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Chapter II: Articles of Incorporation: Incorporation and Organization of Private

1. Nature of Articles of Incorporation (AOI)
The AOI is one that defines the charter of the corporation and the contractual
relationship between the State and the corporation, the stockholders and the State,
and between the corporation and its stockholders.
The AOI is the contract between the corporation and the government, and both
sides are bound by its valid provisions.
AOI vs. By-Laws The AOI must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the
corporation, which is supposed to insure or facilitate the accomplishment of said
2. Corporate Name
Rule: No corporate name may be allowed by SEC if it is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws.
Requisites in filing a case on the use of corporate name:
a. The complainant corporation acquired a prior right over the use of such corporate
name; and
b. The proposed name is either:
Deceptively or confusingly similar to that of any existing corporation or ot any
other name already protected by law
Patently deceptive, confusing or contrary to existing laws
Case: Ang Mga Kaanib sa Iglesia ng Dios vs. Iglesia ng Dios Kay Cristo Hesus
Parties organizing a corporation must choose a name at their peril; the use of a
name similar to one adopted by another corporation, whether a business or a
nonprofit organization, if misleading or likely to injure in the exercise of its corporate
functions, regardless of intent, may be prevented by the suit for injunction against
the new corporation to prevent the use of the name.
Change of Corporate Name:
A change in corporate name does not make a new corporation, whether effected by
a special act or under a general law. It has no effect on identity of corporation, or on
its property, rights or liabilities.
Jurisdiction over Issues Involving Corporate Name: The Securities and
Exchange Commission (SEC) has jurisdiction over issues on corporate name. It has
the quasi-judicial power to hear and decide a controversy between two corporations
as to who has a better right to the use of a particular corporate name.
3. Purpose Clause Articles of Incorporation must state expressly what is its
primary purpose, as distinguished from its secondary and other purposes. The best
proof of the corporations purpose is its AOI and by-laws.
Note: if funds are to be diverted from primary purpose to a secondary purpose, this
can only be done only by a 2/3 votes of the outstanding shares and cannot be done
by mere Board Resolution.
4. Principal Place of Business

Rule: The residence of a corporation is the place where its principal office is
located, as stated in its AOI. Importance of Place of Business: It is important in
determining the venue of an action by or against the corporation.
5. Corporate Term
GR: A corporation shall exist for a period not exceeding 50 years from the date of
incorporation unless sooner dissolved or unless said period is extended.
Exception: Condominium corporation can be organized for 200 years.
When does it begin? A corporation commences to have corporate existence and
is deemed incorporated only form the date SEC issues a certificate of incorporation.
Extension of Corporate Term: The corporate term can be extended provided:
1. It is done 5 years before the end of the original term
2. There is an amendment of the AOI
3. There is a required 2/3 votes from the Outstanding capital stocks
6. Incorporators at least 5, but not more than 15, natural persons may be
incorporators of a corporation, who must own at least one share of stock in a stock
corporation. The names, nationalities and residences of the incorporators must be
provided for in the articles of incorporation.
7. Minimum Capital Stock Required of Stock Corporation
Rule: At the organization of a corporation, at least 25% of the total authorized
capital stock must be subscribed; then 25% of the total subscribed stock must be
paid up.
Note: No minimum capital is required, except if provided by a special law, as long as
the paid up capital, should not be less than P5,000.00
Capital refers to the value of the property or assets of a corporation
Capital subscribed total amount of the capital that persons have agreed to
take and pay for, which need not necessarily be, and can be more than, the
par value of the shares
Stock dividend it is the amount the corporation transfers from its surplus
profit account to its capital account.
Outstanding Capital Stock total shares of stock issued to subscribers or
stockholders whether or not fully or partially paid except treasury shares.
8. Procedure in the Amendment of AOI
Requisites: a. Majority vote of the BOD; and b. Vote (in a meeting) or mere written
assent (no meeting) of 2/3 of the OCS, or in case of nonstock by the members.
When effective: only upon SEC approval; but should no action be taken by SEC
within 6 months from the date of filing, then automatic amendment is deemed
Note: stockholders who dissent on the amendment of the AOI may exercise
appraisal right only if it involves diminishing of substantial rights previously granted
or creating a new set of shares with priority rights.
9. Effects of Non-use of Corporate Charter (AOI) and Continuous
Inoperation of Corporation

Non-user for 2 years - when corporation does not formally organize and
commence the transaction of its business or the construction of its works within
two years, its corporate powers cease and the corporation shall be deemed
dissolved (automatically)
Continous Inoperation when the corporation has commenced the transaction of
its business but subsequently becomes continuously inoperative for a period of 5
years, it becomes a ground for the suspension or revocation of its corporate
franchise or certificate of incorporation (non-automatic)