TITLE II- INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
1. How many incorporators should there
be in a private corporation?
● 1-15
● Any person, partnership, association or
corporation, singly or jointly with others
for any lawful purpose
2. What are the qualifications of
incorporators?
● Incorporators must be of LEGAL AGE
● Must own or be a subscriber to at least
1 share of capital stock
● Provided: natural persons who are
licensed to practice a profession, and
partnerships or associations organized
for the purpose of practicing a
profession shall not be allowed to
organize a corporation unless otherwise
provided under special laws.
3. What is a one-person corporation?
● Corporation with a single stockholder
● Only formed by a natural person, trust,
or an estate
● Cannot be formed by banks, quasi-
banks, preneed, trust, insurance, public
and publicly-listed
● companies, and non-chartered
government owned and controlled
corporations
● Provided: natural persons who are
licensed to practice a profession may not
organized as a One Person Corporation
for the purpose of practicing a
profession unless otherwise provided
under special laws.
4. Incorporator vs corporator
Incorporator
● Stockholders or members mentioned in
the articles of incorporation as originally
forming and composing the corporation
who are signatories thereof.
● A signatory of the articles of
incorporation
● Does not cease to be an incorporator
upon sale Ceases to be a corporator by
sale of his of his shares
● Not more than 15 persons
Corporator
● Those who compose a corporation
whether as stockholders or members.
● May or may not be a signatory of the
AOI shares
● Ceases to be corporator by sale of his
shares in case of a stock corporation. In
case of a nonstock corporation, when
the corporator ceases to be a member
● No restriction as to number except for a
close corporation
5. Steps in the creation of a corporation
1. Promotion - includes actívities done by a
promoter for the founding and organizing of
the business or enterprise of the issuer.
2. Incorporation
a. Execution of the articles of
incorporation by the incorporators and other
documents required for registration of the
corporation.
b. Filing of the articles of
incorporation with the SEC together with the
treasurer's affidavit.
In case the corporation is governed
by special law, a favorable recommendation
of the appropriate government agency that
such articles of incorporation and by laws is
in accordance with the law.
3. Formal Organization and commencement
of business transactions
Examples of a formal organization:
a. Adoption of by-laws and filing of the
same with the SEC
b. Election of BOD or BOT and officers
c. Payment of shares
6. How long is the corporate term of a
corporation?
● A corporation shall have perpetual
existence unless its AOI provides
otherwise.
● Corporations existing before the
effectivity of this Code will have
perpetual existence unless a majority
vote of its stockholders notifies the
commission that it elects to retain its
specific corporate term to their AOI.
Provided that any change in the
corporate term is without prejudice to the
appraisal rights of dissenting
stockholders.
● A corporation for a specific period may
be extended or shortened by amending
the AOl provided that no extension be
made earlier than 3 years prior to the
original or subsequent expiry date
unless there are justifiable reasons
determined by the Commission and that
such extension take effect only on the
day following the original or subsequent
expiry date.
7. Can an expired corporation be
revived?
● A corporation whose term is expired may
apply for a revival together with all the
rights, and privileges of its certificate of
incorporation and subject to all duties,
debts, and liabilities existing before
revival. - SEC approves- certificate of
revival - perpetual existence unless
otherwise.
● No application for revival will be
approved by the SEC unless
accompanied by a favorable
recommendation of the appropriate
government agency on banks, quasi-
banks, preneed, insurance, nonstock
savings and loan
associations,pawnshops, corporations
engaged in money service business and
other financial intermediaries.
8. Is there a minimum capital stock
required of stock corporations?
No unless provided by a special law
9. Define subscription, paid-up capital
Subscription:
➔ A written contract to purchase newly
issued shares of stock or bonds.
➔ Also termed stock subscription
Paid-up Capital:
➔ Portion of the authorized capital stock
which has been both subscribed and
paid.
➔ Such must form part of the authorized
capital stock of the corporation,
subscribed and then actually
10. Articles of Incorporation (AOI)
➔ defines the charter of the corporation
and the contractual relationships
between the State and the corporation,
the stockholders and the State, and
between the corporation and its
stockholders.
➔ Contents of the AOl are binding on the
corporation and stockholders
a. 3 fold nature
Contract between the:
1. State and Corporation
2. Corporation and Stockholders
3. Stockholders inter se.
b. Corporate name, limitation and
change (S17)
➔ must not be identical deceptively or
confusingly similar to that of any existing
corporation or to any other name already
protected by law; or patently deceptive,
confusing, or contrary to law
➔ must contain the word "Inc.,
Corporation, or OPC
➔ Can be changed by amending the AOI
c. Purpose clause
➔ confer as well limits the powers which a
corporation may exercise. Any act
beyond its powers is known as ultra vires
acts
➔ Has more than 1 stated purpose- articles
of incorporation shall state which is the
primary purpose and which is the
secondary purpose/s to determine which
investment of corporate funds require
the authority of both the Board and
Stockholders.
➔ A private corporation may invest its
funds in any other corporation, business,
or for any other purpose other than the
primary purpose for which it was
organized, when approved by a majority
of the BOD or BOT and ratified by the
stockholders representing at least 2/3 of
the outstanding capital stock or
members at a meeting duly called for the
purpose.
d. Principal office
Purpose:
1. To fix the residence of the corporation
in a definite place
2. To determine the venue of court cases
involving corporation
3. For purposes of stockholders or
members meeting
4. To determine the place where the
books and records of the corporation
are ordinarily kept
e. Term of Existence
- Perpetual existence unless AOl provides
otherwise
f. Number of BOD or BOT
➔ Not more than 15 directors
➔ May be more than 15 trustees
g. Authorized capital stock
➔ Maximum amount fixed in the AOI that
may be subscribed and paid by the
stockholders of the corporation
AOI of a stock corporation should contain:
- the amount of its authorized share
capital in lawful money of the
Philippines
- the number of shares of which it is
divided,
- in case the shares are par value
shares, the par value of each,
- the names, nationalities, and
residencies of the original subscribers,
- the amount subscribed and paid by
each on his subscription
- if some or all of the shares are without
par value shares, such fact must be
stated.
11. May the AOI be amended?
Limitations
Yes, unless otherwise prescribed by this
Code, or by special law
Limitations:
1. Amendment must be for legitimate
purposes not contrary to the Corporation
Code and special laws
2. Approved by a majority of the BOD or
BOT
3. Requires the vote or written assent of
stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the
members
4. Shall contain all provisions required by
law to be set out in the AOI. Such
articles, as amended, shall be indicated
by underscoring the changes made.
5. Certification under oath by the corporate
secretary and a majority of the BOD or
BOT stating the fact that said
amendments have been duly approved
by the required vote of the
stockholders/members, shall be
submitted to the SEC.
6. Approved by the SEC
7. Must be accompanied by a favorable
recommendation of the appropriate
government agency in cases of: Banks,
quasi-banks, preneed, insurance and
trust, nonstock savings and loan
associations (NSSLAS), pawnshops,
and other financial intermediaries.
12. What are the grounds which the SEC
may reject or disapprove any
amendment thereto?
● The SEC may disapprove the AOI or any
amendment thereto if the same is not
compliant with the requirements of this
Code, Provided: That the SEC shall give
the incorporators, directors, trustees. or
officers a reasonable time rom receipt of
disapproval within which to modify the
objectionable portions of the articles of
amendment.
The following are grounds for disapproval:
a. AOl or any amendment thereto is not
substantially in accordance with the form
prescribed herein
b. The purpose/s of the corporation are
patently unconstitutional, illegal,
immoral or contrary to government rules
and regulations
c. The certificate concerning the amount of
capital stock subscribed and/or paid is
false
d. The required percentage of Filipino
ownership of the capital stock under
existing laws or the Constitution has not
been complied with
If Banks, quasi-banks, preneed, insurance
and trust, nonstock savings and loan
associations (NSSLAS), pawnshops, and
other financial intermediaries:
-The SEC shall not approve the AOI or any
amendment thereto unless accompanied by
a favorable recommendation by an
appropriate government agency to effect that
such articles/amendment is in accordance
with the law.
13. When does a corporation commence
to have corporate existence and juridical
personality?
➔ Date of issuance of the certificate of
incorporation
14. De facto corporation
➔ Due incorporation of any corporation
claiming in good faith to be a corporation
under this code, and its right to exercise
corporate powers, shall not be inquired
into collaterally in any private suit to
which such corporation may be a party.
Such inquiry may be made by the
Solicitor General in quo warranto
proceeding.
Requirements:
1. Existence of a valid law under which it
may be incorporated
2. An attempt in good faith to incorporate
3. Assumption of corporate powers
Note: if no AOl or certificate of incorporation,
it is not a corporation, not even a de facto
corporation
Two conflicting public interest under a de
facto doctrine:--compromise between the 2
1. The one opposed to an unauthorized
assumption of corporate privileges
2. The other in favor of doing justice to
the parties and of establishing a
general assurance of security in
business dealing with corporations.
This serves to protect the public
dealing with supposed corporate entities not
to favor the defective/non-existent
corporation.
15. What is the effect of non-use of the
corporate charter?
➔ If a corporation does not formally
organize and commence its business
within 5 years from the date of its
 incorporation, its certificate of
incorporation shall be deemed revoked
as of the day following the end of the 5
year period.
Examples of acts constituting a formal
organization:
1. Adoption of by laws and filing the
same with the SEC
2. Election of BOD or BOT as well as
the officers
3. Establishment of the principal office
4. Providing for the subscription and
payment of its shares of stock
5. Other acts necessary to enable the
corporation to transact business or
accomplish the purpose for which it
was created.
Examples of acts constituting
commencement of business
1. Entering into contracts or negotiation for
lease or sale of properties to be used as
business or factory site.
2. Making plans for and the construction of
the factory
3. Taking steps to expedite the construction
of the corporation's working equipment.
16. What is the effect if the corporation
has organized but subsequently becomes
inactive?
➔ If a corporation has commenced its
business but subsequently becomes
inoperative for a period of at least 5
consecutive years, the SEC may, after
due notice and hearing, place the
corporation under delinquent status
➔ A delinquent corporation shall have a
period of 2 years to resume operations
and comply with all requirements that
the SEC shall prescribe.
➔ Upon compliance, the SEC shall issue
an order lifting the delinquent status
➔ Failure to comply will cause the
revocation of the corporation's certificate
of incorporation.
➔ The corporation shall give reasonable
notice to, and coordinate with the
appropriate regulatory agency prior to
the suspension or revocation of the
certificate of incorporation of companies
under their special regulatory
jurisdiction.
Title III BOARD OF
DIRECTORS/TRUSTEES AND OFFICERS
1. Correlation among the BOD/BOT,
officers and stockholders
➔ Stockholders periodically elect the
BOD/BOT, who are charged with the
management of the corporation.
➔ Board periodically elects officers to
carry out management functions on
a day-to-day basis.
➔ Stockholders have residual powers
over fundamental and major
corporate changes.
2.Acts of management vs ownership
Acts of management
➔ BOD/BOT
➔ Management and direction
Acts of ownership
➔ stockholders or members
➔ Entitled to receive profits
BOD/BOT cannot act alone, but must seek
approval of the stockholders/members.
3. What is business judgment rule?
Contracts intra vires entered into by the
BOD:
➔ binding upon the corporation and
courts will not interfere unless such
contracts are so unconscionable and
oppressive as to amount to wanton
destruction to the rights of the
minority
➔ Plaintiffs over that the defendants
have concluded a transaction among
themselves as will result in serious
injury
Intra vires – within the powers
4. Where do corporate powers
reside?
Once the BOD/BOT are elected, the
stockholders or members relinquish
corporate powers to the board.
5. Who has power to manage the
corporation?
Unless otherwise stated:
The BOD/BOT shall exercise the corporate
powers, conduct all business, and control all
properties of the corporation.
6. What is meant by apparent or
ostensible authority?
➔ It is the power of an agent to act on
behalf of a principal, even though
not expressly or impliedly granted.
➔ This power arises only if a third party
reasonably infers, from the
principal’s conduct, that the principal
granted such power to the agent.
7. Derivative suit
➔ The right of a stockholder to sue on
behalf of the corporation to protect
or vindicate corporate rights,
whenever officials of the corporation
refuses to sue or are the ones to be
sued.
➔ Mismanagement- wrongful acts
committed by management

Suing stockholder- nominal party

Corporation- party in interest

8. Authority of the BOD/BOT

➔ BOD/BOT has the sole authority to
determine policies, enter into contracts,
and conduct the ordinary business of
the corporation within the scope of its
charter.

➔ The authority of BOD/BOT is restricted

to the management of the regular
business affairs of the corporation,
unless more extensive power is
expressly conferred.