CORPORATION

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

 
ARTICLES  OF  INCORPORATION   located,  which  must  be  within  the  Philippines;  
  4. The  term  for  which  the  corporation  is  to  exist;  
I.  Nature  of  Charter:  The  charter  is  in  the  nature  of  a  contract  between   5. The  names,  nationalities  and  residences  of  the  incorporators;  
6. The   number   of   directors   or   trustees,   which   shall   not   be   less  
the   corporation   and   the   government.   Government   of   P.I.   v.   Manila  
than  five  (5)  nor  more  than  fifteen  (15);  
Railroad  Co.,  52  Phil.  699  (1929).  
7. The   names,   nationalities   and   residences   of   persons   who   shall  
• The   articles   of   incorporation   has   been   described   as   one   that  
act   as   directors   or   trustees   until   the   first   regular   directors   or  
defines   the   charter   of   the   corporation   and   the   contractual  
trustees  are  duly  elected  and  qualified  in  accordance  with  this  
relationships   between   the   state   and   the   corporation,   the  
Code;  
stockholders  and  the  State,  and  between  the  corporation  and  its  
8. If   it   be   a   stock   corporation,   the   amount   of   its   authorized  
stockholders.  Lanuza  v.  Court  of  Appeals,  454  SCRA  54  (2005).  
capital  stock  in  lawful  money  of  the  Philippines,  the  number  of  
 
shares   into   which   it   is   divided,   and   in   case   the   share   are   par  
II.  Procedure  and  Documentary  Requirements  (Section  14  and  15)  
value   shares,   the   par   value   of   each,   the   names,   nationalities  
 
and   residences   of   the   original   subscribers,   and   the   amount  
Section  14.  Contents  of  the  articles  of  incorporation.  
subscribed  and  paid  by  each  on  his  subscription,  and  if  some  or  
All  corporations  organized  under  this  code  shall  file  with  the  Securities  
all   of   the   shares   are   without   par   value,   such   fact   must   be  
and   Exchange   Commission   articles   of   incorporation   in   any   of   the  
stated;  
official   languages   duly   signed   and   acknowledged   by   all   of   the  
9. If  it  be  a  non-­‐stock  corporation,  the  amount  of  its  capital,  the  
incorporators,   containing   substantially   the   following   matters,   except  
names,   nationalities   and   residences   of   the   contributors   and  
as  otherwise  prescribed  by  this  Code  or  by  special  law:  
the  amount  contributed  by  each;  and  
1. The  name  of  the  corporation;  
10. Such   other   matters   as   are   not   inconsistent   with   law   and   which  
2. The  specific  purpose  or  purposes  for  which  the  corporation  is  
the  incorporators  may  deem  necessary  and  convenient.  
being   incorporated.   Where   a   corporation   has   more   than   one  
 
stated  purpose,  the  articles  of  incorporation  shall  state  which  
The   Securities   and   Exchange   Commission   shall   not   accept   the   articles  
is   the   primary   purpose   and   which   is/are   he   secondary   purpose  
of   incorporation   of   any   stock   corporation   unless   accompanied   by   a  
or   purposes:   Provided,   That   a   non-­‐stock   corporation   may   not  
sworn  statement  of  the  Treasurer  elected  by  the  subscribers  showing  
include   a   purpose   which   would   change   or   contradict   its   nature  
that  at  least  twenty-­‐five  (25%)  percent  of  the  authorized  capital  stock  
as  such;  
of   the   corporation   has   been   subscribed,   and   at   least   twenty-­‐five   (25%)  
3. The   place   where   the   principal   office   of   the   corporation   is   to   be  
of   the   total   subscription   has   been   fully   paid   to   him   in   actual   cash  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
and/or   in   property   the   fair   valuation   of   which   is   equal   to   at   least   • Only   natural   persons   can   be   incorporators.   However,   the   law  
twenty-­‐five   (25%)   percent   of   the   said   subscription,   such   paid-­‐up   does  not  preclude  corporations  and  partnership  from  becoming  
capital  being  not  less  than  five  thousand  (P5,000.00)  pesos.   stockholders  or  members  as  long  as  they  are  not  incorporators.1  
  • In   practice,   the   SEC   would   allow   the   incorporation   of   a  
A.  As  to  Number  and  Residency  of  Incorporators  (Section  10)   corporation   which   would   have   as   original   stockholder   in   the  
  articles   of   incorporation,   as   long   as   the   minimum   number   of  
Section  10.  Number  and  qualifications  of  incorporators.   individual  incorporators  appear.    
Any  number  of  natural  persons  not  less  than  five  (5)  but  not  more  than   o In  one  opinion,  the  SEC  has  posited  that  both  domestic  
fifteen   (15),   all   of   legal   age   and   a   majority   of   whom   are   residents   of   and   foreign   corporations,   if   allowed   by   their   charters,  
the  Philippines,  may  form  a  private  corporation  for  any  lawful  purpose   may   be   initial   subscribers   to   the   capital   stock   of   a  
or   purposes.   Each   of   the   incorporators   of   s   stock   corporation   must   corporation,   but   their   subscription   will   not   be  
own  or  be  a  subscriber  to  at  least  one  (1)  share  of  the  capital  stock  of   considered  in  the  computation  of  the  25%  requirement  
the  corporation.   for  incorporation.2    
  o The   SEC   also   requires   that   the   subscription   of  
• It   is   possible   for   a   business   to   be   wholly   owned   by   one   corporations  to  the  capital  stock  of  a  corporation  in  the  
individual,   and   the   validity   of   its   incorporation   is   not   affected   process   of   incorporation   be   fully   paid   due   to   their  
when  he  gives  nominal  ownership  of  only  one  share  of  stock  to   limited   liability   capacity; 3  but   after   incorporation,  
each   of   the   other   four   incorporators.   This   arrangement   is   not   corporations  may  subscribe  without  having  to  fully  pay  
necessarily   illegal,   but   it   is   valid   only   between   and   among   the   their   subscription   under   the   premise   that   the   risk   of  
incorporators   privy   to   the   agreement.   It   does   not   bind   the   insolvency  no  longer  exist  at  that  point.4  
corporation   which   will   consider   all   stockholders   of   record   as   the   • The   Corporation   Code   maintains   the   requirement   that   at   least  
lawful   owners   of   their   registered   shares.   As   between   the   five   (5)   individuals   must   be   incorporators   of   a   corporation   for  
corporation   on   the   one   hand,   and   its   stockholders   and   third   perhaps  a  more  practical  reason.    
persons  on  the  other,  the  corporation  looks  only  to  its  books  for  
the   purpose   of   determining   who   its   shareholders   are.   Nautica                                                                                                                  
1
 Government  of  the  Philippine  Islands  v.  El   Hogar  Filipino,  50  Phil.  399,  460-­‐461  
Canny  Corp.  v.  Yumul,  473  SCRA  415  (2005).  
(1929).    
2
 SEC  Opinion,  23  May  1967,  SEC  FOLIO  1960-­‐1976,  at  p.  284;  Also,  SEC  Opinion,  
14  November  1978.    
3
 SEC  Opinion,  23  May  1967,  SEC  FOLIO  1960-­‐1976,  at  p.  284.  
4
 SEC  Opinion,  29  June  1976,  SEC  FOLIO  1960-­‐1976,  at  p.  936.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
o Our   jurisdiction   recognizes   the   existence   of   promoter's   o There   is   no   general   requirement   of   Philippine  
contracts,   or   contracts   entered   into   on   behalf   of   a   citizenship  only  a  majority  of  the  incorporators  must  be  
corporation   still   in   the   process   of   organization.   Indeed,   residents   of   the   Philippines.   However,   there   are   some  
transactions   may   already   be   pursued   with   the   parties   areas   of   business   and   industry   wherein   ownership   is  
aware   that   the   corporation   is   still   under   registration   reserved,  wholly  or  partially  to  Filipinos.  
proceedings.   If   anything   goes   wrong   with   the   o Atty.   Hofileña   à   if   there   are   5   American   citizens   who  
incorporation   process,   and   there   may   have   been   wish  to  establish  a  foreign  brand  in  the  Philippines,  they  
liabilities  created  at  the  time  of  incorporation,  then  the   will  either  reside  in  the  Philippines  or  ask  people  to  act  
existence   of   five   individual   incorporators   allows   the   as  incorporators  (who  are  usually  their  lawyers).  
public   or   injured   party   to   run   after   the   persons   who   § Incorporators  are  not  at  all  times  the  promoters  
cannot  hide  behind  a  corporate  fiction  or  who  can  avail   or  majority  stockholders.  This  is  not  necessarily  
of   limited   liability   features.   In   addition,   there   must   still   illegal,   although   it   brings   out   the   problem  
indeed  be  individuals,  who  can  be  held  criminally  liable,   whereby   the   incorporators   are   not   necessarily  
for   acts   done   relating   to   incorporation   process.   Such   the   people   who   should   be   held   responsible  
remedies  would  be  unavailing  or  would  be  meaningless   since  they  are  not  the  promoters.  
if  the  incorporators  are  themselves  juridical  entities.   o Atty.  Hofileña  à  in  case  of  public  utilities,  the  company  
• If   only   two   incorporators   are   residents   of   the   Philippines   a   must   be   60%   owned   and   controlled.   As   such,   if   the  
corporation  still  exists  –  a  de  facto  corporation  provided  that  at   incorporators   own   only   one   share,   then   the   company  
least   five   (5)   incorporators   must   sign   the   articles   of   cannot  be  a  public  utility.    
incorporation.1     § People   v.   Quasha   à   at   the   time   of   the  
o This  however  does  not  prevent  the  existence  of  the  so-­‐ establishment   of   the   company,   it   is   not  
called   one-­‐man   corporation,   where   business   is   actually   necessary   that   the   company   be   Filipino.  
owned   by   one   individual,   it   is   still   possible   for   him   to   However,   if   they   want   to   get   a   franchise   to  
incorporate   by   giving   nominal   ownership   of   only   one   operate   as   a   public   utility,   then   they   must   first  
share   of   stock   to   each   of   4   other   persons—this   is   not   meet   the   requirement   of   the   60%   citizenship  
necessarily  illegal.     requirement  of  the  law.  
• An  incorporator  will  always  retain  his  status  as  the  incorporator  
of  the  corporation  because  such  status  is  acquired  by  the  mere  
                                                                                                               
1
 SEC  Opinion,  11  October  1971,  SEC  FOLIO  1960-­‐1976,  at  p.  495.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
fact   of   being   one   of   the   persons   who   originally   composed   the    
corporation.     Section  42.  Power  to  invest  corporate  funds  in  another  corporation  or  
o He   may   cease   to   be   a   stockholder   or   a   member,   he   may   business  or  for  any  other  purpose.  
lose  all  his  rights  and  interest  in  the  corporation,  but  he   Subject  to  the  provisions  of  this  Code,  a  private  corporation  may  invest  
will  always  be  known  as  the  incorporator.  The  articles  of   its  funds  in  any  other  corporation  or  business  or  for  any  purpose  other  
incorporation   cannot   therefore   be   amended   to   delete   than   the   primary   purpose   for   which   it   was   organized  when   approved  
the  name  of  an  incorporator  and  substitute  it  with  that   by  a  majority  of  the  board  of  directors  or  trustees  and  ratified  by  the  
of  another,  the  latter  not  being  an  incorporator.1   stockholders  representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding  
§ You   cannot   remove   an   original   incorporator   capital  stock,  or  by  at  least  two  thirds  (2/3)  of  the  members  in  the  case  
from  the  charter.   of   non-­‐stock   corporations,   at   a   stockholder's   or   member's   meeting  
o Atty.  Hofileña  à  can  a  person  sue  an  incorporator  who   duly  called  for  the  purpose.  Written  notice  of  the  proposed  investment  
is   no   longer   involved   with   the   company   (let   go   of   his   and   the   time   and   place   of   the   meeting   shall   be   addressed   to   each  
share)?  NO.     stockholder   or   member   at   his   place   of   residence   as   shown   on   the  
• Where  there  is  a  change  in  the  initial  directors  (indicated  in  the   books   of   the   corporation   and   deposited   to   the   addressee   in   the   post  
articles  of  incorporation),  there  is  no  need  to  amend  the  articles   office   with   postage   prepaid,   or   served   personally:   Provided,   That   any  
of  incorporation.     dissenting   stockholder   shall   have   appraisal   right   as   provided   in   this  
  Code:   Provided,   however,   That   where   the   investment   by   the  
B.  Corporate  Name  (Sections  18,  14(1)  and  42)   corporation   is   reasonably   necessary   to   accomplish   its   primary   purpose  
  as   stated   in   the   articles   of   incorporation,   the   approval   of   the  
Section  18.  Corporate  name.   stockholders  or  members  shall  not  be  necessary.  (17  1/2a)  
No   corporate   name   may   be   allowed   by   the   Securities   and   Exchange    
Commission   if   the   proposed   name   is   identical   or   deceptively   or   1. Corporate  Name  Guidelines  
confusingly  similar  to  that  of  any  existing  corporation  or  to  any  other   • Similarity  in  corporate  names  between  two  corporations  would  
name   already   protected   by   law   or   is   patently   deceptive,   confusing   or   cause   confusion   to   the   public   especially   when   the   purposes  
contrary   to   existing   laws.   When   a   change   in   the   corporate   name   is   stated   in   their   charter   are   also   the   same   type   of   business.  
approved,   the   Commission   shall   issue   an   amended   certificate   of   Universal  Mills  Corp.  v.  Universal  Textile  Mills  Inc.,  78  SCRA  62  
incorporation  under  the  amended  name.   (1977).  
o Atty.   Hofileña   à   NOT   DECEPTIVE   PER   SE.   Latitude   is  
                                                                                                                given   to   someone   in   terms   of   determining   whether   a  
1
 SEC  Opinion,  7  January  1974,  VIII  SEC  QUARTERLY  BULLETIN  21  (  No.  I,  Jan.  1974).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
name   is   deceptive.   Where   a   name   is   deceptive   per   se,   it   intent,   may   be   prevented   by   the   corporation   having   a   prior  
will  be  disallowed  by  the  SEC.   right.   Ang   Mga   Kaanib   sa   Iglesia   ng   Dios   Kay   Kristo   Hesus   v.  
§ The  use  of  “Inc.”  in  required  under  Section  15   Iglesia  ng  Dios  Kay  Dristo  Jesus,  372  SCRA  171  (2001).  
§ The   use   of   a   person’s   name   in   the   corporation   • To   fall   within   the   prohibition   of   the   law   Revised   Guidelines   in  
name   is   allowed   only   where   the   person   is   a   the   Approval   of   Corporate   and   Partnership   Names,   two  
shareholder   or   he   has   a   significant   position   in   requisites   must   be   proven,   to   wit:   (a)   That   the   complainant  
the   corporation   or   he   is   neither   but   has   his   corporation   acquired   a   prior   right   over   the   use   of   such  
consent.   corporate   name;   and   (b)   the   proposed   name   is   either:   (i)  
• The  name  of  a  corporation  is  essential  not  only  for  its  existence   identical,  or  (ii)  deceptively  or  confusingly  similar  to  that  of  any  
as  a  juridical  person,  but  also  in  manner  of  dealing  with  it,  and  in   existing  corporation  or  to  any  other  name  already  protected  by  
the   exercise   of   its   juridical   capacities;   it   cannot   be   changed   law;  or  (iii)  patently  deceptive,  confusing  or  contrary  to  existing  
except   in   the   manner   provided   for   by   law.   Red   Line   Trans.   v.   laws.  Philips  Export  B.V.  v.  Court  of  Appeals,  206  SCRA  457,  463  
Rural  Transit,  60  Phil.  549  (1934).   (1992)  
• Section  18  of  Corporation  Code  expressly  prohibits  the  use  of  a   • A  corporation  has  no  right  to  intervene  in  a  suit  using  a  name,  
corporate  name  which  is  “identical  or  deceptively  or  confusingly   not  even  its  acronym,  other  than  its  registered  name,  as  the  law  
similar  to  that  of  any  existing  corporation  or  to  any  other  name   requires   and   not   another   name   which   it   had   not   registered.  
already  protected  by  law  or  is   patently   deceptive,   confusing   or   Laureano   Investment   and   Dev.   Corp.   v.   Court   of   Appeals,   272  
contrary   to   existing   laws.”   The   policy   behind   the   foregoing   SCRA  253  (1997).  
prohibition   is   to   avoid   fraud   upon   the   public   that   will   occasion   • There  would  be  no  denial  of  due  process  when  a  corporation  is  
to   deal   with   the   entity   concerned,   the   evasion   of   legal   sued  and  judgment  is  rendered  against  it  under  its  unregistered  
obligations   and   duties,   and   the   reduction   of   difficulties   of   trade   name:   “A   corporation   may   be   sued   under   the   name   by  
administration   and   supervision   over   corporations.   Industrial   which   it   makes   itself   known   to   its   workers.”   Pison-­‐Arceo   Agri.  
Refractories  Corp.  v.  Court  of  Appeals,  390  SCRA  252  (2002).1   Dev.  Corp.  v.  NLRC,  279  SCRA  312  (1997).  
• Incorporators  must  choose  a   name  at  their  peril;  and  the  use  of   2. Change  in  Corporate  Name  
a  name  similar  to  one  adopted  by  another  corporation,  whether   • A   corporation   may   change   its   name   by   the   amendment   of   its  
a  business  or  a  nonprofit  organization,  if  misleading  or  likely  to   articles   of   incorporation,   but   the   same   is   not   effective   until  
injure   the   exercise   of   its   corporate   functions,   regardless   of   approved   by   the   SEC.   Phil.   First   Insurance   Co.   v.   Hartigan,   34  
SCRA  252  (1970).  
                                                                                                               
1
 Also  Lyceum  of  the  Philippines  v.  Court  of  Appeals,  219  SCRA  610,  615  (1993).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
• A   change   in   the   corporate   name   does   not   make   a   new   § (c)   A   third-­‐party   can   know   whether   his   dealing  
corporation,   and   has   no   effect   on   the   identity   of   the   with   the   corporation   are   with   corporate  
corporation,   or   on   its   property,   rights,   or   liabilities.   Republic   functions  and  powers.  
Planters  Bank  v.  Court  of  Appeals,  216  SCRA  738  (1992).1   • “The  best  proof  of  the  purpose  of  a  corporation  is  its  articles  of  
3. SEC  Jurisdiction  Over  Issues  Involving  Corporate  Names   incorporation   and   by-­‐laws.   The   articles   of   incorporation   must  
• SEC  has  quasi-­‐judicial  powers  to  hear  and  decide  a  controversy   state   the   primary   and   secondary   purposes   of   the   corporation,  
between  two  corporation  as  to  who  has  a  better  right  to  the  use   while  the  by-­‐laws  outline  the  administrative  organization  of  the  
of  a  particular  corporate  name.  Industrial   Refractories   Corp.   v.   corporation,   which,   in   turn,   is   supposed   to   insure   or   facilitate  
Court  of  Appeals,  390  SCRA  252  (2002).   the   accomplishment   of   said   purpose.”   Therefore,   the   Court  
  brushed   aside   the   contention   that   the   corporations   were  
C.  Purpose  Clauses  (Sections  14(2)  and  42)   organized   to   illegally   avoid   the   provisions   on   land   reform   and   to  
• The   significance   of   the   purpose   clause   in   the   articles   of   avoid  the  payment  of  estate  taxes,  as  being  prohibited  collateral  
incorporation   is   that   it   confers,   as   well   as   limits,   the   powers   attack.   Gala   v.   Ellice   Agro-­‐Industrial   Corp.,   418   SCRA   431  
which  a  corporation  may  exercise.2   (2003).  
o The  statement  of  the  primary  purpose  in  the  articles  of   • The   SEC   has   ruled   that   the   rules   governing   the   construction   of  
incorporation  is  means  to  protect  shareholders  so  they   charters   of   corporations   are,   for   the   most   part,   the   same   as  
will  know  the  main  business  of  the  corporation  and  file   those   which   govern   the   construction   and   interpretation   of  
derivative   suits   if   the   corporation   deviates   from   the   statutes,  contracts  and  other  written  instruments.3  
primary   purpose.   Uy   Siuliong   v.   Director   of   Commerce    
and  Industry,  40  Phil.  541  (1919).   D.  Corporate  Term  (Section  11)  
o Some  of  the  other  reasons  for  indicating  purpose  in  the    
charter  of  the  corporation  are  so  that:   Section  11.  Corporate  term.    
§ (a)  Prospective  investors  shall  know  the  kind  of   A   corporation   shall   exist   for   a   period   not   exceeding   fifty   (50)   years  
business  the  corporation  deals  with;   from  the  date  of  incorporation  unless  sooner  dissolved  or  unless  said  
§ (b)   Management   shall   know   the   limits   of   its   period   is   extended.   The   corporate   term   as   originally   stated   in   the  
actions;   articles   of   incorporation   may   be   extended   for   periods   not   exceeding  
                                                                                                               
1
 P.C.  Javier  &  Sons,  Inc.  v.  Court  of  Appeals,  462  SCRA  36  (2005).                                                                                                                  
2 3
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   SEC   Opinion,   26   January   1994,   XXVIII   SEC   QUARTERLY   BULLETIN   46   (No.   2,   June  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   1994),  citing  7A  FLETCHER,  Section  3640,  and  6  FLETCHER  CYC.  CORP.,  Section  2483.    
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
fifty  (50)  years  in  any  single  instance  by  an  amendment  of  the  articles   be   held   in   the   city   or   municipality   where   the   principal   office   of   the  
of   incorporation,   in   accordance   with   this   Code;   Provided,   That   no   corporation   is   located,   and   if   practicable   in   the   principal   office   of   the  
extension  can  be  made  earlier  than  five  (5)  years  prior  to  the  original   corporation:   Provided,   That   Metro   Manila   shall,   for   purposes   of   this  
or  subsequent  expiry  date(s)  unless  there  are  justifiable  reasons  for  an   section,  be  considered  a  city  or  municipality.  
earlier   extension   as   may   be   determined   by   the   Securities   and    
Exchange  Commission.   Notice  of  meetings  shall  be  in  writing,  and  the  time  and  place  thereof  
  stated  therein.  
• No  extension  of  term  can  be  effected  once  dissolution  stage  has    
been  reached,  as  it  constitutes  new  business.  Alhambra   Cigar  v.   All  proceedings  had  and  any  business  transacted  at  any  meeting  of  the  
SEC,  24  SCRA  269  (1968).   stockholders   or   members,   if   within   the   powers   or   authority   of   the  
• Article  605  of  Civil  Code  “clearly  limits  any  usufruct  constituted   corporation,   shall   be   valid   even   if   the   meeting   be   improperly   held   or  
in  favor  of  a  corporation  or  association  to  50  years.  A  usufruct  is   called,   provided   all   the   stockholders   or   members   of   the   corporation  
meant   only   as   a   lifetime   grant.   Unlike   a   natural   person,   a   are  present  or  duly  represented  at  the  meeting.  (24  and  25)  
corporation   or   association’s   lifetime   may   be   extended    
indefinitely.   The   usufruct   would   then   be   perpetual.   This   is   • Although   the   Rules   of   Court   do   not   provide   that   when   the  
especially   invidious   in   cases   where   the   usufruct   given   to   a   plaintiff   is   a   corporation,   the   complaint   should   be   filed   in   the  
corporation  or  association  covers  public  land.”  NHA   v.   Court   of   location   of   its   principal   office   as   indicated   in   its   articles   of  
Appeals,  456  SCRA  17  (2005).   incorporation,   jurisprudence   has,   however,   settled   that   the  
• Atty.  Hofileña  à  The  corporation  takes  a  loan  that  is  payable  in   place   where   the   principal   office   of   a   corporation   is   located,   as  
10   years,   but   it   expires   in   5   years.   Although   not   illegal,   it   is   a   stated   in   the   articles,   indeed   establishes   its   residence.   This  
question  of  wisdom  on  the  part  of  the  loaning  entity.   ruling  is  important  in  determining  the  venue  of  an  action  by  or  
o “50  years  from  filing”  à  the  corporate  life  is  shortened.   against   a   corporation,   as   in   the   present   case.   Hyatt   Elevators  
o “50   years”   à   counted   beginning   from   the   issuance   of   and   Escalators   Corp.   v.   Goldstar   Elevators,   Phils.,   Inc.,   473  
the  certificate  of  incorporation.   SCRA   705   (2005),   citing   VILLANUEVA,   PHILIPPINE   CORPORATE  
  LAW  (1998),  p.  162.  
E.  Principal  Place  of  Business  (Section  51)   o Corporate  Residence  for  Intra-­‐Corporate  Disputes  
  § Section   1,   Rule   1   of   the   Interim   Rules   of  
Section  51.  Place  and  time  of  meetings  of  stockholders  or  members.   Procedure   for   Intra-­‐Corporate   Controversies,  
Stockholders'  or  members'  meetings,  whether  regular  or  special,  shall   provides   that   when   the   articles   of   incorporation  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
indicate   that   the   principal   place   of   business   is   Stock  corporations  incorporated  under  this  Code  shall  not  be  required  
Metro   Manila,   then   the   action   must   be   filed   in   to   have   any   minimum   authorized   capital   stock   except   as   otherwise  
the  city  where  the  head  office  is  actually  located   specifically   provided   for   by   special   law,   and   subject   to   the   provisions  
o Corporate  Residence  for  Corporate  Recovery  Cases   of  the  following  section.  
§ Action   must   be   filed   in   the   regional   trial   court    
which  has  jurisdiction  over  the  principal  office.   • In   normal   practice,   SEC   will   not   allow   a   corporation   to   be  
• Place   of   residence   of   the   corporation   is   the   place   of   its   principal   organized   with   P5,000   minimum   paid-­‐up   capital   because   it   is  
office.  Clavecilla  Radio  System  v.  Antillon,  19  SCRA  379  (1967)   too   thinly   capitalized.   More   likely   SEC   would   require   a   higher  
o The  residence  of  its  president  is  not  the  residence  of  the   paid-­‐up  amount  for  incorporation.  SEC  can  do  this  because  as  an  
corporation   because   a   corporation   has   a   personality   administrative  body  it  can  make  rules.2  
separate   and   distinct   from   that   of   its   officers   and    
stockholders.   Sy   v.   Tyson   Enterprises,   Inc.,   119   SCRA   G.  Subscription  and  Paid-­‐up  Requirements  (Section  13)  
367  (1982).    
• Under  Section  11,  Rule  14  of  the  1997  Rules  of  Civil  Procedure   Section  13.  Amount  of  capital  stock  to  be  subscribed  and  paid  for  the  
of   the   Philippines,   if   the   defendant   in   a   suit   is   a   corporation   purposes  of  incorporation.    
organized   under   the   laws   of   the   Philippines,   service   may   be   At   least   twenty-­‐five   percent   (25%)   of   the   authorized   capital   stock   as  
made   on   the   President,   general   manager,   secretary,   treasurer,   stated  in  the  articles  of  incorporation  must  be  subscribed  at  the  time  
or  in-­‐house  counsel.1   of   incorporation,   and   at   least   twenty-­‐five   (25%)   per   cent   of   the   total  
• Atty.   Hofileña   à   the   principal   address   is   necessarily   just   one   subscription   must   be   paid   upon   subscription,   the   balance   to   be  
otherwise   it   would   not   be   principal.   It   is   also   necessary   for   payable   on   a   date   or   dates   fixed   in   the   contract   of   subscription  
regulation  purposes  of  the  government.   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  
F.   Minimum   Capitalization   (Section   12):   Why   is   maximum   no  case  shall  the  paid-­‐up  capital  be  less  than  five  Thousand  (P5,000.00)  
capitalization  required  to  be  indicated?   pesos.  
   
Section  12.  Minimum  capital  stock  required  of  stock  corporations.   • The   entries   in   the   articles   of   incorporation   of   the   original  
issuances  of  shares  of  stock  has  a  stronger  weight  that  the  stock  
                                                                                                                                                                                                                               
1 2
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.    Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
and   transfer   book   in   determining   the   validity   and   issuance   of   form   under   oath   by   a   responsible   official   of   the   bank,   must  
such  shares.  Lanuza  v.  Court  of  Appeals,  454  SCRA  54  (2005).   accompany  the  incorporation  papers.1  
o The  ACS  and  Subscribed  stocks  are  found  in  the  articles   2. Letter  of  Authority  to  examine  bank  deposit  
of  incorporation.   • In  addition,  a  letter  of  authority  authorizing  the  SEC  to  examine  
o For   Paid-­‐in   Capital,   you   can   look   at   Certificate   of   not   only   the   bank   deposit   but   also   the   corporations   books   of  
Deposits,  and  verify  via  bank  accounts.   accounts   and   supporting   records   to   determine   the   existence  
• "Capital   Stock"   à   is   the   amount   fixed   in   the   articles   of   and   utilization   of   the   paid-­‐up   capital   stock   must   also   be  
corporation  procured  to  be  subscribed  and  paid-­‐in.  It  is  settled   submitted.   The   letter   of   authority   shall   be   binding   upon   the  
that  shares  issued  in  excess  of  the  authorized  capital  stocks  are   corporation  even  if  there  is  a  change  of  corporate  officers.2  
void.   3. Written  Undertaking  to  Change  Corporate  Name  
• "Outstanding  Capital  Stock"  à  is  the  total  shares  of  stock  issued   • The  SEC  also  requires  that  incorporators  are  required  to  submit  
to  subscribers  or  stockholders,  whether  or  not  fully  or  partially   a  written  undertaking  to  change  their  partnership  or  corporate  
paid   (as   long   as   there   is   a   binding   subscription   agreement),   name   in   case   there   is   another   person,   firm   or   entity   with   a   prior  
except  treasury  shares.     right  to  the  use  of  the  said  name  or  one  similar  to  it.3  
• "Subscribed   Capital   Stock"   à   is   that   portion   of   the   capital   stock    
subscribed  (i.e.  procured  to  be  paid)  whether  or  not  fully  paid.   III.  Grounds  for  Disapproval  (Section  17)  
• "Subscription"   à   is   the   mutual   agreement   of   the   corporation    
and  subscriber  to  take  and  pay  for  the  stock  a  corporation.   Section   17.   Grounds   when   articles   of   incorporation   or   amendment  
• The   subscription   must   be   paid   upon   demand   of   the   Board   of   may  be  rejected  or  disapproved.  
Directors,  or  on  the  date  that  you  have  promised  to  pay.   The   Securities   and   Exchange   Commission   may   reject   the   articles   of  
  incorporation  or  disapprove  any  amendment  thereto  if  the  same  is  not  
H.  Steps  and  Documents  Required  in  SEC   in  compliance  with  the  requirements  of  this  Code:  Provided,  That  the  
1. Certificate  of  Deposit   Commission   shall   give   the   incorporators   a   reasonable   time   within  
• SEC   Guidelines   require   that   a   bank   certificate   covering   the   which  to  correct  or  modify  the  objectionable  portions  of  the  articles  or  
deposit   of   the   paid-­‐up   capital,   in   accordance   with   a   prescribed   amendment.   The   following   are   grounds   for   such   rejection   or  

                                                                                                               
1
Section   1,   SEC   GUIDELINES   FOR   THE   VERIFICATIONS   OF   THE   PAID-­‐UP   CAPITAL   (CASH)   OF  
CORPORATIONS  (1976).  
2
Section  2,  ibid.  
3
SEC  GUIDELINES  IN  THE  APPROVAL  OF  CORPORATE  AND  PARTNERSHIP  NAMES  (1977).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
disapproval:   benefit   of   the   residents,   the   object   is   unlawful   and   the   articles  
  can   be   denied   registration.   Asuncion   v.   De   Yriarte,   28   Phil.   67  
1.  That  the  articles  of  incorporation  or  any  amendment  thereto  is  not   (1914).  
substantially  in  accordance  with  the  form  prescribed  herein;   • It  is  well  to  note  that,  if  a  corporation’s  purpose,  as  stated  in  the  
  articles  of  incorporation,  is  lawful,  then  the  SEC  has  no  authority  
2.   That   the   purpose   or   purposes   of   the   corporation   are   patently   to   inquire   whether   the   corporation   has   purposes   other   than  
unconstitutional,  illegal,  immoral,  or  contrary  to  government  rules  and   those   stated,   and   mandamus   will   lie   to   compel   it   to   issue   the  
regulations;   certificate   of   incorporation.”   Gala   v.   Ellice   Agro-­‐Industrial  
  Corp.,  418  SCRA  431  (2003).  
3.   That   the   Treasurer's   Affidavit   concerning   the   amount   of   capital   • The   SEC’s   function   is   merely   ministerial   because   they   are  
stock  subscribed  and/or  paid  if  false;   required  to  issue  the  certificate  of  incorporation.    
  o There   is   room   for   the   exercise   of   discretion   in   that   it  
4.  That  the  percentage  of  ownership  of  the  capital  stock  to  be  owned   may   dismiss   an   application   for   incorporation,   but  
by  citizens  of  the  Philippines  has  not  been  complied  with  as  required   otherwise,  it  has  no  other  right  to  exercise  discretion.  
by  existing  laws  or  the  Constitution.   o You   can   compel   the   SEC   to   approve   the   articles   of  
  incorporation.  
No   articles   of   incorporation   or   amendment   to   articles   of   incorporation    
of   banks,   banking   and   quasi-­‐banking   institutions,   building   and   loan   IV.  Amendments  to  the  Articles  of  Incorporation  (Section  16).  
associations,   trust   companies   and   other   financial   intermediaries,    
insurance   companies,   public   utilities,   educational   institutions,   and   Section  16.  Amendment  of  Articles  of  Incorporation.    
other   corporations   governed   by   special   laws   shall   be   accepted   or   Unless   otherwise   prescribed   by   this   Code   or   by   special   law,   and   for  
approved   by   the   Commission   unless   accompanied   by   a   favorable   legitimate   purposes,   any   provision   or   matter   stated   in   the   articles   of  
recommendation  of  the  appropriate  government  agency  to  the  effect   incorporation   may   be   amended   by   a   majority   vote   of   the   board   of  
that  such  articles  or  amendment  is  in  accordance  with  law.   directors  or  trustees  and  the  vote  or  written  assent  of  the  stockholders  
  representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding  capital  stock,  
• When  the  proposed  articles  show  that  the  object  is  to  organize   without   prejudice   to   the   appraisal   right   of   dissenting   stockholders   in  
a   barrio   into   a   separate   corporation   for   the   purpose   of   taking   accordance   with   the   provisions   of   this   Code,   or   the   vote   or   written  
possession   and   having   control   of   all   municipal   property   within   assent  of  at  least  two-­‐thirds  (2/3)  of  the  members  if  it  be  a  non-­‐stock  
the   incorporated   barrio   and   administer   it   exclusively   for   the   corporation.  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
  name   stated   in   the   articles   of   incorporation   for   the   period   of   time  
The  original  and  amended  articles  together  shall  contain  all  provisions   mentioned   therein,   unless   said   period   is   extended   or   the   corporation  
required   by   law   to   be   set   out   in   the   articles   of   incorporation.   Such   is  sooner  dissolved  in  accordance  with  law.  
articles,  as  amended  shall  be  indicated  by  underscoring  the  change  or    
changes   made,   and   a   copy   thereof   duly   certified   under   oath   by   the  
corporate  secretary  and  a  majority  of  the  directors  or  trustees  stating  
the   fact   that   said   amendment   or   amendments   have   been   duly  
approved  by  the  required  vote  of  the  stockholders  or  members,  shall  
be  submitted  to  the  Securities  and  Exchange  Commission.  
 
The   amendments   shall   take   effect   upon   their   approval   by   the  
Securities  and  Exchange  Commission  or  from  the  date  of  filing  with  the  
said  Commission  if  not  acted  upon  within  six  (6)  months  from  the  date  
of  filing  for  a  cause  not  attributable  to  the  corporation.  
 
• Typically,  meetings  do  take  place  to  pass  upon  an  amendment.  
o Although   the   law   does   not   expressly   provide   that   a  
meeting  be  made  where  the  votes  will  be  cast  and  the  
written  assents  made.  
 
V.  Commencement  of  Corporate  Existence  (Section  19).  
 
Section  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  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)