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
corporations. GOCCs may be established by special charters.
Note: Consent of the State is indispensable. It shields legislators from favouring
private corporations. [Bonilla]
Sec10 ArtXII: Congress shall reserve to citizens of the Philippines 60% of whose
capital is owned by Filipinos or higher. In grant of rights, privileges and
concessions covering the national economy and patrimony – State shall give
preference to qualified Filipinos.
Sec11, ArtXII: No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted xp to citizens of the Philippines or to
corporations organized under the laws of the Philippines, at least 60% of whose
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.
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
any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
Regalian Doctrine (Sec2 ArtXII): Corporations must be 60% Filipino owned. 25
years contract – 50 years maximum. Financial and Technical Assistance
Agreements (joint ventures) – Fil + For
Filipinization requirement – 60-40 shares
Constitutional Rights: DPL & EPC – no qualification of the term “person”;
Corporations are protected by the constitutional guarantee against unreasonable
searches and seizures. But court ruled that the corporate officers cannot contest
the legality of the seizure because such is personal. [Stonehill vs Diokno];
Corporation has no right to claim protection against self-incrimination because
such is applicable to natural persons only.
SEC – Administrative supervision. Quasi-judicial body charged with the
enforcement of all laws affecting corporations.
Sec. 3, PD 902-A. The Commission shall have jurisdiction and supervision
over all corporations, partnerships or associations who are the grantees of
primary franchises and/or license or permit issued by the government, to
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
agencies of the government, civil or military as well as any private institution,
corporation, firm, association or person. (As amended by PD 1758)
CAPITAL & CONTROL [Bonilla]
Single Proprietorship – limited CAP but full CTRL
Partnership – bigger CAP but diluted CTRL
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
Stockholders have a direct CTRL on it.
Sec.2 Corporation – artificial being created by operation of law, having the
right of succession and powers, attributes and properties authorized by law or
incidental to its existence. [ALS-PAPIE]
A corporation is a group of individuals who decide to get together. The State
participates in forming a corporation because its creation is subject to State´s
approval. [Bonilla]
 Any rights accrued or liabilities incurred prior to the effectivity of the
Corporation Code in favor of or against a corporation, its stockholders
or members must be respected.
Four Attributes of a Corporation:
1. ARTIFICIAL BEING WITH A SEPARATE PERSONALITY
It is a fiction of law that creates the “person” of the corporation, with
the same attributes of an individual with full capacity to enter into
contractual relations.
 Stockholders are not personally liable for corporate obligations and
cannot be held liable to third persons who have claims against the
corporation beyond their agreed contribution to the corporate capital;
neither may the corporation be liable for the personal obligations of its
stockholders
Note: Doctrine of Separate Legal Personality: A corporation, upon coming into
existence, is divested by law with a personality separate and distinct from those
persons composing it as well as from any other legal entity to which it may be
related.
Even if an individual is the owner of the corporation, the corporation is its own
person as far as managing is concerned. Corporation may run its own affairs
separate from its members. It may have stronger rights than its members.
[Bonilla]
 Assets of the corporation belong to the corporation and not owned by
the stockholders or members. [SJS vs CA]
 GR: Liabilities of the corporation cannot be held against its directors,
officers or shareholders, vv. [Francisco vs CA]
 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
officer will be held solidarily liable with the corporation.
 GR: Damages – cannot be awarded in favor of corporations because
they do not have feelings and mental state (juridical in nature).
[Crystal vs BPI] They may not even claim moral damages for
besmirched reputation. XPN: Corporation can recover moral
damages under Art 2219 (7) if it was the victim of defamation, slander
and libel [PBN vs Ago Medical].
 Criminal Liability – Corporation as a person is a mere legal fiction, it
cannot be proceeded against criminally because it cannot commit a
crime in which personal violence or malicious intent is required.
Criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself.
2. CREATED BY OPERATION OF LAW
Juridical existence of a corporation is dependent on the consent or
grant of the State. A corporation cannot come into being by mere
consent of the parties, there must be a law granting it (Congress or
State) and once granted, forms the primary franchise of the
corporation. [Villanueva]
XPN: Corporation by Prescription – RCC (Sec110 CCP)
 Corporation Code: the general law under which a private corporation
may be formed or organized. Primary Franchise: a corporation’s
right to exist and act as a legal entity. Charter: a special law by which
a government corporation is normally created.
3. RIGHTS OF SUCCESSION
Corporation has the capacity for continuous existence despite the
death or replacement of its shareholders or members for it has a
personality separate and distinct from those who compose it.
[Villanueva]
 A corporation’s continued existence during the term stated in its
articles of incorporation cannot be affected by any change in the
members or stockholders by death, insolvency or incapacity; nor is it
affected by the transfer of shares by a stockholder to a third person.
 Not exceeding 50 years from date of incorporation unless extended.
(Sec11 CCP)
4. CREATURE OF ENUMERATED POWERS; ATTRIBUTES AND
PROPERTIES
Corporation is a creature of limited powers such as those expressly
conferred on it by law or AoI, those that are reasonably necessary to
accomplish its purpose and those that are implied by or are incidental
to its existence. [Villanueva]
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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.

 Holding Company: a parent company which has no other business
aside from the holding of the shares of its subsidiaries which it
controls
 Investment Company: a parent company which holds shares in
other corporations not for the purpose of controlling them but merely
to invest therein.
PUBLIC CORPORATION PRIVATE CORPORATION
Set up by the gov´t who decide to help it Set uo by individuals who decide to
administer its territory [Bonilla] engage in profit or non-profit objectives
[Bonilla]
Formed or organized for the gov´t or a Formed or organized for some private
portion of the State purpose, benefit, aim or end
Created for political purposes connected
with the public good in the administration
of civil gov´t
Created by its own charter, CCP is only Created under the CCP 1980
supplementary
DOMESTIC CORPORATION FOREIGN CORPORATION
Formed, organized or existing under Formed, organized or existing under
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
country.
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
under EO 226; After complying with the conditions for issuance of license on
application forms, structural organizations and capitalization. [Villanueva]
Incorporation Test: Used to determine whether the corporation is a domestic or
foreign corporation. [Bonilla]
Another test to determine the nationality of the corporation is the Control Test
where you look at the controlling stockholders or of the corporation. [Bonilla]
Grandfather Rule is the method of checking the degree of percentage of
ownership of nationals and foreign corporations investing in a subsidiary
corporation in connection to nationalized industries. Rule is applied where 2 or
more corporations involved, one owning the other. (See Narra vs Redmont)
[Bonilla]
 The Grandfather Rule must be applied to accurately determine the
actual participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business.
 Compliance with the constitutional limitation(s) on engaging in
nationalized activities must be determined by ascertaining if 60% of
the investing corporation’s outstanding capital stock is owned by
“Filipino citizens”, or as interpreted, by natural or individual Filipino
citizens. If such investing corporation is in turn owned to some extent
by another investing corporation, the same process must be
observed. One must not stop until the citizenships of the individual or
natural stockholders of layer after layer of investing corporations have
been established, the very essence of the Grandfather Rule.
Example: Corp A owns Corp B. Corp B is 40% owned by Corp A. Corp A is 40%
Filipino-owned. Therefore, Corp B is 16% Filipino-owned.
SHARE of STOCK
 Means of getting the resources from people and even the gov´t. Once
you buy a SoS, your investment now is owned by the corporation.
[Bonilla]
 SoS merely promises that if the company earns money and if the
company decides to distribute the dividends, the holder will be entitled
to a portion of the profits. However, the company still has the decision
whether or not it will distribute the profits. [Id]
 Purpose of trading stock is, not so much the dividends but, more of
the capital gains earned. The promise of dividends generates huge
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]
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 SoS is an intangible property as compared to the Certificate of Stock,
which is the evidence owning a SoS in the company. [Id]
 The one who buys SoS executes a subscription agreement and
becomes a subscriber to the SoS. In this case, the subscriber
becomes a debtor of the corporation but when fully paid his
subscription, he is no longer indebted to the corporation. [Id]
CAPITAL STOCK –
 Outstanding Capital Stock
 Total SoS issued to subscribers or stockholders, whether or not fully
or partially paid (as long as there is a binding subscription
agreement), xp treasury shares. (Sec137 CCP)
 SEC ruled that “capital stock” or “authorized capital stock” is the
amount fixed in the AoI that may be subscribed and paid by the
stockholders of the corporation. [Villanueva]
Note: CAPSTOCK contains two items: 1. Portion which have been paid by the
stockholders and 2. Portion which is to be paid on the subscriptions [Id]
 It is the contribution of people for the corporation to run its business.
The SoS is the evidence that they contributed to the capital stock.
[Bonilla]
FORMATION & ORGANIZATION OF A CORPORATION
Who may form a Corporation?
Sec. 10. Number and qualifications of incorporators. - Any number of
natural persons not less than five (5) but not more than fifteen (15), all of legal
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
stock corporation must own or be a subscriber to at least one (1) share of the
capital stock of the corporation
CORPORATORS INCORPORATORS
Temporary Permanent
Was not part of the beginning of the Helped start the corporation
corporation
Corporation may be a corporator but A corporation not an incorporator
not an incorporator because it should be a natural person
Cannot sign in the AoI Signs and executes the AoI
 The law, however, does not preclude corporations and partnerships
from being stockholders or members as long as they are not
incorporators.
1. At Least 5 incorporators –
 Any number from 5-15
 At least 5 incorporators must sign the articles of incorporation. Where
the business is actually owned by only one individual, it is still
possible for him to incorporate by giving nominal ownership of only
one share of stock to each of 4 other persons.
2. Residence and Citizenship Requirements –
 There is no general requirement of Philippine citizenship. However,
by virtue of the Constitution and various special laws, there are some
areas of business and industry wherein ownership is reserved, wholly
or partially, in favor of Filipino citizens (public utilities, retail trade,
banks, investment houses, savings and loan associations, schools).
 Even in areas where there are no legal restrictions as to alien
ownership, when more than 40% of the outstanding capital of a
proposed corporation is to be owned/controlled by aliens, a written
Board of Investments before it can register with the SEC to enable the
BOI to determine whether such corporation would contribute to the
sound and balanced development of the national economy.
 To insure the minimum limitation on Filipino ownership is maintained,
a timely notice must be given by the corporation to the SEC and the
stock exchanges, stating the exact number of shares which may be
sold without impairing such limitation.

 There is no general prohibition for a foreigner to become an
incorporator; the only requirement is that MAJORITY of incorporators
are residents.
Note: foreigners may be a resident alien.
3. Owns at least 1 share –
 Each incorporator must own or be a subscriber to at least 1 share of
the capital stock of the corporation.
EQUALITY OF SHARES Doctrine –
Except as otherwise provided by AoI and stated in the CoS, Each
share shall be in all respects equal to other shares. (Sec6 CCP)
 Those enumerated in Sec6(5) CCP are matters that all shares have a
right to vote even if they may have been denied because thay are
major changes in the AoI. [Id]
STEPS IN THE FORMATION OF A CORPORATION
1. Promotional Stage
2. Registration
3. Organization
PROMOTER –
 Promoters are persons who, acting alone or with others, take initiative
in founding and organizing the business or enterprise of the issuer
and receives consideration. (RA 8799, The Securities Regulation
Code).
 One who brings together persons who become interested in the
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
necessary, buys the rights and property which the business may
need, with the understanding that the corporation, when formed, shall
take over the same. [Campos]
Liability of a Promoter:
GR: The promoter binds himself PERSONALLY & assumes the responsibility of
looking to the proposed corporation for reimbursement.
XPNs: (1) Express or implied agreement to the contrary and (2) Novation, not
merely adoption or ratification of the contract
Liability of Corporation for Promoter´s Contracts:
GR: A corporation is NOT bound by the contract. A corporation, until organized,
has no life and no legal existence. It could not have had an agent (the promoter)
who could legally bind it.
XPNs: A corporation may be bound by the contract if it makes the contract its
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
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
under the contract with knowledge of the terms. (3) Performance of its obligation
under the contract.
DRAFTING THE ARTICLES OF INCORPORATION
Sec. 14. Contents of the articles of incorporation. - All corporations
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
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
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
non-stock corporation may not include a purpose which would change or
contradict its nature as such; 3. The place where the principal office of the
corporation is to be located, which must be within the Philippines; 4. The term
for which the corporation is to exist;
Corporation Law (BP Blg 68) May 1980 4
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5. The names, nationalities and residences of the incorporators; 6. The number
of directors or trustees, which shall not be less than five (5) nor more than fifteen
(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
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
number of shares into which it is divided, and in case the share are par value
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
subscription, and if some or all of the shares are without par value, such fact
must be stated; 9. If it be a non-stock corporation, the amount of its capital, the
names, nationalities and residences of the contributors and the amount
contributed by each; and 10. Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and convenient. The
Securities and Exchange Commission shall not accept the articles of
incorporation of any stock corporation unless accompanied by a sworn
statement of the Treasurer elected by the subscribers showing that at least
twenty-five (25%) percent of the authorized capital stock of the corporation has
been subscribed, and at least twenty-five (25%) of the total subscription has
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
of Articles of Incorporation. - Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall comply substantially with the
following form:
ARTICLES OF INCORPORATION OF __________________________ (Name
of Corporation)
KNOW ALL MEN BY THESE PRESENTS: The undersigned incorporators, all of
legal age and a majority of whom are residents of the Philippines, have this day
voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the
Republic of the Philippines; AND
WE HEREBY CERTIFY: FIRST: That the name of said corporation shall be ",
INC. or CORPORATION"; SECOND: That the purpose or purposes for which
such corporation is incorporated are: (If there is more than one purpose, indicate
primary and secondary purposes); THIRD: That the principal office of the
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
after the date of issuance of the certificate of incorporation; FIFTH: That the
names, nationalities and residences of the incorporators of the corporation are
as follows:
NAME
NATIONALITY
RESIDENCE . . . . .
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
corporation are as follows:
NAME
NATIONALITY
RESIDENCE . . . . .
SEVENTH: That the authorized capital stock of the corporation is(P) PESOS in
lawful money of the Philippines, divided intoshares with the par value of(P.)
Pesos per share. (In case all the share are without par value): That the capital
stock of the corporation is shares without par value. (In case some shares have
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.)

PESOS each, and of which. shares are without par value. EIGHTH: That at least
twenty five (25%) per cent of the authorized capital stock above stated has been
subscribed as follows: Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed
NINTH: That the above-named subscribers have paid at least twenty-five (25%)
percent of the total subscription as follows: Name of Subscriber Amount
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
modified accordingly, and it is sufficient if the articles state the amount of capital
or money contributed or donated by specified persons, stating the names,
nationalities and residences of the contributors or donors and the respective
amount given by each.) TENTH: Thathas been elected by the subscribers as
Treasurer of the Corporation to act as such until his successor is duly elected
and qualified in accordance with the by-laws, and that as such Treasurer, he
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
by the subscribers or members. ELEVENTH: (Corporations which will engage in
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
citizens to less than the required percentage of the capital stock as provided by
existing laws shall be allowed or permitted to recorded in the proper books of
the corporation and this restriction shall be indicated in all stock certificates
issued by the corporation."
IN WITNESS WHEREOF, we have hereunto signed these Articles of
Incorporation, thisday of., 19in the City/Municipality of., Province of, Republic of
the Philippines. (Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF: (Notarial Acknowledgment) TREASURER'S
AFFIDAVIT REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF )
S.S. PROVINCE OF ) I,., being duly sworn, depose and say: That I have been
elected by the subscribers of the corporation as Treasurer thereof, to act as
such until my successor has been duly elected and qualified in accordance with
the by-laws of the corporation, and that as such Treasurer, I hereby certify under
oath that at least 25% of the authorized capital stock of the corporation has
been subscribed and at least 25% of the total subscription has been paid, and
received by me, in cash or property, in the amount of not less than P5,000.00, in
accordance with the Corporation Code. (Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the
City/Municipality of. Province of., this day of.............., 19.......;
by........................................... with Res. Cert. No..................... issued
at................ on....................., 19......... NOTARY PUBLIC My commission
expires on.........................., 19....... Doc. No...............; Page No...............; Book
No..............; Series of 19..... (7a)
Nature & Functions of Articles:
(1) Constitutes the charter of the corporation and sets forth the rules and
conditions upon which the association or corporation is founded
(2) Defines the contractual relationships between the State and the corporation,
the stockholders and the State, and the corporation and the stockholders
(3) The Articles must be filed with the SEC for the issuance of the Certificate of
Incorporation
CONTENTS:
1. CORPORATE NAME
A. Must not be identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already
protected by law
B. Not patently deceptive, confusing or contrary to existing laws
 Through the corporate name, the corporation can sue and be sued
and perform all legal acts
 Required by law to include the word “Corporation” or “Inc.”
 Change of corporate name requires the amendment of the AOI:
majority vote of the board and the vote or written assent of
stockholders holding 2/3 of the outstanding capital stock (Sec. 16
CCP)
 Amendment of a corporation’s AOI changing its corporate name does
not extinguish the personality of the original corporation. It is the
Corporation Law (BP Blg 68) May 1980 5
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same corporation with a different name, and its character is not
changed. Consequently, the “new” corporation is still liable for the
debts and obligations of the “old” corporation.
 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
changed its name should be brought under the new name although for the
enforcement of rights existing at the time the change was made.
2. PURPOSE CLAUSE
 Must indicate the PRIMARY and SECONDARY purposes if there is
more than one purpose, which should not contradict or change the
nature of the corporation (Sec. 14(2) CCP)
 Must be specific and only one primary purpose but can be unlimited
secondary purpose
 Must not be patently unconstitutional, illegal, immoral, and contrary to
government rules and regulations (Sec. 17 (2) CCP)
 Must not be for the purpose of practicing a profession
3. PRINCIPAL OFFICE OF THE CORPORATION
 Must be within the Philippines (Sec. 14 (3) CCP)
 AOI must specify both province or city or town where it is located
 A specific address is now required; Metro Manila is no longer allowed
(SEC Circular No. 3-2006)
Important for: (a) determining venue in an action by or against the corporation,
and (b) determining the province where a chattel mortgage of shares should be
registered
4. TERM OF EXISTENCE
Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding
fifty (50) years from the date of incorporation unless sooner dissolved or unless
said period is extended. The corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding fifty (50) years in any
single instance by an amendment of the articles of incorporation, in accordance
with this Code; Provided, That no extension can be made earlier than five (5)
years prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by the
Securities and Exchange Commission.
 Maximum life of 50 years.
 Extendible for a period not exceeding 50 years at any one instance.
There is no limit to extensions. No extension, however, can be made
earlier than 5 years before the end of the term. (Sec. 11 CCP)
o Extension requires an amendment of the AOI subject to
the exercise of appraisal right by the dissenting
stockholder (Sec. 37 CCP)
 The corporation cannot be extended after its term expires; the term
should be extended before its expiration.
TRUST FUND Doctrine –
provides that subscriptions to the capital stock of a corporation constitute a fund
to which the creditors have a right to look for the satisfaction of their claims.
 Under Sec. 43 of Code, the corporation can declare dividends only
out of "unrestricted retained earnings;" and that under Sec. 122, no
corporation shall distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts and liabilities.
These provisions in essence provide for the "trust fund doctrine"
where the "subscription to the capital of a corporation constitute a
fund to which creditors have a right to look for satisfaction of their
claims."
 This doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in Corporation Code, which
allows the distribution of corporate capital only in three instances: (1)
amendment of the Articles of Incorporation to reduce the authorized
capital stock, (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3)
dissolution and eventual liquidation of the corporation.

 Capital stock, properties and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors.
Stated simply, the trust fund doctrine states that all funds received by
the corporation in payment of the shares of stock shall be held in trust
for the corporate creditors and other stockholders of the corporation.
Under such doctrine no fund shall be used to buy back the issued
shares of stock except only in instances specifically allowed by the
Corporation Code.
INCORPORATORS and DIRECTORS –
Stock Corporations – the Code sets the limit to the number of Directors to not
less than 5 nor more than 15
Non-stock Corporations – the Articles of Incorporation or By-Laws may provide
for more than 15 trustees, except educational non-stock corporations – trustees
must be in multiples of 5
Merger of banks – allows new board to have such number of directors as is
equivalent to the total number of directors of the merging banks, although it
exceeds 15
Note: The law is silent as to the matter of whether the articles of incorporation of
a stock corporation may be amended to increase the number of its directors to
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
the board by the election of at least 3 named officers, requirement of a quorum
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
deliberation among several persons on whose judgment and discretion the
stockholders have reposed their confidence and trust.
Qualifications –
(1) If STOCK, director must own at least 1 share of the capital stock,
which stock shall stand in his own name (Sec. 23 CCP)
XPN: Trustee in a voting trust may be elected director/trustee.
(2) If NON-STOCK, trustee must be a member.
(3) Majority of the directors/trustees must be residents of the Philippines.
(4) Natural person
(5) Of Legal Age
(6) Other qualifications as may be prescribed in the by-laws of the
corporation.
Disqualifications –
(1) Convicted by final judgment of an offense punishable by
imprisonment for a period exceeding 6 years;
(2) A violation of the Corporation Code, committed within five years from
the date of his election. This includes violations of rules and
regulations issued by the SEC to implement the provisions of the
Corporation Code.
CAPITAL STOCK, SUBSCRIPTION & PAYMENT
Sec. 13. Amount of capital stock to be subscribed and paid for the
purposes of incorporation. - At least twenty-five percent (25%) of the
authorized capital stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least twenty-five (25%) per cent
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
call, or in the absence of a fixed date or dates, upon call for payment by the
board of directors: Provided, however, That in no case shall the paid-up capital
be less than five Thousand (P5,000.00) pesos.
CAPITAL – anything of value owned or acquired by the 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
Corporation Law (BP Blg 68) May 1980 6
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Minimum Capital Stock
Stock corporations incorporated under the Corporation Code shall not
be required to have a minimum authorized capital stock.
XPN: As provided for by special law and subject to the
provisions of Sec. 13 CCP
SUBSCRIPTION Requirement –
The amount of capital stock to be subscribed and paid for the purposes of
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;
(3) The balance to be payable on
(a) Dates fixed in the subscription contract or
(b) Upon call by the BOD in the absence of fixed dates
(4) The paid-up capital can in no case be lower than P5,000.00
SHARES OF STOCK is the smallest measure of ownership in the corporation
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
corporation, at the organization of the corporation or afterwards, and upon which
it is to conduct its operations. It sets the limit to the total par or issued value of the
shares which a corporation may issue.
AUTHORIZED CAPITAL STOCK is the amount of capital which the corporation
may raise through issuance of shares of stock.
SUBSCRIPTION is the mutual agreement of the subscribers to take and pay for
the stock of a corporation.
PRE-INCORPORATION SUBSCRIPTION is the amount which each incorporator
or stockholder agrees to contribute to a proposed corporation.
A PAR VALUE SHARE is one in the certificate of stock of which appears an
amount in pesos as the nominal value of the shares. It cannot be issued at less
than such par value, which can be changed only by an amendment of the articles
of incorporation.
ISSUED VALUE is the consideration for which no par value shares may be
issued. Their issuance cannot be less than the issued value. This may be fixed in
any of 3 ways:
1. by the articles of incorporation
2. by the board of directors when so authorized by said articles or by the by-laws;
3. by the stockholders representing at least a majority of the outstanding capital
stocks.
 Except as otherwise provided by special law, stock corporations shall not
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
corporate capitalization for the protection of third persons who may deal
with the corporation.
 The Treasurer of the corporation must make a sworn statement that these
minimum requirements of subscription and payment have been complied
with, otherwise the articles of incorporation will not be accepted by the
SEC. If such statement is found to be false, the articles will be disapproved.
If discovery of the falsity is made after the articles have been filed and
approved, such falsity or fraud may be ground for the revocation of the
corporation’s certificate of registration.
FILING OF ARTICLES; PAYMENT OF FEES
 After the articles of incorporation and the treasurer’s affidavit have
been duly signed and acknowledged, these must be filed with the
SEC and the corresponding fees must be paid.
 Failure to file the articles of incorporation will prevent due
incorporation of the proposed corporation and will not give rise to its
juridical personality. It will not even be a de facto corporation.
Registration of AoI –
 Documents to be filed with SEC
(1) Articles of Incorporation
 Corporation Law (BP Blg 68) May 1980 7
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(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)