persons liable as if they were the corporation.
In line with this, Covid-19 has affected everyone around the world. It is reported that there are approximately 346 million cases worldwide. Due to this, people are forced into lock down, unable to do their daily tasks and activities. Not only people are affected by the pandemic, but also the country’s economy especially businesses. With the downturn in economy, corporations might consider distributing capital assets to the shareholders or the shareholders themselves borrowing capital assets in order for them to support their needs during the pandemic. However, this kind of act is a clear violation of the trust fund doctrine.
Trust fund doctrine states that all assets and properties of a corporation are equity in trust for the payment of creditors. This means that creditors are paid or distributed first in capital assets over shareholders of a corporation. This is to ensure that a corporation will settle any outstanding debts and claims to their creditors. As stated by RCCP (Revised Corporation Code of the Philippines), “there are only three instances where corporations are allowed to distribute their capital assets: amendment of the articles of incorporation to reduce the authorized capital stock; purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings; and dissolution and eventual liquidation of the corporation.”
In conclusion, most people assume that corporations are free to use and distribute their capital assets to shareholders but the trust fund doctrine serves as a security that prevents corporate shareholders from avoiding payments for the creditors.
Cooperatives
A cooperative is an organization owned by its members. It is primarily formed to achieve a specific purpose. There are many purposes as to why a cooperative is formed such as providing financial services, joint production, health services, and can also become a multipurpose coop – combining different business activities altogether. As such, cooperatives also come with its own advantages and disadvantages.
Cooperatives create a sense of working together with each other to achieve a common goal. For example, dairy farmers can form a cooperative and create a pool of supply and produce their own manufactured goods which generates equal profit among the members. In a cooperative, members also help each other towards the best interest for everyone like providing free services and trainings. Each member also contributes to the funding and further improvement to the organization. However, not all cooperatives provide benefit to everyone. It also has its own downsides. Even though cooperatives get their funding from their members, it also has to provide the returns or profits to its members. Therefore, it results into low pool of funds. Cooperatives also suffer from gaining investors such as banks or credit unions since some members may or may not get involved at all in the efforts of improving the organization. In the case of a dairy coop, some members may contribute a little in the production of the products. Adding to this, since cooperatives exercises democracy among its members, it is also possible that mismanagement occurs. A one member, one vote may hinder the decision-making process since it could take lots of time to process and finally form a final decision.
In conclusion, cooperatives work best on every kind of industry. Members contribute with each other to attain its goals and purposes. Cooperatives also contributes in improving the overall health of society and the economy of a country.
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