CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
and/or   in   property   the   fair   valuation   of   which   is   equal   to   at   least   • Only   natural   persons   can   be   incorporators.   However,   the   law  
twenty-­‐five   (25%)   percent   of   the   said   subscription,   such   paid-­‐up   does  not  preclude  corporations  and  partnership  from  becoming  
capital  being  not  less  than  five  thousand  (P5,000.00)  pesos.   stockholders  or  members  as  long  as  they  are  not  incorporators.1  
  • In   practice,   the   SEC   would   allow   the   incorporation   of   a  
A.  As  to  Number  and  Residency  of  Incorporators  (Section  10)   corporation   which   would   have   as   original   stockholder   in   the  
  articles   of   incorporation,   as   long   as   the   minimum   number   of  
Section  10.  Number  and  qualifications  of  incorporators.   individual  incorporators  appear.    
Any  number  of  natural  persons  not  less  than  five  (5)  but  not  more  than   o In  one  opinion,  the  SEC  has  posited  that  both  domestic  
fifteen   (15),   all   of   legal   age   and   a   majority   of   whom   are   residents   of   and   foreign   corporations,   if   allowed   by   their   charters,  
the  Philippines,  may  form  a  private  corporation  for  any  lawful  purpose   may   be   initial   subscribers   to   the   capital   stock   of   a  
or   purposes.   Each   of   the   incorporators   of   s   stock   corporation   must   corporation,   but   their   subscription   will   not   be  
own  or  be  a  subscriber  to  at  least  one  (1)  share  of  the  capital  stock  of   considered  in  the  computation  of  the  25%  requirement  
the  corporation.   for  incorporation.2    
  o The   SEC   also   requires   that   the   subscription   of  
• It   is   possible   for   a   business   to   be   wholly   owned   by   one   corporations  to  the  capital  stock  of  a  corporation  in  the  
individual,   and   the   validity   of   its   incorporation   is   not   affected   process   of   incorporation   be   fully   paid   due   to   their  
when  he  gives  nominal  ownership  of  only  one  share  of  stock  to   limited   liability   capacity; 3  but   after   incorporation,  
each   of   the   other   four   incorporators.   This   arrangement   is   not   corporations  may  subscribe  without  having  to  fully  pay  
necessarily   illegal,   but   it   is   valid   only   between   and   among   the   their   subscription   under   the   premise   that   the   risk   of  
incorporators   privy   to   the   agreement.   It   does   not   bind   the   insolvency  no  longer  exist  at  that  point.4  
corporation   which   will   consider   all   stockholders   of   record   as   the   • The   Corporation   Code   maintains   the   requirement   that   at   least  
lawful   owners   of   their   registered   shares.   As   between   the   five   (5)   individuals   must   be   incorporators   of   a   corporation   for  
corporation   on   the   one   hand,   and   its   stockholders   and   third   perhaps  a  more  practical  reason.    
persons  on  the  other,  the  corporation  looks  only  to  its  books  for  
the   purpose   of   determining   who   its   shareholders   are.   Nautica                                                                                                                  
1
 Government  of  the  Philippine  Islands  v.  El   Hogar  Filipino,  50  Phil.  399,  460-­‐461  
Canny  Corp.  v.  Yumul,  473  SCRA  415  (2005).  
(1929).    
2
 SEC  Opinion,  23  May  1967,  SEC  FOLIO  1960-­‐1976,  at  p.  284;  Also,  SEC  Opinion,  
14  November  1978.    
3
 SEC  Opinion,  23  May  1967,  SEC  FOLIO  1960-­‐1976,  at  p.  284.  
4
 SEC  Opinion,  29  June  1976,  SEC  FOLIO  1960-­‐1976,  at  p.  936.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
o Our   jurisdiction   recognizes   the   existence   of   promoter's   o There   is   no   general   requirement   of   Philippine  
contracts,   or   contracts   entered   into   on   behalf   of   a   citizenship  only  a  majority  of  the  incorporators  must  be  
corporation   still   in   the   process   of   organization.   Indeed,   residents   of   the   Philippines.   However,   there   are   some  
transactions   may   already   be   pursued   with   the   parties   areas   of   business   and   industry   wherein   ownership   is  
aware   that   the   corporation   is   still   under   registration   reserved,  wholly  or  partially  to  Filipinos.  
proceedings.   If   anything   goes   wrong   with   the   o Atty.   Hofileña   à   if   there   are   5   American   citizens   who  
incorporation   process,   and   there   may   have   been   wish  to  establish  a  foreign  brand  in  the  Philippines,  they  
liabilities  created  at  the  time  of  incorporation,  then  the   will  either  reside  in  the  Philippines  or  ask  people  to  act  
existence   of   five   individual   incorporators   allows   the   as  incorporators  (who  are  usually  their  lawyers).  
public   or   injured   party   to   run   after   the   persons   who   § Incorporators  are  not  at  all  times  the  promoters  
cannot  hide  behind  a  corporate  fiction  or  who  can  avail   or  majority  stockholders.  This  is  not  necessarily  
of   limited   liability   features.   In   addition,   there   must   still   illegal,   although   it   brings   out   the   problem  
indeed  be  individuals,  who  can  be  held  criminally  liable,   whereby   the   incorporators   are   not   necessarily  
for   acts   done   relating   to   incorporation   process.   Such   the   people   who   should   be   held   responsible  
remedies  would  be  unavailing  or  would  be  meaningless   since  they  are  not  the  promoters.  
if  the  incorporators  are  themselves  juridical  entities.   o Atty.  Hofileña  à  in  case  of  public  utilities,  the  company  
• If   only   two   incorporators   are   residents   of   the   Philippines   a   must   be   60%   owned   and   controlled.   As   such,   if   the  
corporation  still  exists  –  a  de  facto  corporation  provided  that  at   incorporators   own   only   one   share,   then   the   company  
least   five   (5)   incorporators   must   sign   the   articles   of   cannot  be  a  public  utility.    
incorporation.1     § People   v.   Quasha   à   at   the   time   of   the  
o This  however  does  not  prevent  the  existence  of  the  so-­‐ establishment   of   the   company,   it   is   not  
called   one-­‐man   corporation,   where   business   is   actually   necessary   that   the   company   be   Filipino.  
owned   by   one   individual,   it   is   still   possible   for   him   to   However,   if   they   want   to   get   a   franchise   to  
incorporate   by   giving   nominal   ownership   of   only   one   operate   as   a   public   utility,   then   they   must   first  
share   of   stock   to   each   of   4   other   persons—this   is   not   meet   the   requirement   of   the   60%   citizenship  
necessarily  illegal.     requirement  of  the  law.  
• An  incorporator  will  always  retain  his  status  as  the  incorporator  
of  the  corporation  because  such  status  is  acquired  by  the  mere  
                                                                                                               
1
 SEC  Opinion,  11  October  1971,  SEC  FOLIO  1960-­‐1976,  at  p.  495.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
fact   of   being   one   of   the   persons   who   originally   composed   the    
corporation.     Section  42.  Power  to  invest  corporate  funds  in  another  corporation  or  
o He   may   cease   to   be   a   stockholder   or   a   member,   he   may   business  or  for  any  other  purpose.  
lose  all  his  rights  and  interest  in  the  corporation,  but  he   Subject  to  the  provisions  of  this  Code,  a  private  corporation  may  invest  
will  always  be  known  as  the  incorporator.  The  articles  of   its  funds  in  any  other  corporation  or  business  or  for  any  purpose  other  
incorporation   cannot   therefore   be   amended   to   delete   than   the   primary   purpose   for   which   it   was   organized  when   approved  
the  name  of  an  incorporator  and  substitute  it  with  that   by  a  majority  of  the  board  of  directors  or  trustees  and  ratified  by  the  
of  another,  the  latter  not  being  an  incorporator.1   stockholders  representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding  
§ You   cannot   remove   an   original   incorporator   capital  stock,  or  by  at  least  two  thirds  (2/3)  of  the  members  in  the  case  
from  the  charter.   of   non-­‐stock   corporations,   at   a   stockholder's   or   member's   meeting  
o Atty.  Hofileña  à  can  a  person  sue  an  incorporator  who   duly  called  for  the  purpose.  Written  notice  of  the  proposed  investment  
is   no   longer   involved   with   the   company   (let   go   of   his   and   the   time   and   place   of   the   meeting   shall   be   addressed   to   each  
share)?  NO.     stockholder   or   member   at   his   place   of   residence   as   shown   on   the  
• Where  there  is  a  change  in  the  initial  directors  (indicated  in  the   books   of   the   corporation   and   deposited   to   the   addressee   in   the   post  
articles  of  incorporation),  there  is  no  need  to  amend  the  articles   office   with   postage   prepaid,   or   served   personally:   Provided,   That   any  
of  incorporation.     dissenting   stockholder   shall   have   appraisal   right   as   provided   in   this  
  Code:   Provided,   however,   That   where   the   investment   by   the  
B.  Corporate  Name  (Sections  18,  14(1)  and  42)   corporation   is   reasonably   necessary   to   accomplish   its   primary   purpose  
  as   stated   in   the   articles   of   incorporation,   the   approval   of   the  
Section  18.  Corporate  name.   stockholders  or  members  shall  not  be  necessary.  (17  1/2a)  
No   corporate   name   may   be   allowed   by   the   Securities   and   Exchange    
Commission   if   the   proposed   name   is   identical   or   deceptively   or   1. Corporate  Name  Guidelines  
confusingly  similar  to  that  of  any  existing  corporation  or  to  any  other   • Similarity  in  corporate  names  between  two  corporations  would  
name   already   protected   by   law   or   is   patently   deceptive,   confusing   or   cause   confusion   to   the   public   especially   when   the   purposes  
contrary   to   existing   laws.   When   a   change   in   the   corporate   name   is   stated   in   their   charter   are   also   the   same   type   of   business.  
approved,   the   Commission   shall   issue   an   amended   certificate   of   Universal  Mills  Corp.  v.  Universal  Textile  Mills  Inc.,  78  SCRA  62  
incorporation  under  the  amended  name.   (1977).  
o Atty.   Hofileña   à   NOT   DECEPTIVE   PER   SE.   Latitude   is  
                                                                                                                given   to   someone   in   terms   of   determining   whether   a  
1
 SEC  Opinion,  7  January  1974,  VIII  SEC  QUARTERLY  BULLETIN  21  (  No.  I,  Jan.  1974).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)