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ARTICLES OF INCORPORATION
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1
Government of the P.I. v. Manila Railroad Co., 52 Phil. 699 (1929).
2
strict rules to be followed in its registration and the manner by which any portion
thereof may be amended. Nevertheless, it is pointed out in the discussions in
that chapter that the limiting effects of provisions of the articles of incorporation
on corporate contracts with the public, has been tempered by the Supreme
Court by the manner is has applied the ultra vires doctrine.
The purpose of the present chapter is really to discuss more the
mechanical features of adopting and amending the articles of incorporation and
to look into its basic provisions.
2
Sec. 14, Corporation Code
3
Sec. 17, Corporation Code.
4
Sec. 6(k), Pres. Decree 902-A.
3
5
Rep. Act 8791.
4
1. Treasurer's Affidavit
The SEC shall not accept articles of incorporation of a stock corporation
unless accompanied by a sworn statement by the Treasurer that at least twenty-
five percent (25%) of the total capital stock authorized is subscribed and at least
twenty-five percent (25%) of such have been fully paid in cash or property—fair
valuation of which is equal to at least twenty-five percent (25%) of the said
subscription. Such paid-up capital shall be no less than P5,000.00.
5
6
SEC Opinion, 18 April 1995, XXIX SEC QUARTERLY BULLETIN 41 (No. 3, Sept. 1995).
7
Sec. 1, SEC GUIDELINES FOR THE VERIFICATIONS OF THE PAID-UP CAPITAL (CASH) OF
CORPORATIONS (1976).
8
Sec. 2, ibid.
9
SEC Opinion, 8 October 1993, XXVIII SEC QUARTERLY BULLETIN 24 (No. 1, March 1994),
citing Wise Co., Inc. v. Man Sung Lung, 69 Phil. 308 (1940).
6
The SEC also requires that incorporators are required to submit a written
undertaking to change their partnership or corporate name in case there is
another person, firm or entity with a prior right to the use of the said name or one
similar to it.10
CORPORATE NAME
The incorporators "constitute a body politic and corporate under the name
stated in the certificate."11 A corporation has the power "of succession by its
corporate name."12 The name of a corporation is therefore essential to its
existence; it cannot change its name except in the manner provided by the
statute; by that name alone is it authorized to transact business;13 and it is by
that name that a corporation can sue and be sued, and perform all other legal
acts.
Since the corporate name is the main practical means of identifying
corporation from its members or stockholders, and other entities, the
Corporation Code does not allow a corporation to adopt a name identical or
deceptively or confusingly similar or to any other name already protected by law
or which is patently deceptive, confusing or contrary to existing laws.14
In Red Line Trans. v. Rural Transit,15 it was held that a corporation may
use another name as a business or brand name, but a corporation cannot use
another corporation's name because it will only confuse the public. The name of
the corporation is essential to its existence.
In Laureano Investment and Development Corp. v. Court of Appeals,16it
was held that a corporation has no right to intervene in a suit using a name other
than its registered name, and if the corporation legally and truly wanted to
intervene, it should have used its corporate name as the law requires and not
another name which it had not registered.
Nevertheless, the Supreme Court has held that there would be no denial
of due process when a corporation is sued and judgment is rendered against it
10
SEC GUIDELINES IN THE APPROVAL OF CORPORATE AND PARTNERSHIP NAMES (1977).
11
Section 19, Corporation Code.
12
Ibid.
13
Red Line Transportation Co v. Rural Transit Co., 60 Phil. 549 (1934).
14
Sec. 18, Corporation Code.
For as long as the corporation is still existing, regardless of whether or not it is in
operation, its corporate name cannot again be used by any other group. This is clear from the
provision of Section 18 of the Corporation Code which provides that no corporate name may be
allowed by the SEC that is identical or deceptively or confusingly similar to that of “any existing
corporation.” SEC Opinion, 21 September 1993, XXVIII SEC QUARTERLY BULLETIN 7 (No. 1,
March 1994).
15
60 Phil. 549 (1934).
16
272 SCRA 253 (1997).
7
under its unregistered trade name, holding that “[a] corporation may be sued
under the name by which it makes itself known to its workers.17
17
Pison-Arceo Agricultrual and Development Corp. v. NLRC, 87 SCAD 175, 279 SCRA
312 (1997).
18
SEC Memorandum No. 14, Series of 2000 (24 October 2000).
8
PURPOSE CLAUSE
The significance of the purpose clause in the articles of incorporation is
that it confers, as well as limits, the powers which a corporation may exercise.
The purpose clause must specify which is the corporation's primary purpose and
19
34 SCRA 252 (1970).
20
SEC Opinion, 2 October 1986, XX SEC QUARTERLY BULLETIN 40 (Nos. 3 & 4, Sept. &
Dec., 1986).
10
which are the secondary purpose. The secondary purpose or purposes need not
be related to the main purpose.
Some of the other reasons for indicating purpose in the charter of the
corporation are so that:
21
40 Phil. 541 (1919).
22
Sec. 6(k)7, Pres. Decree 90-2A.
23
18 SCRA 924 (1966).
11
The Court held that the impact of the questioned provisions of the articles
of incorporation upon the traditional fiduciary relationship between the directors
and the stockholders of a corporation would be too obvious to escape notice by
those who are called upon to protect the interest of investors. The Court found
that the provisions would authorize the directors and officers of the company to
do anything, short of actual fraud, with the affairs of the corporation even to
benefit themselves directly or other persons or entities in which they are
interested, and with immunity because of the advance condonation or relief from
responsibility by reason of such acts.
Asuncion v. De Yriarte,25 held that when on the face of the articles of
incorporation presented for registration it is shown that it is organized for a
purpose contrary to law or public policy, the same may be denied outright
registration. In Asuncion where the purpose in the articles of incorporation
sought to take possession and control of municipal property within a barrio and
administer the same exclusively for the benefit of the residents of the barrio, said
articles of incorporation showed the object of the incorporation to be unlawful in
that it sought to deprive the municipality in which the barrio was situated of its
property and its citizens of the right of enjoying the same and would, if permitted,
disrupt and destroy the government of the municipalities of the State and
abrogate the laws relating to the formation and government of municipalities.
The articles were denied outright registration.
Asuncion held also that although the duties of the official concerned
happened to be ministerial, it does not necessarily follow that he may not, in the
administration of his office, determine question of law. It is his duty to determine
whether the objects of the corporation as expressed in the articles of
incorporation are lawful pursuant to the then Corporation Law. And just because
the articles of incorporation are perfect in form, it does not mean that the division
of the archives must accept and register them and issue the corresponding
24
Ibid, at pp. 942-943.
25
28 Phil. 67 (1914).
12
1. Residence of Corporation
Article 51 of the Civil Code provides that "when the law creating or
recognizing them, or any other provision does not fix the domicile of juridical
persons, the same shall be understood to be the place where their legal
representation is established or where they exercise their principal functions."
Clavecilla Radio System v. Antillon,32 held that the residence of a
corporation is the place where its principal office is established; it can be sued in
that place, not in the place where its branch office is located.
A corporation in a metaphysical sense is a resident of the place where its
principal office is located as stated in the articles of incorporation and cannot be
allowed to file a personal action in a place other than that place.33
Sy v. Tyson Enterprises, Inc.,34 held that the residence of the President
for purposes of venue and service of summons is not the residence of the
corporation because a corporation has a personality separate and distinct from
that of its officers and stockholders.
For purposes of venue in intra-corporate suits, under Section 1, Rule 1 of
the Interim Rules of Procedure for Intra-corporate Controversies, when the
articles of incorporation indicate that the principal place of business is “Metro
Manila,” as allowed under Section 51 of the Corporation Code, then the action
must be filed in the city or municipality where the head office is actually located.
31
Ibid.
32
19 SCRA 379 (1967).
33
Young Auto Supply Co v. Court of Appeals, 223 SCRA 670, 42 SCAD 673 (1993).
34
119 SCRA 367 (1982).
14
In one case35, the Supreme Court noted that the rationale of all rules for
service of process on corporation is that service must be made on a
representative so integrated with the corporation sued as to make it a priori
supposable that he will realize his responsibilities and know what he should do
with any legal papers served on him. It then held that service of summons upon
the assistant general manager has served the purpose of the law.
CORPORATE TERM
Section 11 of the Corporation Code provides that 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 period not exceeding fifty (50) years in any single instance
by an amendment in the articles of incorporation, provided that no extension can
be made earlier than five (5) years prior to the original or subsequent expiry date
unless there are justifiable reasons for an earlier extension.36
The corporation may virtually have a perpetual lifespan renewable every
fifty years. The limit of a fifty-year term emphasizes the contractual nature of the
corporation: people would be discourage to invest if it lasted forever;
management would theoretically be more honest—a renewal of the corporate
term would be a vote of confidence by the stockholders or members.
Benguet Consolidated Mining Co. v. Pineda,37 discussed the importance
of the corporate term as it is co-terminous with its possession of an independent
legal personality, distinct from that of its component members: "The State and
its officers also have an obvious interest in the term of life of associations, since
the conferment of juridical capacity upon them during such period is a privilege
that is derived from statute. . . And the State is naturally interest that this
privilege be enjoyed only under the conditions and not beyond the period that it
sees fit to grant; and, particularly, that it be not abused in fraud and to the
detriment of other parties; and for this reason it has been ruled that ‘the
limitation (of corporate existence) to a definite period is an exercise of control in
the interest of the public.’"38
35
Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 298 (1978).
36
Sec. 11, Corporation Code.
37
98 Phil. 711 (1956).
38
Ibid, at p. 719, citing Smith v. Eastwood Wire Manufacturing Co., 43 Atl. 568.
15
stated in the articles of incorporation for the period of the time mentioned
therein, unless said period is extended or the corporation is sooner dissolved in
accordance with law.
39
Government of the Philippine Islands v. El Hogar Filipino, 50 Phil. 399, 460-461 (1929).
40
Navarro, Two Points of Reform of Philippine Corporation Law, 35 PHIL. L. J. 598. "Not
much light is shed by writers and court decisions on the policy of the doctrine as stated in the
beginning. Historically, if credence be given to Kyd, the spectacle of one corporation being inside
another would be nothing new." (at p. 682).
16
The same author posited that the power to hold stock in other
corporations was not conferred or implied under the old practice. The holding
company was impossible. It was against this background that courts also held
that corporations could not themselves be incorporators. And although
corporations are now generally empowered by general laws to own stocks in
other corporations, we still carry to this day a relic of the past. The principle we
are discussing, thus, draws support exclusively from the "fiction" theory of
corporate personality.42 The same author further said:
41
Ibid, at p. 683.
42
Ibid, at p. 684.
43
Ibid.
44
SEC Opinion, 23 May 1967, SEC FOLIO 1960-1976, at p. 284; Also, SEC Opinion, 14
November 1978.
45
SEC Opinion, 23 May 1967, SEC FOLIO 1960-1976, at p. 284.
46
SEC Opinion, 29 June 1976, SEC FOLIO 1960-1976, at p. 936.
17
47
SEC Opinion, 11 October 1971, SEC FOLIO 1960-1976, at p. 495.
48
SEC Opinion, 7 January 1974, VIII SEC QUARTERLY BULLETIN 21 ( No. I, Jan. 1974).
18
49
Guevarra, The Right of Incorporation Under Philippine Incorporation Law, 33 PHIL. L.J.
349 (1958).
19
50
Sec. 137, Corporation Code.
51
Guevarra, The Right of Incorporation under the Philippine Incorporation Law, 33 PHIL.
L.J. 349,350 (1958), quoting from SEC Order, dated 2 January 1958.
52
16 Wall., U.S. 390, 21 L. Ed. 361 (1873).
53
Guevarra, The Right of Incorporation Under the Philippine Incorporation Law, 33 PHIL.
L.J. 349, 357 (1958).
20
If no par value shares will be issued by the corporation, such fact must be
stated in the articles, and the consideration of their issuance cannot be less than
the issued value, which in turn cannot be less than five pesos for each.
The consideration for which no-par value shares may be issued is
referred to as its "issued value," may be fixed in any of three ways:
54
Sec. 62, Corporation Code.
55
Ibid.
56
Ibid.
57
Sec. 6, Corporation Code.
58
Sec. 16, Corporation Code.
59
Ibid.
21
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CORPORATION LAW\CORPMAN.DIR\07-29-2002