VOLCANOTES 2020 | BUSINESS ORGANIZATION II
IV. FORMATION & ORGANIZATION
1. Process of Incorporation
ü There are 3 Stages in the life of a corporation:
1) Creation;
2) Re-organization or Quasi-reorganization; and
3) Dissolution and winding up.
ü For purposes of its creation, there are 3 steps:
1) The promotional stages
2) The process of incorporation; and
3) Organization and commencement of business
ü Promotion – act of advancing or encouraging and
etymologically, to move forward is to promote.
o Corporation Code: the act of getting a
corporation organized including the
procurement of subscription to its capital
stock.
o Promoter – an organizer or projector who
brings persons to unite in forming a
corporation.
ü Incorporation – the formal and procedural requisite of
drafting the Articles of Incorporation and preparing the
necessary supporting documents they’re subsequently
filing with, and finally approval of the SEC by the
issuance of Certificate of Incorporation.
drafting the Articles of
Incorporation
preparation and submission
of additional necessary
supporting documents
filling with the SEC
Approval of the SEC
•by the Issuance of Certificate of
Incorporation
ü Organization and Commencement of Business –
certain overt acts after incorporation
o EXAMPLE:
§ Adoption of by-laws
§ Election of corporate
§ Other acts tending to show intent of
transacting its business.
ü Promotional Stage – undertaken by the organizers or
promoters who bring together persons interested in
the business venture.
o They enter into contract either in their own
names or in the name of the proposed
corporation.
o Liability of the Corporation during this stage
– NONE. Since the corporation did not exist yet
possess a juridical personality.
§ Go back to the concept of creation of
a corporation. (it is created by law or
operation of law)
§ Corporation should have a full and
complete organization and existence
as an entity before it can enter into
any kind of contract or transact
business.
o The corporation may make the contracts its
own after its due incorporation and may
become bound by adopting or ratifying them
or by accepting its benefits.
§ Corporation become liable and
likewise requires all the rights
pertaining in the adopted or ratified
contract.
o Promoter –
§ GR: Personally, liable on contracts
made by him for the benefit of a
corporation he intends to organize.
• Liability will continue even
after the contemplated
corporation is formed
UNLESS there is novation or
other agreement to release
him from liability.
• Promoter is NOT relieved of
his liability on a contract
even after the corporation
ratifies the contract and
assumes its own liability.
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§ When a promoter is acting for a § Limitation or prohibition of having

proposed corporation, he or she may other purpose or purposes not
do either of 3 options: peculiar to the primary purpose of
1) He may make a continuing the intended corporation.
offer on behalf of the
corporation, which, if
accepted after
incorporation, will become a
contract.
§ The promoter does
not assume any
personal liability,
whether or not the
corporation will
accept the offer.
2) The promoter may make a
contract at the time binding
himself, with understanding
that if the corporation, once
formed, accepts or adopts
the contract, he will be
relieved of responsibility; or
3) The promoter may bind
himself personally and
assume the responsibility of
looking to the proposed
corporation, when formed,
for reimbursement.

ü The Process of Incorporation – includes the drafting of

AOI, preparation and submission of additional
supporting documents, filing with the SEC, and
subsequent issuance of Certificate of Incorporation.
o Drafting of AOI –
§ Requirements from documentary to
financial structure – may vary
depending on the nature of the
business which the proposed
corporation intends to undertake.
o All things must be considered prior to the
drafting of the AOI:
§ Limitation and restriction on the
corporate name
§ Minimum paid-up requirement
imposed by law,
§ Rules and regulations of such
undertaking,
§ Qualifications and disqualification of
stock ownership in nationalized or
party nationalized industries
§ Additional documentary
requirements in specified lines or
activity
§ Qualifications and disqualifications of
directors and
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2. Contents of the Articles of Incorporation
Sec. 13. Contents of the Articles of
Incorporation – All corporations shall file with the
Commission articles of incorporation in any of the
official languages, duly signed and acknowledged or
authenticated, in such form and manner as may be
allowed by the Commission, containing substantially
the following matters, except as otherwise prescribed
by this Code or by special law:
a) The name of the corporation;
b) The specific purpose or purposes for
which the corporation is being
formed. Where a corporation has
more than one stated purpose, the
articles of incorporation shall indicate
the primary purpose and secondary
purpose or purposes: Provided, That
a non-stock corporation may not
include a purpose which would
change or contradict its nature as
such:
c) The place where the principal office
of the corporation is to be located,
which must be within the Philippines;
d) The term for which the corporation is
to exist, if the corporation has not
elected perpetual existence;
e) The names, nationalities, and
residence addresses of the
incorporators;
f) The number of directors, which shall
not be more than 15 or the number
of trustees which may be more than
15;
g) The names, nationalities, and
residence addresses of persons who
shall act as directors or trustees until
the first regular director or trustees
are duly elected and qualified in
accordance with this Code;
h) If it be a stock corporation, the
amount of its authorized capital
stock, number of shares into which it
is divided, the par value of each,
names, nationalities, and residence
addresses of the original subscribers,
amount subscribed and paid by each
on the subscription, and a statement
that some or all of the shares are
without par value, if applicable;
i) If it be a nonstock corporation, the
amount of its capital, the names,
nationalities, and residence
addresses of the contributors, and
amount contributed by each; and
j) Such other matters consistent with
law and which the incorporators may
deem necessary and convenient.
An arbitration agreement may eb provided in the
articles of incorporation pursuant to Section 181 of this
Code.
The articles of incorporation and application for
amendments thereto may be filed with the Commission
in the form of an electronic document, in accordance
with the Commission’s rules and regulations on
electronic filing.
ü AOI – defines the contractual relationships between
the State and the corporation, stockholders and the
State, and between the corporation and its
stockholders.
ü Contents –
1. Name of the corporation;
2. The specific purpose/s for which the
corporation is being incorporated;
3. The place where the principal office of the
corporation is to be located – which must be
within the PH;
4. The term for which the corporation is to exist;
5. The number of directors or trustees:
• Directors – NOT more than 15
• Trustees – may be more than 15
6. The names, nationalities and residences of
persons who shall act as directors or trustees;
7. If it be stock corporations – the amount of its
authorized capital stock in lawful money of
the PH, the number of shares into which it is
divided
• and in case, the shares are par value
shares –
o the par value of each,
o the names, nationalities and
residences of the original
subscribers, and
o the amount subscribed and paid
by each on his subscription,
o and if come or all of the shares are
without par value, such fact must
be stated;
8. 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;
9. Such other matters as are not inconsistent
with law and which the incorporators may
deem necessary and convenient.
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a) Prefatory Paragraph – must specify the nature
of the corporation being organized in order to
prevent difficulties of administration and
supervision.
• Should indicate whether it is a stock
or non-stock corporation, close
corporation, corporation sole or a
religious corporation.
b) Corporate name – is essential to its existence
since it is through it that it can act and perform
all legal acts.
• This is the principal means of
distinguishing it not only form its
stockholders or member but also from
other forms and entities.
• Corporation, once formed, cannot use
any other name, UNLESS it has been
amended
Sec. 17. Corporate Name – No corporate name shall be
allowed by the Commission if it is not distinguishable
for that already reserved or registered for the use of
another corporation, or if such name is already
protected by law, or when its use is contrary to existing
law, rules and regulations.
A name is not distinguishable even if it contains one or
more of the following:
a) The word “corporation”, “company”,
“incorporated”, “limited”, “limited liability”,
or an abbreviation of one of such words; and
b) Punctuations, articles, conjunctions,
contractions, prepositions, abbreviations,
different tenses, spacing, or number of the
same word or phrase.
The Commission, upon determination that the
corporate name is:
1. Not distinguishable from a name already
reserved or registered for the use of another
corporation;
2. Already protected by law; or
3. Contrary to law, rules and regulation
May summarily order the corporation to immediately
cease and desist from using such name and require the
corporation to register a new one. The Commission
shall cause the removal of all visible signages, marks,
advertisements, labels, prints and other effects bearing
such corporate name. Upon the approval of the new
corporate name, the Commission shall issue a
certificate of incorporation under the amended name.
If the corporation fails to comply with the Commission’s
order, the Commission may hold the corporation and
its responsible directors or officers in contempt and/or
hold them administratively, civilly and/or criminally
liable under this Code and other applicable laws and/or
revoke the registration of the corporation.
ü Statutory Limitations on Use of Corporate name – The
proposed must not be:
1. Identical
2. Deceptively or confusingly similar to that of
any existing corporation – including
internationally known foreign corporation
though not used in the Philippines, or to any
another name already protected by law; or
3. Patently deceptive, confusing, or contrary to
law
4. Name already protected by law
5. Name which is contrary to law, morals or
public policy.
ü Other Limitations
1. Must contain the word “incorporated” or “inc”
UNLESS it includes the cord “corporation” or
“corp”
2. Those prohibited under special laws.
3. Use of generic, geographical and descriptive
terms and names;
4. Use of trade name of another corporation;
5. Other policies provided by the SEC Memo NO.
14, Series of 2000.
ü Corporation – has the power to change its name by
following the procedure laid down by law.
o However, such change would not result in its
dissolution.
o By the amendment of its AOI, the same is not
effective until approved by the SEC.
ü Doctrine of Secondary Meaning
o GR: A corporation whose corporate name is a
word or phrase which is generally descriptive
or geographical cannot prevent another
corporation which uses the name or phrase as
its corporate name, from using such.
o XPN: A word or phrase originally incapable of
exclusive appropriation with reference to an
article on the market because geographically
or otherwise descriptive, might nevertheless
have been used so long and so exclusively by
one producer with reference to his article that,
in that trade and to that branch of the
purchasing public, the word or phrase has
come to mean that the article was his product.
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ü Similarity in corporate names between 2 corporations
would cause confusion to the public especially when
the purposes stated in their charter are also the same
type of business. (Universal Mills Corp. v Universal
Textile Mills Inc.)
ü A corporation has no right to intervene in a suit using a
name other than its registered name; if a corporation
legally and truly wants to intervene, it should have used
its corporate name as the law requires and not another
name which it had not registered. (Laureano
Investment & Development Corp v CA)
ü There would be no denial of due process when a
corporation is sued and judgment is rendered against it
under its unregistered trade name, holding that a
corporation may be sued under the name by which it
makes itself known to its workers. (Pison-Arceo
Agricultural Development Corp. v NLRC)
ü To determine the existing of confusing similarity in
corporate names – the test is whether the similarity is
such as to mislead a person, using ordinary care and
discrimination.
o The court must examine the record as well as
the names themselves.
§ Proof of actual confusion need NOT
be shown. It suffices that confusion is
probably or likely to occur.
Red Line Transport v. Rural Transit
FACTS: On June 4, 1932, the Rural Transit Co. Ltd., filed an application
for a certificate of public convenience for a new transportation service
between Tuguegarao and Ilagan.
Red Line Trans. Co. opposed the same alleging that as to the service
between the said route, it already holds a certificate of public
convenience and is rendering adequate and satisfactory service. The
CoPC was issued in the name of Bachrach Motors Co, Inc. and Rural
Transit Co. is being used by the former only as a trade name.
ISSUE: W/N Rural Transit Company is the real party ii interest.
RULING: NO. Bachrach Motors. is the real-party-in-interest. There is
NO law that empowers the Public Service Commission or any court in
this jurisdiction to authorize one corporation to assume the name of
another corporation trade name. Both Rural Transit Co. and Bachrach
Motors Co. are Philippine corporations and the very law of their
creation and continued existence requires ach to adopt and certify a
distinctive name.
The name of a corporation is essential to its existence. It cannot
change its name except in the manner provided by law. By that name
alone it is authorized to transact business.
If any corporation could assume at pleasure as an unregistered trade
name, the name of another corporation, this practice would result in
confusion of administration and supervision.
Universal Mills v. Universal Textile Mills
FACTS: Universal Textile Mills filed a complaint against Universal Mills
to change its corporate name on the ground that it is confusingly and
deceptively similar to the former corporate name.
UTM, Inc. was registered with the SEC on January 8, 1954 while UM
Corp. acquired its juridical personality on October 27, 1954.
The issue arose when news spread that a fire broke in the spinning
mills of Universal Mills in Pasig which brought confusion to the
customers and entities who knows Universal Textile Mills and cause
the latter to make announcements, clarifying the real identity of the
corporation whose properties was burned.
UM Corp. maintained that the names of the 2 corporations are not
similar and even if there be some similarity, it is not confusing or
deceptive, that the only reason why the respondent changed its name
from the Universal Hosiery Mills, Corp. to UM Corp. was because it
expanded its business to include the manufacture of fabrics of all
kinds, and the word “textile” in petitioner’s name is dominant and
prominent enough to distinguish the two.
SEC ordered UM, Corp. to change its corporate name.
ISSUE: W/N SEC is right in ordering Universal Mills Corp. to change its
name.
RULING: NO. The SEC was right in ordering UM Corp. to change its
name.
Corporate names in question are NOT identical but they are
undisputably similar that even under the test of reasonable care and
observation as the public as generally capable of using and may be
expected to exercise invoked by the appellant.
The court was worried that confusion will usually arise, considering
that under the second amendment of its articles of incorporation,
appellant included among its primary purpose that manufacturing,
dying, finishing and selling of fabrics of all kinds in which respondent,
UTM Inc. has been engaged for more than a decade ahead f the
petitioner.
The Commission found existence of such confusion and there is
evidence to support its conclusion.
Thus, SEC was right in ordering UM Corp. to change its name.
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Lyceum of the Philippines Inc. v CA
FACTS: Petitioner is an educational corporation registered with the
SEC on September 21, 1950 and has used its name from that time on.
On February 24, 1984, petitioner filed before the petition to compel
private respnondents, Western Pangasinan Lyceum, Lyceum of
Cabagan, Lyceum of Lallo Inc., Lyceum of Apari, etc. to delete the sord
“Lyceum” from their corporate names and to permanently enjoin
them form using the word as part of their respective names.
SEC sustained the petitioner’s claim to an exclusive right to use the
word “Lyceum” based on an earlier ruling of that same forum in the
case of Lyceum of Baguio, Inc.
On appeal to the Commission en banc, the hearing officer was
reversed. It was held that the “attaching of the geographical names to
the word “Lyceum” served sufficiently to distinguish the schools form
one another, especially in view of the fact that the campuses of
petitioner and those of the respondents where physically remote from
each other.
Petitioner went to the CA. CA affirmed SEC decision.
ISSUE: W/N the private respondents should be directed to delete the
word “Lyceum” from their corporate names.
RULING: NO. The private respondents should NOT eb directed to
delete the word “Lyceum” form their corporate names.
The rule is that the registration of a corporate name which is identical
or deceptively or confusingly similar” to that of any existing
corporation is “patently deceptive” or “plainly confusing” or “contrary
to existing law”.
The court does NOT consider the corporate names of private
respondent institutions “identical with or deceptively similar” to that
of the petitioner institution.
It is true that corporate names of all the private respondents carry the
word “Lyceum: but confusion or deception are effectively precluded
by the appending of geographic locations to the word “Lyceum”. Thus,
the Court do not believe that the “Lyceum of Aparri” can be mistaken
by the general public for the Lyceum of the Philippines, or that the
“Lyceum of Camalanuigan” would be confused with the Lyceum of the
Philippines.
The “doctrine of secondary meaning” originated in the field of
trademark law. Its application has been extended to corporate names
since the right to use a corporate name, to the exclusion of others is
based upon the same principle which underlies the right to use a
particular tradename. In Philippine Nut Industry vs. Standard Banks,
“doctrine of secondary meaning” is explained as “a word or phrase
originally incapable of excusive appropriation with reference to an
article in the market, because of geographically or otherwise
descriptive, might nevertheless have been used so long and so
exclusively by one producer with reference to his article that, in that
trade and to that branch of the purchasing public; the word or phrase
has become to mean that the article was his product.”
In this case, Lyceum of the Philippines failed to satisfy the requisites.
No evidence was ever presented in the hearing before the SEC which
sufficiently proved that the word “Lyceum” has indeed acquired
secondary meaning in favor of appellant.
Philipps Export BV v CA
FACTS: Philipps Export BV is a foreign corporation organized under the
laws of Netherlands. It is NOT doing business in the PH but is the
registered owner of the trademark PHILIPS and PHILIPS SHIELD
EMBLEM, issued by the Phil. Patent Office.
Philips Electric Lamp Inc. and Philips Industrial Development Inc. the
authorized users of the trademarks PHILIPS and PHILIPS SHIELD
EMBLEM, were incorporated on August 1956 and May 1956.
Respondent Standard Philips Corp. was issued a certificate of
recognition by the SEC on May 19, 1982.
On February 6, 1985, petitioner filed an application for writ of
injunction to prohibit Standard Philips from using the word “PHILIPS”
in its corporate name in view of the prior registration of the said word
with the Bureau of Patents.
Petitioners alleged that the respondent’s use of the word
PHILIPS amounts to an infringement and clear violation of petitioners
right to use the same considering that both parties are engaged in the
same business.
SEC denied the petition and ruled that Sec. 18 of the Code is applicable
only when the names in question is identical. There is NO confusing
similarity between petitioners’ and respondent’s corporate names as
those of the petitioners contain at least two words different from that
of the respondents.
Petitioners went to the CA.
CA affirmed the SEC decision.
They Appealed to the Supreme Court.
ISSUE: W/N Standard Philips whould be directed to delete the word
“PHILIPS” for its corporate name.
RULING:
As early as 1927, the Court declared that a corporation’s right to use
its corporate name and trade name is a property right, and a right in
rem, which it may assert and protect against the word in the same
manner as it may protect its tangible property, real or personal,
against trespass or conversion.
Section 18 of the Corporation Code provides for a statutory
prohibition on the use of corporate name. To come within the
prohibition, 2 requisites must be proven:
1. That the complainant corporation acquired a prior right over the
use of such corporate name;
2. The proposed name is either:
a. identical; or
b. deceptively or confusingly similar to that of any existing
corporation or to any other name alreayd protected by law; or
c. patently deceptive, confusing o contrary to existing law.
There is NO doubt with respect to petitioners’ prior adoption of the
name “PHILIPS” as part of its corporate name. Petitioners Philips
Electrical and Philips Industrial were incorporated in 1956 while
respondent was issued a Certificate of Registration in 1982, 26 years
later. Petitoner PEBV also used the trademark “PHILIPS” on electrical
lamps of all types and their accessories since 1922.
For the 2nd requisite, the corporate names are NOT identical however,
it is inevitable that one may conclude that “PHILIPS” is the dominant
word in both names.
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PEBV is known in the PH and abroad as PHILIPS Group of Companies. c. Purpose Clause -
Proof of actual confusion is probably or likely to occur. ü the statement of the objects or purpose or
powers in the charter results practically in
Furthermore, Philips Industrial Development Inc.’s primary purpose in defining the scope of the authority of the
its Articles of Incorporation are the following: corporate enterprise or undertaking.
“to develop, manufacture and deal in electrical products, ü The purpose clause confers and also limits the
including electronic, mechanical and other similar products.”
actual authority of the corporate
representatives.
Given their purpose, there is nothing that could prevent it from
dealing in the same line of business of electrical devices. Besides, o Sec. 44 – a corporation has only such
private respondent not only manufactured and sold ballasts for powers as are EXPRESSLY granted to
fluorescent lamps with their corporate name printed thereon but also it by law and by its AOI including
advertised the same as among others, Standard Philips. As aptly those which are incidental to such
pointed out by petitioners, private respondent’s choice of PHILIPS as conferred powers, those reasonably
part of its corporate name tends to show said respondent’s intention necessary to accomplish its purpose
to ride on the popularity and established goodwill of PHILIPES EBV. and those which may be incidental to
its existence.
Although it is true that under the Guideline in the Approval of
ü The reasons for requiring a statement of the
Corporate and partnership names formulated by the SEC, the
proposed name "should not be similar to one already used by another purpose or objects in the charter are three-
corporation or partnership”. If the proposed name contains a word fold:
already used a part of the firm name or style of a registered company, 1. In order that the stockholder who
the “proposed name must contain two other words different from the contemplates on an investment in a
company already registered.: It is thus pointed out that Petitioners business enterprise shall know within
Philips EBV and Philips industrial have 2 words different form that of what lines of business his money is to
private respondent’s name. HOWEVER, PHILIPS is a trademark or be put at risk;
trade name which was registered as far back as 1922. Petitioners,
2. So that the BOD and management
therefore, have the exclusive right to the use of its name, which may
may know within what lines of
be free from any infringement by similarity.
A corporation has an exclusive right to the use of its name, business they are authorized to act;
which may be protected by injunction upon a principle similar to that and
upon which persons are protected in the sue of trademark and 3. So that anyone who deals with the
tradenames. company may ascertain whether a
contract or transaction into which he
Notably too. Private respondent;s name actually contains only a single contemplates entering is one within
word that is “STANDARD” different form that the petitioner inasmuch the general authority of the
as the inclusion of the term “Corporation” merely serves the purose
management.
of distinguishing the corporation fomr parnerhsip and other business
ü The CC does not restrict nor limit the number
organizations.
of purpose or purposes which a corporation
THUS, Standard Philips Corp is enjoind from using “PHILIPS” as a may have, Section 13 requires that it has more
feature of its name. than one purpose the primary purpose as well
as the secondary ones must be indicated
therein.
o Likewise, other special laws prohibit
certain business undertaking from
having any other purpose not
peculiar to them:
§ Educational, religious and
other non-stock
corporations cannot include
any other purpose which
would change or contradict
its nature or to engage in
any enterprise to make
profits for its members;
§ Insurance companies
cannot engage in
commercial banking at the
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same time, and vice-versa;
and
§ Stockbrokers can have no
other line of business not
peculiar to them.
ü Some special statutes, rules and regulations,
restrict or limit the purpose or purposes that
may be included in a business venture under
special circumstances or specialized lines of
undertaking.
ü Others impose additional documentary
requirements aside from the basic supporting
documents required by the SEC.
ü Purpose/s must be lawful.
o Hence, the SEC is duty bound to
determine the legality of the
corporate purpose/s before it issues
the Certificate of Registration.
o If any of the purposes stated in the
articles of incorporation is patently
unconstitutional, illegal, immoral or
contrary to government rules and
regulations, the same shall be
rejected or disapproved.
ü Corporation may not be formed for the
purpose of practicing a profession like law,
medicine or accountancy, either directly or
indirectly. – reserved exclusively for
professional partnerships.
ü Retail trade where the corporate capital is less
than $2.5M or its person equivalent are
reserved exclusively for Filipino, or for
corporations or partnerships wholly owned by
such citizen.
ü Corporations with foreign equity are not
allowed to engage in the restaurant business
but corporation with such foreign equity can
pursue such undertaking if it is incidental or in
connection with hotel or inn-keeping
business.
ü Management consultants, advisers and/or
specialists, must submit the personal
information sheet of the incorporators and
directors in order that the SEC may be able to
find out or determine whether or not the
applicant corporation is qualified to act as
such.
ü For financing companies, the provisions of RA
8556 must be complied with. As a matter of
policy of the SEC, applications for registration
must be accompanied with the following
documents:
1. Information sheet of the registering
company;
2. Personal information sheet of each of
the directors or managing partners;
3. Answer to SEC questionnaire;
4. Schedule of discounting, factoring,
leasing or interest rates and other
charges prescribed under RA 8556
and the IRR;
5. Each director or managing partner
shall submit the following:
a. Police and NBI Clearance;
b. Certificate of good moral
character to be executed
under oath by at least two
(2) reputable and
disinterested persons in the
community; and
c. Bank Credit Information to
be issued by his depository
of creditor bank, if any.
(Foreign directors/officers shall
submit BID Clearance and Alien
Certificate of Registration in lieu
of NBI Clearance, and certificate
of good moral character)
6. Publication of the application for
registration in a newspaper of
general circulation and posting
thereof in a conspicuous place in the
City or Municipality where the
principal office is located and the
submission of the affidavit of
publication and posting.
ü For bonded warehousing companies – an undertaking
to comply with General Bonded Warehousing Act must
be submitted along with the AOI.
ü In case the applicant proposes to engage in the
business of hospital/clinic, the purpose clause must
contain the following proviso:
“Provided that purely medical or surgical
services in connection therewith shall be
performed by duly qualified physician and
surgeon who may or may not be freely and
individually contracted by the patients.”
ü Customs Brokerage business – applicant must submit
the license of at least 2 customs broker connected with
applicant corporation;
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ü Transfer Agents, Broker and Clearing Houses must
submit the certificate of admissions to the profession
of the Certified Public Accountant of any officer of the
corporation;
o If the corporate purpose or objective includes
any purpose under the supervision of another
government agency, prior clearance and/or
approval of the concerned governments
agencies or instrumentalities will be required
pursuant to the provisions of the Code.
Sec. 16 (last par.) No articles of incorporation
or amendment to articles of incorporation of
banks, banking and quasi-banking,
institutions, preneed, insurance and trust-
companies, NSSLAS, pawnshops, and other
financial intermediaries shall be approved by
the Commission unless accompanied by a
favorable recommendation of the appropriate
government agency to the effect that such
articles or amendment is in accordance with
law.
13. Mayor’s permit – for travel agencies;
and
14. Maritime Industry Authority – for
water transport firms.
ü There are at least 4 general limitations on the purpose
clause.
1. The purpose/s must eb lawful;
2. The purpose must be specific or stated
concisely although in broad or general terms;
3. If there is more than one purpose, the
primary as well as the secondary ones must
be specified; and
4. The purpose must be capable of being
lawfully combined.

Among the government agencies concerned

are the following:
1. Civil Aeronautics Board – for air
transport firms;
2. Central Bank of the Philippines –
banking, finance companies with
quasi-banking functions, and
pawnshops;
3. The Philippines Gamefowl
Commission – cockfighting;
4. Department of Education Cultural
and Sports – educational institutions;
5. Energy Regulatory Board – Electric
power companies;
6. Bureau of Food and Drugs – for the
manufacture, processing and packing
of food, drugs and cosmetics;
7. DOH’s Bureau of Licensing and
Regulation – hospitals and clinics;
8. Office of the Insurance Commission
– insurance companies and mutual
funds;
9. Land Transportation Franchising and
Regulatory Board – land transport
firms;
10. National Telecommunications
Commission – operation of radio,
television and telegraph;
11. Philippines Overseas Employment
Administration – recruitment firms
for overseas placements;
12. Philippine National Police and Office
of the Mayor – security agencies;
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II
e. Principal Office Address
ü Section 13(c) requires that principal office of the
corporation must be within the PH.
ü The AOI should, specify not only the province but also
the city of municipality where the principal office is
locates.
ü The principal office may be in one place and the
business operations are actually conducted in other
areas.
ü The law does not require a statement as to the place of
corporate operations and therefor, may be dispensed
with.
ü Statement of the location of the principal office of the
corporation is necessary to establish the residence of
the corporation.
o This may prove important in the
determination as to where chattel mortgagee
of shares should be registered including venue
of actions for or against the corporation.
o It may also serve important in determining the
validity of meetings of stockholders or
member in so far as venue thereof is
concerned under Sec. 50 of the Code.
Clavecilla Radio System v Antillon
FACTS: The New Cagayan Grocery filed a complaint against CRS on
June 22, 1963 alleging that on March 12, 1963, the following message
addressed to the former was filed at the latter’s Bacolod Branch Office
for transmission through its Branch office at Cagayan de Oro:
“NECARGO
CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY
IF AGRREABLE SHALL SHIP LATER REPLY.
POHANG”
CDO branch office having received the said message omitted the word
“NOT” in the message thereby changing entirely the context and
purpose thereof causing the addressee to suffer damages such that an
action was field before the City Court in CDO.
After service of summons, CRS filed a motion to dismiss alleging that
venue is improperly laid.
ISSUE: W/N the case filed in CDO will prosper
RULING: NO. The case will NOT prosper.
It is clear that the case for damages filed with the City Court is based
on tort and not upon a written contract. Sec. 1 of Rule IV of the ROC
provides that when the action is NOT upon a written contract, the
same must be filed in the municipality where the defendant or any of
the defendants resides or may be served with summons.
In corporation law, the residence of a corporation is the place where
the principal office is established. Since it is not disputed that CRS has
its principal office in manila, it follows that the suit against it may
properly be filed in the City of Manila.
The Court has already held in a case that the term “may be served with
summons” does noy apply when the defendant resides in the PH for,
in such case, he may be sued only in the municipality of his residence
regardless of the place where he may be found and served with
summons.
Clavecilla maintains a residence which is in Manila in this case, and a
person can only have one residence at a time.
The fact that it maintains branch office in some parts of the country
does not mean that it can be sued in any of these places. To allow an
action to be instituted in any place where a corporate entity has its
branch office would create confusion and work untold
inconveniences to the corporation.
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f. Term of Existence – ü Sec. 10 of the Code provides for the qualifications of

ü The corporate term is necessary in determining at what
point in time the corporation will cease to exist or have
lost its juridical personality.
ü A corporation can sue or be sued and transact its
business only while it possesses a juridical personality.
o Once it ceases to exist, its legal personality
also expires and could not thereafter, act in his
own name for the purpose of prosecuting its
business.
o HOWEVER, despite the termination of
RULEexistence,ALREADY whether by AMENDED
expiration of its own
term or by forfeiture, the corporation
continues as a body corporate for the purpose
of prosecuting and defending suits for or
against it and enabling it gradually to settle
and close its affairs.
ü A corporation shall exist for a period NOT exceeding 50
years.
o This may be extended for an unlimited
number of times by amendment of the articles
of incorporation, AND as long as each
extension does NOT exceed for another 50
years.
ü See Section 11
incorporators:
Sec. 10. Number and Qualifications of
Incorporators – Any person, partnership
association or corporation, singly or jointly
with others but not more than 15 in number,
may organize a corporation for any lawful
purpose or purposes: Provided, That 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 as
a corporation unless otherwise provided
under special law. Incorporators who are
natural persons must be of legal age.
Each incorporator of a stock corporation must
own or be a subscriber to at least 1 share of
the capital stock.
A corporation with single stockholder is
considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.

g. Incorporators –
ü Sec. 5 of the Code provides for a definition of the
persons composing the corporation in the following
manner:
Sec. 5. Corporators and Incorporators –
Corporators are those who compose a
corporation, whether as stockholders or
shareholders in a stock corporation or as
members in a non-stock corporation.
Incorporators are those stockholders or
members mentioned in the articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.

ü Corporators – applied to all persons who compose the

corporation at any given time and need not be among
those who execute the articles of incorporation at the
start of its formation and organizations.

ü Incorporators – applied only to those people

mentioned in the articles as originally forming the
corporation and who are signatories of the AOI.
o May be considered as corporator provided he
continues to be a stockholder or member, but
not all corporators are incorporators.
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