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Corporation Law (BP Blg 68) May 1980 1

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Sec16 ArtXII (Nat´l Economy and Patrimony): Congress shall not xp by
general law provide for the formation, organization or regulation of private  Stockholders are not personally liable for corporate obligations and
corporations. GOCCs may be established by special charters. cannot be held liable to third persons who have claims against the
corporation beyond their agreed contribution to the corporate capital;
Note: Consent of the State is indispensable. It shields legislators from favouring neither may the corporation be liable for the personal obligations of its
private corporations. [Bonilla] stockholders

Sec10 ArtXII: Congress shall reserve to citizens of the Philippines 60% of whose Note: Doctrine of Separate Legal Personality: A corporation, upon coming into
capital is owned by Filipinos or higher. In grant of rights, privileges and existence, is divested by law with a personality separate and distinct from those
concessions covering the national economy and patrimony – State shall give persons composing it as well as from any other legal entity to which it may be
preference to qualified Filipinos. related.
Even if an individual is the owner of the corporation, the corporation is its own
Sec11, ArtXII: No franchise, certificate, or any other form of authorization for the person as far as managing is concerned. Corporation may run its own affairs
operation of a public utility shall be granted xp to citizens of the Philippines or to separate from its members. It may have stronger rights than its members.
corporations organized under the laws of the Philippines, at least 60% of whose [Bonilla]
capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.  Assets of the corporation belong to the corporation and not owned by
the stockholders or members. [SJS vs CA]
It is subject to repeal, alteration or amendment by the Congress when common
good requires it. The participation of foreign investors in the governing body of  GR: Liabilities of the corporation cannot be held against its directors,
any public utility enterprise shall be limited to their proportionate share in its officers or shareholders, vv. [Francisco vs CA]
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.  If a corporation is guilty of a tort – actions of the corporate officer.
Thus, corporation is liable through the action of the officer and the
Regalian Doctrine (Sec2 ArtXII): Corporations must be 60% Filipino owned. 25 officer will be held solidarily liable with the corporation.
years contract – 50 years maximum. Financial and Technical Assistance
Agreements (joint ventures) – Fil + For  GR: Damages – cannot be awarded in favor of corporations because
Filipinization requirement – 60-40 shares they do not have feelings and mental state (juridical in nature).
[Crystal vs BPI] They may not even claim moral damages for
Constitutional Rights: DPL & EPC – no qualification of the term “person”; besmirched reputation. XPN: Corporation can recover moral
Corporations are protected by the constitutional guarantee against unreasonable damages under Art 2219 (7) if it was the victim of defamation, slander
searches and seizures. But court ruled that the corporate officers cannot contest and libel [PBN vs Ago Medical].
the legality of the seizure because such is personal. [Stonehill vs Diokno];
Corporation has no right to claim protection against self-incrimination because  Criminal Liability – Corporation as a person is a mere legal fiction, it
such is applicable to natural persons only. cannot be proceeded against criminally because it cannot commit a
crime in which personal violence or malicious intent is required.
SEC – Administrative supervision. Quasi-judicial body charged with the Criminal action is limited to the corporate agents guilty of an act
enforcement of all laws affecting corporations. amounting to a crime and never against the corporation itself.
Sec. 3, PD 902-A. The Commission shall have jurisdiction and supervision 2. CREATED BY OPERATION OF LAW
over all corporations, partnerships or associations who are the grantees of Juridical existence of a corporation is dependent on the consent or
primary franchises and/or license or permit issued by the government, to
grant of the State. A corporation cannot come into being by mere
operate in the Philippines; and in the exercise of its authority, it shall have the
power to enlist the aid and support of and to deputize any and all enforcement
consent of the parties, there must be a law granting it (Congress or
agencies of the government, civil or military as well as any private institution, State) and once granted, forms the primary franchise of the
corporation, firm, association or person. (As amended by PD 1758) corporation. [Villanueva]
XPN: Corporation by Prescription – RCC (Sec110 CCP)
 Corporation Code: the general law under which a private corporation
CAPITAL & CONTROL [Bonilla] may be formed or organized. Primary Franchise: a corporation’s
Single Proprietorship – limited CAP but full CTRL right to exist and act as a legal entity. Charter: a special law by which
Partnership – bigger CAP but diluted CTRL a government corporation is normally created.
Corporation – SoS (mere promise to share in the profits of the business –
DREAM) and has the biggest CAP based but the BoD/Truestees not the 3. RIGHTS OF SUCCESSION
Stockholders have a direct CTRL on it. Corporation has the capacity for continuous existence despite the
death or replacement of its shareholders or members for it has a
Sec.2 Corporation – artificial being created by operation of law, having the
right of succession and powers, attributes and properties authorized by law or personality separate and distinct from those who compose it.
incidental to its existence. [ALS-PAPIE] [Villanueva]
 A corporation’s continued existence during the term stated in its
articles of incorporation cannot be affected by any change in the
A corporation is a group of individuals who decide to get together. The State
members or stockholders by death, insolvency or incapacity; nor is it
participates in forming a corporation because its creation is subject to State´s
affected by the transfer of shares by a stockholder to a third person.
approval. [Bonilla]
 Not exceeding 50 years from date of incorporation unless extended.
(Sec11 CCP)
 Any rights accrued or liabilities incurred prior to the effectivity of the
Corporation Code in favor of or against a corporation, its stockholders
4. CREATURE OF ENUMERATED POWERS; ATTRIBUTES AND
or members must be respected.
PROPERTIES
Corporation is a creature of limited powers such as those expressly
Four Attributes of a Corporation:
conferred on it by law or AoI, those that are reasonably necessary to
1. ARTIFICIAL BEING WITH A SEPARATE PERSONALITY
accomplish its purpose and those that are implied by or are incidental
It is a fiction of law that creates the “person” of the corporation, with
to its existence. [Villanueva]
the same attributes of an individual with full capacity to enter into
contractual relations.
Corporation Law (BP Blg 68) May 1980 2
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 Corporations to have legal personality, the ff. must concur: Juridical
capacity – commences from the time SEC issues certificate of STOCK Corporation –
incorporation. Capacity to act – since corporation is a creature of  Corporations which have capital stock divided into shares and are
law, it is just an artificial being and, therefore, cannot have power authorized to distribute to the holders of such shares dividends or
more than the entity creating it. allotments of the surplus profits on the basis of shares held (Sec3
 Corporation exercises said powers through its Board of Directors or CCP)
Trustees and/or its duly authorized officers and agents.  It is organized for profit.
GR: Corporations cannot enter into a partnership with other  The governing body of a stock corporation is the Board of Directors
corporations. (except in certain instances, e.g. close corporations).
XPNS: joint venture (does not create a separate legal entity) where 
the nature of the venture is in line with the business authorized by Note: TWO ELEMENTS for a stock corporation to exist: (1) Capital stock divided
their charters or by-laws; joint venture X registered by SEC – does not into shares, and (2) An authority to distribute to the holders of such shares,
result in new corporation; FC + DC = joint venture partnership but FC dividends or allotments of the surplus profits on the basis of shares held.
must obtain license to do business in the Phils but, if for investment  Even if there is a statement of capital stock, the corporation is still
purposes then it is dispensable. NOT a stock corporation if dividends are NOT supposed to be
declared, that is, there is no distribution of retained earnings.
GR: Corporation has a separate juridical personality from its members and its
subsidiaries. Note: Under Sec. 43 of CCP, a corporation is deemed to have the power to
XPN: Piercing the Veil of Corporate Fiction Doctrine – an equitable remedy, declare dividends. Thus, so long as the corporation has capital stock and there is
and may be granted only in cases when the corporate fiction is used to defeat no prohibition in its AoI or in its by-laws for it to declare dividends, such
public convenience, justify wrong, protect fraud or defend crime or where the corporation is a stock corporation.
corporation is a mere alter ego or business conduit of a person.
 It is a means of attaching liability and not applied to dissolve a NON STOCK Corporation –
corporation.  All other corporations are non-stock corporations.
 One where no part of the income is distributable as dividends to its
Note: Grounds for application of the doctrine: (1) If done to defraud the members, trustees, or officers, subject to the provisions of the Code
government of taxes due it. (2) If done to evade payment of civil liability. (3) If on dissolution (Sec87 CCP)
done by a corporation which is merely a conduit or alter ego of another  Not organized for profit.
corporation. (4) If done to evade compliance with contractual obligations. (5) If  Its governing body is usually the Board of Trustees.
done to evade financial obligation to its employees.
 Only in these and similar instances may the veil be pierced and Sec. 87 — For purposes of this Code, a non-stock corporation is one where no
disregarded: to ward off a judgment credit, to avoid inclusion of part of its income is distributable as dividends to its members, trustees, or
corporate assets as part of the estate of the decedent, to escape officers, subject to the provisions of this Code on dissolution: Provided, That ay
liability arising from a debt, or to perpetuate fraud and/or confuse profit which a non-stock corporation may obtain as an incident to its operations
legitimate issues either to promote or to shield unfair objectives to shall, whenever necessary or proper, be used for the furtherance of the
cover up an otherwise blatant violation of the prohibition against purpose or purposes for which the corporation was organized, subject to the
forum shopping. provisions of this Title. The provisions governing stock corporations, when
pertinent, shall be applicable to non-stock corporations, except as may be
covered by specific provisions of this Title.
Q: Is a corporation liable for the individual acts of its stockholders or members? Is
Sec. 88 — Non-stock corporations may be formed or organized for charitable,
there an exception to the general rule? religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
A: It is settled that a corporation has a personality separate and distinct from its agriculture and like chambers, or any combination thereof, subject to the
individual stockholders or members, and is not affected by the personal rights, special provisions of this Title governing particular classes of non-stock
obligations and transactions of the latter. The corporation may not be held liable corporations.
for the obligations of the persons composing it, and neither can its stockholders
be held liable for its obligation. Of course, this Court has recognized instances  A non-stock corporation may have capital stock but the corporation
when the corporation’s separate personality may be disregarded. However, we may not distribute shares of stocks; instead they only sell them.
have also held that the same may only be done in cases where the corporate [Bonilla]
vehicle is being used to defeat public convenience, justify wrong, protect fraud, or  Dividends are profits of the corporation which cannot come from the
defend crime. Moreover, the wrongdoing must be clearly and convincingly capital stock. [Id]
established. It cannot be presumed.
 To be a stock corporation, the articles of incorporation or by-laws
must give a corporation authority for the distribution of dividends or
Effects of PVCF:
surplus profits.
Stockholders PERSONALLY LIABLE
If the corp. was And the articles of The corporation is…
The corporation and stockholder will be treated as one and the same organized as: incorporation…
The court does not deny corporate existence for all purposes but merely refuses Stock Is silent as to authority A stock corporation
to allow the corporation to use the corporate privilege for the particular purpose in because of Sec. 43
the case before it Stock Prohibit distribution or A non-stock corporation
declaration of dividends because such prohibition
Note: 3 Aspects – 1st Aspect: Stockholders are held liable for corporate liability; is controlling
2nd Aspect: Corporation is held liable for personal obligation; 3rd Aspect: Parent- Non-Stock Is silent as to authority Non-stock because Sec.
Subsidiary. Parent company is held the same as subsidiary 43 authorizes stock
corporations only
Non-Stock Authorizes distribution or A stock corporation
CLASSIFICATION OF PRIVATE CORPORATIONS declaration of dividends

Sec. 3. Classes of Corporation — Corporations formed or organized under SUBSIDIARY Corporation –


this Code may be stock or non-stock corporation. Corporations which have  One in which control, usually in the form of ownership of majority of its
capital stock divided into shares and are authorized to distribute to the holders
shares, is in another corporation, called the parent corporation.
of such shares dividends or allotments of the surplus profits on the basis of the
shares held are stock corporations. All other corporations are non-stock
corporations.
Corporation Law (BP Blg 68) May 1980 3
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 Holding Company: a parent company which has no other business  SoS is an intangible property as compared to the Certificate of Stock,
aside from the holding of the shares of its subsidiaries which it which is the evidence owning a SoS in the company. [Id]
controls  The one who buys SoS executes a subscription agreement and
 Investment Company: a parent company which holds shares in becomes a subscriber to the SoS. In this case, the subscriber
other corporations not for the purpose of controlling them but merely becomes a debtor of the corporation but when fully paid his
to invest therein. subscription, he is no longer indebted to the corporation. [Id]

PUBLIC CORPORATION PRIVATE CORPORATION CAPITAL STOCK –


Set up by the gov´t who decide to help it Set uo by individuals who decide to  Outstanding Capital Stock
administer its territory [Bonilla] engage in profit or non-profit objectives  Total SoS issued to subscribers or stockholders, whether or not fully
[Bonilla] or partially paid (as long as there is a binding subscription
Formed or organized for the gov´t or a Formed or organized for some private agreement), xp treasury shares. (Sec137 CCP)
portion of the State purpose, benefit, aim or end  SEC ruled that “capital stock” or “authorized capital stock” is the
Created for political purposes connected amount fixed in the AoI that may be subscribed and paid by the
with the public good in the administration
stockholders of the corporation. [Villanueva]
of civil gov´t
Note: CAPSTOCK contains two items: 1. Portion which have been paid by the
Created by its own charter, CCP is only Created under the CCP 1980
stockholders and 2. Portion which is to be paid on the subscriptions [Id]
supplementary
 It is the contribution of people for the corporation to run its business.
DOMESTIC CORPORATION FOREIGN CORPORATION
The SoS is the evidence that they contributed to the capital stock.
Formed, organized or existing under Formed, organized or existing under [Bonilla]
the laws of the Phils any laws other than those of the Phils
and whose law allows Filipinos and
corporations to do business in its own FORMATION & ORGANIZATION OF A CORPORATION
country.
Who may form a Corporation?
Note: A foreign corporation may be licensed by SEC to do business in the Phils
only: Principle of Reciprocity; After securing a certificate of authority from the BOI Sec. 10. Number and qualifications of incorporators. - Any number of
under EO 226; After complying with the conditions for issuance of license on natural persons not less than five (5) but not more than fifteen (15), all of legal
application forms, structural organizations and capitalization. [Villanueva] age and a majority of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the incorporators of a
Incorporation Test: Used to determine whether the corporation is a domestic or stock corporation must own or be a subscriber to at least one (1) share of the
foreign corporation. [Bonilla] capital stock of the corporation

Another test to determine the nationality of the corporation is the Control Test
CORPORATORS INCORPORATORS
where you look at the controlling stockholders or of the corporation. [Bonilla]
Temporary Permanent
Grandfather Rule is the method of checking the degree of percentage of Was not part of the beginning of the Helped start the corporation
ownership of nationals and foreign corporations investing in a subsidiary corporation
corporation in connection to nationalized industries. Rule is applied where 2 or Corporation may be a corporator but A corporation not an incorporator
more corporations involved, one owning the other. (See Narra vs Redmont) not an incorporator because it should be a natural person
[Bonilla] Cannot sign in the AoI Signs and executes the AoI
 The law, however, does not preclude corporations and partnerships
 The Grandfather Rule must be applied to accurately determine the from being stockholders or members as long as they are not
actual participation, both direct and indirect, of foreigners in a incorporators.
corporation engaged in a nationalized activity or business.
 Compliance with the constitutional limitation(s) on engaging in 1. At Least 5 incorporators –
nationalized activities must be determined by ascertaining if 60% of  Any number from 5-15
the investing corporation’s outstanding capital stock is owned by  At least 5 incorporators must sign the articles of incorporation. Where
“Filipino citizens”, or as interpreted, by natural or individual Filipino the business is actually owned by only one individual, it is still
citizens. If such investing corporation is in turn owned to some extent possible for him to incorporate by giving nominal ownership of only
by another investing corporation, the same process must be one share of stock to each of 4 other persons.
observed. One must not stop until the citizenships of the individual or
natural stockholders of layer after layer of investing corporations have 2. Residence and Citizenship Requirements –
been established, the very essence of the Grandfather Rule.  There is no general requirement of Philippine citizenship. However,
by virtue of the Constitution and various special laws, there are some
Example: Corp A owns Corp B. Corp B is 40% owned by Corp A. Corp A is 40% areas of business and industry wherein ownership is reserved, wholly
Filipino-owned. Therefore, Corp B is 16% Filipino-owned. or partially, in favor of Filipino citizens (public utilities, retail trade,
banks, investment houses, savings and loan associations, schools).
SHARE of STOCK  Even in areas where there are no legal restrictions as to alien
 Means of getting the resources from people and even the gov´t. Once ownership, when more than 40% of the outstanding capital of a
you buy a SoS, your investment now is owned by the corporation. proposed corporation is to be owned/controlled by aliens, a written
[Bonilla] Board of Investments before it can register with the SEC to enable the
 SoS merely promises that if the company earns money and if the BOI to determine whether such corporation would contribute to the
company decides to distribute the dividends, the holder will be entitled sound and balanced development of the national economy.
to a portion of the profits. However, the company still has the decision  To insure the minimum limitation on Filipino ownership is maintained,
whether or not it will distribute the profits. [Id] a timely notice must be given by the corporation to the SEC and the
 Purpose of trading stock is, not so much the dividends but, more of stock exchanges, stating the exact number of shares which may be
the capital gains earned. The promise of dividends generates huge sold without impairing such limitation.
demand for a SoS. As a result, the value of the company per SoS
may increase. In return, the company has capital coming in. [Id]
Corporation Law (BP Blg 68) May 1980 4
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 There is no general prohibition for a foreigner to become an
incorporator; the only requirement is that MAJORITY of incorporators 5. The names, nationalities and residences of the incorporators; 6. The number
are residents. of directors or trustees, which shall not be less than five (5) nor more than fifteen
Note: foreigners may be a resident alien. (15); 7. The names, nationalities and residences of persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected
3. Owns at least 1 share – and qualified in accordance with this Code; 8. If it be a stock corporation, the
amount of its authorized capital stock in lawful money of the Philippines, the
 Each incorporator must own or be a subscriber to at least 1 share of
number of shares into which it is divided, and in case the share are par value
the capital stock of the corporation. shares, the par value of each, the names, nationalities and residences of the
original subscribers, and the amount subscribed and paid by each on his
EQUALITY OF SHARES Doctrine – subscription, and if some or all of the shares are without par value, such fact
Except as otherwise provided by AoI and stated in the CoS, Each must be stated; 9. If it be a non-stock corporation, the amount of its capital, the
share shall be in all respects equal to other shares. (Sec6 CCP) names, nationalities and residences of the contributors and the amount
 Those enumerated in Sec6(5) CCP are matters that all shares have a contributed by each; and 10. Such other matters as are not inconsistent with law
right to vote even if they may have been denied because thay are and which the incorporators may deem necessary and convenient. The
major changes in the AoI. [Id] Securities and Exchange Commission shall not accept the articles of
incorporation of any stock corporation unless accompanied by a sworn
STEPS IN THE FORMATION OF A CORPORATION statement of the Treasurer elected by the subscribers showing that at least
1. Promotional Stage twenty-five (25%) percent of the authorized capital stock of the corporation has
2. Registration been subscribed, and at least twenty-five (25%) of the total subscription has
3. Organization been fully paid to him in actual cash and/or in property the fair valuation of which
is equal to at least twenty-five (25%) percent of the said subscription, such paid-
up capital being not less than five thousand (P5,000.00) pesos. Sec. 15. Forms
PROMOTER –
of Articles of Incorporation. - Unless otherwise prescribed by special law, articles
 Promoters are persons who, acting alone or with others, take initiative of incorporation of all domestic corporations shall comply substantially with the
in founding and organizing the business or enterprise of the issuer following form:
and receives consideration. (RA 8799, The Securities Regulation
Code).
 One who brings together persons who become interested in the ARTICLES OF INCORPORATION OF __________________________ (Name
of Corporation)
enterprise, aids in procuring subscriptions and sets in motion the
machinery which leads to the formation of the corporation itself. He
formulates the necessary initial business and financial plans and, if KNOW ALL MEN BY THESE PRESENTS: The undersigned incorporators, all of
necessary, buys the rights and property which the business may legal age and a majority of whom are residents of the Philippines, have this day
need, with the understanding that the corporation, when formed, shall voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the
take over the same. [Campos] Republic of the Philippines; AND

Liability of a Promoter: WE HEREBY CERTIFY: FIRST: That the name of said corporation shall be ",
GR: The promoter binds himself PERSONALLY & assumes the responsibility of INC. or CORPORATION"; SECOND: That the purpose or purposes for which
looking to the proposed corporation for reimbursement. such corporation is incorporated are: (If there is more than one purpose, indicate
XPNs: (1) Express or implied agreement to the contrary and (2) Novation, not primary and secondary purposes); THIRD: That the principal office of the
merely adoption or ratification of the contract corporation is located in the City/Municipality of, Province of., Philippines;
FOURTH: That the term for which said corporation is to exist is. years from and
Liability of Corporation for Promoter´s Contracts: after the date of issuance of the certificate of incorporation; FIFTH: That the
GR: A corporation is NOT bound by the contract. A corporation, until organized, names, nationalities and residences of the incorporators of the corporation are
has no life and no legal existence. It could not have had an agent (the promoter) as follows:
who could legally bind it.
XPNs: A corporation may be bound by the contract if it makes the contract its NAME
own by: (1) Adoption or ratification of the ENTIRE contract after incorporation.
Power of the corporation to adopt a contract must be understood to be limited to NATIONALITY
such contracts as the corporation itself, after its organization, would be authorized
to make. Novation or the intent to novate the original contract is required to adopt
or ratify the pre-incorporation contract. [Campos] (2) Acceptance of benefits RESIDENCE . . . . .
under the contract with knowledge of the terms. (3) Performance of its obligation
under the contract. SIXTH: That the number of directors or trustees of the corporation shall be; and
the names, nationalities and residences of the first directors or trustees of the
DRAFTING THE ARTICLES OF INCORPORATION corporation are as follows:

Sec. 14. Contents of the articles of incorporation. - All corporations NAME


organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages duly signed
and acknowledged by all of the incorporators, containing substantially the NATIONALITY
following matters, except as otherwise prescribed by this Code or by special
law: 1. The name of the corporation; 2. The specific purpose or purposes for RESIDENCE . . . . .
which the corporation is being incorporated. Where a corporation has more than
one stated purpose, the articles of incorporation shall state which is the primary
purpose and which is/are he secondary purpose or purposes: Provided, That a SEVENTH: That the authorized capital stock of the corporation is(P) PESOS in
non-stock corporation may not include a purpose which would change or lawful money of the Philippines, divided intoshares with the par value of(P.)
contradict its nature as such; 3. The place where the principal office of the Pesos per share. (In case all the share are without par value): That the capital
corporation is to be located, which must be within the Philippines; 4. The term stock of the corporation is shares without par value. (In case some shares have
for which the corporation is to exist; par value and some are without par value): That the capital stock of said
corporation consists of. shares of which shares are of the par value of. (P.)
Corporation Law (BP Blg 68) May 1980 5
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same corporation with a different name, and its character is not
PESOS each, and of which. shares are without par value. EIGHTH: That at least changed. Consequently, the “new” corporation is still liable for the
twenty five (25%) per cent of the authorized capital stock above stated has been debts and obligations of the “old” corporation.
subscribed as follows: Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed  A corporation may change its name by merely amending its charter in the
manner prescribed by law. Actions brought by a corporation after it has
NINTH: That the above-named subscribers have paid at least twenty-five (25%) changed its name should be brought under the new name although for the
percent of the total subscription as follows: Name of Subscriber Amount enforcement of rights existing at the time the change was made.
Subscribed Total Paid-In (Modify Nos. 8 and 9 if shares are with no par value. In
case the corporation is non-stock, Nos. 7, 8 and 9 of the above articles may be 2. PURPOSE CLAUSE
modified accordingly, and it is sufficient if the articles state the amount of capital  Must indicate the PRIMARY and SECONDARY purposes if there is
or money contributed or donated by specified persons, stating the names, more than one purpose, which should not contradict or change the
nationalities and residences of the contributors or donors and the respective nature of the corporation (Sec. 14(2) CCP)
amount given by each.) TENTH: Thathas been elected by the subscribers as  Must be specific and only one primary purpose but can be unlimited
Treasurer of the Corporation to act as such until his successor is duly elected secondary purpose
and qualified in accordance with the by-laws, and that as such Treasurer, he
 Must not be patently unconstitutional, illegal, immoral, and contrary to
has been authorized to receive for and in the name and for the benefit of the
corporation, all subscription (or fees) or contributions or donations paid or given government rules and regulations (Sec. 17 (2) CCP)
by the subscribers or members. ELEVENTH: (Corporations which will engage in  Must not be for the purpose of practicing a profession
any business or activity reserved for Filipino citizens shall provide the following):
"No transfer of stock or interest which shall reduce the ownership of Filipino 3. PRINCIPAL OFFICE OF THE CORPORATION
citizens to less than the required percentage of the capital stock as provided by  Must be within the Philippines (Sec. 14 (3) CCP)
existing laws shall be allowed or permitted to recorded in the proper books of  AOI must specify both province or city or town where it is located
the corporation and this restriction shall be indicated in all stock certificates  A specific address is now required; Metro Manila is no longer allowed
issued by the corporation." (SEC Circular No. 3-2006)

IN WITNESS WHEREOF, we have hereunto signed these Articles of Important for: (a) determining venue in an action by or against the corporation,
Incorporation, thisday of., 19in the City/Municipality of., Province of, Republic of and (b) determining the province where a chattel mortgage of shares should be
the Philippines. (Names and signatures of the incorporators) registered

SIGNED IN THE PRESENCE OF: (Notarial Acknowledgment) TREASURER'S 4. TERM OF EXISTENCE


AFFIDAVIT REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF ) Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding
S.S. PROVINCE OF ) I,., being duly sworn, depose and say: That I have been fifty (50) years from the date of incorporation unless sooner dissolved or unless
elected by the subscribers of the corporation as Treasurer thereof, to act as said period is extended. The corporate term as originally stated in the articles of
such until my successor has been duly elected and qualified in accordance with incorporation may be extended for periods not exceeding fifty (50) years in any
the by-laws of the corporation, and that as such Treasurer, I hereby certify under single instance by an amendment of the articles of incorporation, in accordance
oath that at least 25% of the authorized capital stock of the corporation has with this Code; Provided, That no extension can be made earlier than five (5)
been subscribed and at least 25% of the total subscription has been paid, and years prior to the original or subsequent expiry date(s) unless there are
received by me, in cash or property, in the amount of not less than P5,000.00, in justifiable reasons for an earlier extension as may be determined by the
accordance with the Corporation Code. (Signature of Treasurer) Securities and Exchange Commission.

SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the
City/Municipality of. Province of., this day of.............., 19.......;  Maximum life of 50 years.
by........................................... with Res. Cert. No..................... issued  Extendible for a period not exceeding 50 years at any one instance.
at................ on....................., 19......... NOTARY PUBLIC My commission There is no limit to extensions. No extension, however, can be made
expires on.........................., 19....... Doc. No...............; Page No...............; Book earlier than 5 years before the end of the term. (Sec. 11 CCP)
No..............; Series of 19..... (7a) o Extension requires an amendment of the AOI subject to
the exercise of appraisal right by the dissenting
Nature & Functions of Articles: stockholder (Sec. 37 CCP)
(1) Constitutes the charter of the corporation and sets forth the rules and  The corporation cannot be extended after its term expires; the term
conditions upon which the association or corporation is founded should be extended before its expiration.
(2) Defines the contractual relationships between the State and the corporation,
the stockholders and the State, and the corporation and the stockholders TRUST FUND Doctrine –
(3) The Articles must be filed with the SEC for the issuance of the Certificate of provides that subscriptions to the capital stock of a corporation constitute a fund
Incorporation to which the creditors have a right to look for the satisfaction of their claims.

CONTENTS:  Under Sec. 43 of Code, the corporation can declare dividends only
1. CORPORATE NAME out of "unrestricted retained earnings;" and that under Sec. 122, no
A. Must not be identical or deceptively or confusingly similar to corporation shall distribute any of its assets or property except upon
that of any existing corporation or to any other name already lawful dissolution and after payment of all its debts and liabilities.
protected by law These provisions in essence provide for the "trust fund doctrine"
B. Not patently deceptive, confusing or contrary to existing laws where the "subscription to the capital of a corporation constitute a
 Through the corporate name, the corporation can sue and be sued fund to which creditors have a right to look for satisfaction of their
and perform all legal acts claims."
 Required by law to include the word “Corporation” or “Inc.”  This doctrine is the underlying principle in the procedure for the
 Change of corporate name requires the amendment of the AOI: distribution of capital assets, embodied in Corporation Code, which
majority vote of the board and the vote or written assent of allows the distribution of corporate capital only in three instances: (1)
stockholders holding 2/3 of the outstanding capital stock (Sec. 16 amendment of the Articles of Incorporation to reduce the authorized
CCP) capital stock, (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3)
 Amendment of a corporation’s AOI changing its corporate name does
dissolution and eventual liquidation of the corporation.
not extinguish the personality of the original corporation. It is the
Corporation Law (BP Blg 68) May 1980 6
ZMMolina
Minimum Capital Stock
 Capital stock, properties and other assets of a corporation are Stock corporations incorporated under the Corporation Code shall not
regarded as equity in trust for the payment of corporate creditors. be required to have a minimum authorized capital stock.
Stated simply, the trust fund doctrine states that all funds received by XPN: As provided for by special law and subject to the
the corporation in payment of the shares of stock shall be held in trust provisions of Sec. 13 CCP
for the corporate creditors and other stockholders of the corporation.
Under such doctrine no fund shall be used to buy back the issued SUBSCRIPTION Requirement –
shares of stock except only in instances specifically allowed by the The amount of capital stock to be subscribed and paid for the purposes of
Corporation Code. incorporation (Sec. 13 CCP):
(1) At the time of incorporation, at least 25% of the authorized capital stock stated
in the AOI should be subscribed;
(2) At least 25% of the said 25% above, must be paid upon subscription;
INCORPORATORS and DIRECTORS –
(3) The balance to be payable on
(a) Dates fixed in the subscription contract or
Stock Corporations – the Code sets the limit to the number of Directors to not
(b) Upon call by the BOD in the absence of fixed dates
less than 5 nor more than 15
(4) The paid-up capital can in no case be lower than P5,000.00
Non-stock Corporations – the Articles of Incorporation or By-Laws may provide
SHARES OF STOCK is the smallest measure of ownership in the corporation
for more than 15 trustees, except educational non-stock corporations – trustees
must be in multiples of 5
CAPITAL STOCK is the amount fixed in the articles of incorporation to be
subscribed and paid in or secured to be paid in by the shareholders of a
Merger of banks – allows new board to have such number of directors as is
corporation, at the organization of the corporation or afterwards, and upon which
equivalent to the total number of directors of the merging banks, although it
it is to conduct its operations. It sets the limit to the total par or issued value of the
exceeds 15
shares which a corporation may issue.
Note: The law is silent as to the matter of whether the articles of incorporation of
AUTHORIZED CAPITAL STOCK is the amount of capital which the corporation
a stock corporation may be amended to increase the number of its directors to
may raise through issuance of shares of stock.
more than 15, or to decrease the number to less than 5. Many of the provisions of
the Code preclude a one-man directorate (e.g. requirement for the organization of
SUBSCRIPTION is the mutual agreement of the subscribers to take and pay for
the board by the election of at least 3 named officers, requirement of a quorum
the stock of a corporation.
and meeting of the board for a valid corporate act). The idea behind a board of
directors is to give the stockholder the benefit of decisions reached after a careful
PRE-INCORPORATION SUBSCRIPTION is the amount which each incorporator
deliberation among several persons on whose judgment and discretion the
or stockholder agrees to contribute to a proposed corporation.
stockholders have reposed their confidence and trust.
A PAR VALUE SHARE is one in the certificate of stock of which appears an
Qualifications –
amount in pesos as the nominal value of the shares. It cannot be issued at less
(1) If STOCK, director must own at least 1 share of the capital stock,
than such par value, which can be changed only by an amendment of the articles
which stock shall stand in his own name (Sec. 23 CCP)
of incorporation.
XPN: Trustee in a voting trust may be elected director/trustee.
(2) If NON-STOCK, trustee must be a member.
ISSUED VALUE is the consideration for which no par value shares may be
(3) Majority of the directors/trustees must be residents of the Philippines.
issued. Their issuance cannot be less than the issued value. This may be fixed in
(4) Natural person
any of 3 ways:
(5) Of Legal Age
1. by the articles of incorporation
(6) Other qualifications as may be prescribed in the by-laws of the
2. by the board of directors when so authorized by said articles or by the by-laws;
corporation.
3. by the stockholders representing at least a majority of the outstanding capital
stocks.
Disqualifications –
(1) Convicted by final judgment of an offense punishable by
imprisonment for a period exceeding 6 years;  Except as otherwise provided by special law, stock corporations shall not
(2) A violation of the Corporation Code, committed within five years from be required to have a minimum authorized capital stock, but this is subject
to Sec. 13 quoted above. This is to ensure to some extent the adequacy of
the date of his election. This includes violations of rules and
corporate capitalization for the protection of third persons who may deal
regulations issued by the SEC to implement the provisions of the
Corporation Code. with the corporation.
 The Treasurer of the corporation must make a sworn statement that these
CAPITAL STOCK, SUBSCRIPTION & PAYMENT minimum requirements of subscription and payment have been complied
with, otherwise the articles of incorporation will not be accepted by the
Sec. 13. Amount of capital stock to be subscribed and paid for the SEC. If such statement is found to be false, the articles will be disapproved.
purposes of incorporation. - At least twenty-five percent (25%) of the If discovery of the falsity is made after the articles have been filed and
authorized capital stock as stated in the articles of incorporation must be approved, such falsity or fraud may be ground for the revocation of the
subscribed at the time of incorporation, and at least twenty-five (25%) per cent corporation’s certificate of registration.
of the total subscription must be paid upon subscription, the balance to be
payable on a date or dates fixed in the contract of subscription without need of FILING OF ARTICLES; PAYMENT OF FEES
call, or in the absence of a fixed date or dates, upon call for payment by the  After the articles of incorporation and the treasurer’s affidavit have
board of directors: Provided, however, That in no case shall the paid-up capital been duly signed and acknowledged, these must be filed with the
be less than five Thousand (P5,000.00) pesos. SEC and the corresponding fees must be paid.
 Failure to file the articles of incorporation will prevent due
CAPITAL – anything of value owned or acquired by the corporation incorporation of the proposed corporation and will not give rise to its
juridical personality. It will not even be a de facto corporation.
STOCK – smallest unit of participation in the totality of the interest in the
corporation; it is the basic unit of propriety interest in the corporation Registration of AoI –
 Documents to be filed with SEC
(1) Articles of Incorporation
Corporation Law (BP Blg 68) May 1980 7
ZMMolina
(2) Treasurer’s Affidavit certifying that 25% of the total authorized
capital stock has been subscribed and at least 25% of such has been
fully paid in cash or property.
(3) Bank certificate covering the paid-up capital. (Note: Current SEC
rules no longer require this if payment for shares is made in cash)
(4) Letter authority authorizing the SEC to examine the bank deposit
and other corporate books and records to determine the existence of
paid-up capital.
(5) Undertaking to change the corporate Name in case there is
another person or entity with same or similar name that was
previously registered.
(6) Certificate of authority from proper Government agency whenever
appropriate like BSP for banks and Insurance Commission for
insurance corporations.

EXAMINATION OF ARTICLES; APPROVAL OR REJECTION BY SEC

Grounds for Disapproving AoI (Sec17 CCP)


(1) AOI does not SUBSTANTIALLY comply with the form prescribed
(2) Purpose is patently unconstitutional, illegal, immoral, contrary to
government rules and regulations
(3) Treasurer’s Affidavit concerning the amount of capital subscribed and
or paid is false
(4) Required percentage of ownership of Filipino citizens has not been
complied with.

Note: Remedy in case of rejection of AOI: Petition for review in accordance with
the Rules of Court (Sec. 6, last par., PD 902-A)

 The SEC may, after consulting with the Board of Investments, NEDA,
or any appropriate government agency, deny registration of any
corporation, partnership or association if its establishment,
organization or operation will not be consistent with the declared
national economic policies.

ISSUANCE OF CERTIFICATE OF INCORPORATION – SEC

Sec. 19. Commencement of corporate existence. - A private corporation


formed or organized under this Code commences to have corporate existence
and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues a certificate of incorporation under
its official seal; and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and corporate under the name
stated in the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in
accordance with law.

Effect: Commencement of corporate existence and juridical personality (Sec. 19


CCP)
 Revocation of certificate of incorporation: If incorporators are
found guilty of fraud in procuring the same after due notice and
hearing (Sec. 6(i), PD 902-A)