Lecture

Title II
Incorporation and Organization of Private Corporations

Who may form corporations

Sec. 10 of the Revised Corporation Code allows persons, partnerships, associations, or corporations to
organize and become incorporators of private companies in the Philippines either by themselves or
jointly with other persons, partnerships, associations, or corporations. This is a huge step from the
previous law which only allowed natural persons to incorporate, and in any case they could not
number less than 5 nor more than 15, and majority of them must have been residents of the
Philippines.

The Civil Code recognizes that persons may be natural or juridical, that is, those entities that are by
fiction of law considered to be persons and are thus accorded certain rights (See Art. 44-46, Republic
Act No. 386, The Civil Code of the Philippines)1. Partnerships and corporations are among such juridical
persons, so the removal of the word “natural” from the provision would have been sufficient for the
purpose of the new law. However, the new law expressly mentioning partnerships, associations, and
corporations as valid incorporators is not altogether objectionable, as it makes things clear.

The new corporation law retains the cap of 15 incorporators, and there is no longer any mention of a
residency requirement. There is also a prohibition on professionals, singly or in partnerships or
associations formed for the practice of their profession, from forming a corporation. As currently
worded, the prohibition may be read to apply to any purpose other than the practice of their
profession, but I believe this is not the intention. Thus, a group of doctors may form a corporation for
the purpose of running a hospital, or, say, a resort.

(One Person Corporations will be discussed under Title XIII Chapter III)

1 Article 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or member. (35a)

Article 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or
recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning
partnerships. (36 and 37a)

Article 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or
criminal actions, in conformity with the laws and regulations of their organization. (38a)

Article 47. Upon the dissolution of corporations, institutions and other entities for public interest or purpose mentioned in
No. 2 of article 44, their property and other assets shall be disposed of in pursuance of law or the charter creating them. If
nothing has been specified on this point, the property and other assets shall be applied to similar purposes for the benefit
of the region, province, city or municipality which during the existence of the institution derived the principal benefits from
the same.
Corporate term
Corporations now have perpetual lifetimes (Sec. 11) unlike in the previous law, but the corporation
may still elect to have a termed existence by stating the desired period in its Articles of Incorporation
at registration. Existing corporations are also granted perpetual lifetimes by the new law. If these
existing corporations do not want the new and perpetual lease on life, they through a vote of
stockholders representing a majority of the outstanding capital stock may notify the SEC that they
elect to retain the term originally granted them under the Articles of Incorporation. Whatever the
corporation chooses, the Articles may nevertheless be amended with the necessary votes by the Board
of Directors and the stockholders, and there seems to be no prohibition whether the change is from
perpetual existence to a termed one, and in the latter case, to extend or shorten the same. If the
change is an extension of an existing term, the extension should be done within three years prior to
the expiry of the original or succeeding corporate terms. In any case, these extensions only start the
day after the stated expiry. If the articles of incorporation are amended, the stockholders may exercise
their appraisal right.

Revival
One other very substantial change that has been clearly set forth in the current provision on corporate
term is that a corporation whose term has expired may apply for a revival of its corporate existence,
and along with it all rights, privileges, as well as debts, duties, and liabilities prior to its expiry. Under
the old law, it was understood that a corporation that allowed its term to lapse no longer exists, except
for purposes of dissolution and liquidation. The interpretation was that during the period of
liquidation and dissolution, revival was no longer an option because, the corporate life having lapsed,
there was nothing to revive, and in accordance with the limitation on corporate powers, the lapsed
corporation could no longer perform acts relating to business. Now, it is apparent that the law
preserves for the corporation the option to revive its lapsed life, perhaps to make it easier for business
to continue, rather than forcing the investors to go through the rigamarole of forming an altogether
new corporation. However, banks, banking and quasi-banking institutions, preneed, non-stock savings
and loan associations (NSSLAs), pawnshops, corporations engaged in money-service business, and
other financial intermediaries can only apply for a revival of their corporate personality after being
favorably passed upon by the pertinent government agency that regulates them, i.e., the Banko
Sentral ng Pilipinas.

Capital stock
The Revised Corporation Code does not require a minimum capital stock for corporations under
formation, except as special laws may require (Sec. 12). It drops the qualifying term “authorized”
when mentioning capital and foregoes even with the qualifying provision under the old law that, while
there was no required minimum authorized capital, nevertheless there was a required minimum
capital actually paid up. So now, registration can be had even without actual money paid up. However,
if special laws require that a corporation engaged in a particular industry or business actually have a
paid-up capital at formation, those laws will of course be followed. For example, following the market
crash near the end of the first decade of the millennium, Philippine insurance laws subsequently
require that life and non-life insurance companies under formation must immediately have P1B in
paid-up capital, while reinsurance companies should have double that amount. The theory behind this
is so companies in particular industries are liquid enough to immediately meet the contingencies of
their business, instead of relying on later investments or the success of the business which is, at
formation, unsure at best.
It may also be provided under law or the constitution that a certain industry is reserved only for
Philippine citizens, or other classes of stockholders. Maximum stockholdings may also be set to comply
with competition rules, especially if the corporation is vested with public interest, or pursuant to
national economic policies for general welfare and economic development (Sec. 176).2

The Articles of Incorporation

The Articles of Incorporation comprise the constitution or charter of the corporation and contain such
provisions as the incorporators may deem important or necessary. Like any constitution, its nature is
to contain core principles and policies, and it is not designed to be very particular as to the company
operations, for that is the role of corporate by-laws and other documents that may contain functional
or operational rules. Be that as it may, Sec. 13 of the law requires a minimum of provisions that should
be contained in the Articles: the corporate name, purpose or purposes, its principal office, the
corporate term, information on its incorporators and directors or trustees, information on its stock or
capital if non-stock, and other matters that are not otherwise illegal. New to the provision on Articles
of Incorporation is a suggestion on the possible inclusion of an arbitration agreement (which arguably
can already be understood as within the ambit of “other matters consistent with law) and the
possibility of filing the document with the SEC electronically (which could have been embodied in an
administrative issuance rather than the law itself).

Corporate Name
Sec. 17 requires that the corporate name be distinguishable from those already reserved or registered
for the use of other corporations, or the name is protected by law, or its use is illegal or against existing
rules and regulations. Reservation and registration does not only refer to the SEC, but the Department
of Trade and Industry as well, which has a registry of business names for sole proprietorships.

Memorandum Circular No. 13-2019 of the SEC interprets Sec. 17 and lays down rules on the adoption
of corporate names. The company under formation must use “corporation” or “incorporated” or their
abbreviations “corp.” or “inc.” One Person Corporations are required to append “OPC” to their
corporate names. Partnerships must use “company” or “co.” and “limited” or “ltd.” if it is a limited
partnership. If it is a professional partnership, it may use “company,” “associates,” “partners,” or
similar descriptions. Foundations must have the word “foundation” in their corporate names.
Microfinance companies, whether they be non-stock, non-profit corporations, NGOs, or foundations,
must use the word “microfinance” or “microfinancing” and their articles of incorporation must in the
purpose clause state that they conduct microfinance operations pursuant to RA 8425 (The Social
Reform and Poverty Alleviation Act).

SEC guidelines state that a corporation may add one or more distinctive words in a corporate or
partnership name to avoid similarities or differentiate themselves from other registered companies,
but not simple punctuation marks, signs, symbols, or similar characters. But even if there are
distinguishing words, if a registered name is coined or unique, the company under registration and
wanting to use the unique name must seek the consent of the registered company for the use of the
unique name. If the corporate name is a trade name or a trademark registered under thee Intellectual
Property Office, the owner of the trade name or mark should also give consent.

2In recommending to the Congress which corporations, businesses and industries are vested with public interest, and in
proposing limitations on stockholdings, the NEDA should consider the type and nature of the industry, size of the enterprise,
economies of scale, geographic location, extent of Filipino ownership, labor intensity of the activity, export potential, and
other relevant factors (Ibid.).
In addition to the corporate name, companies can adopt business names that may be different from
the registered corporate name. They should indicate the adoption of such business names in their
articles of incorporation.

Can the names of persons be used as corporate names? The answer is yes, although SEC guidelines
mention only a “full name or surname”. However, the SEC rules that the person to whom the name
belongs must be a stockholder, member, or partner, and that they must have consented to the use of
their name. In the case of deceased persons, the estate should give the consent. These rules
notwithstanding, any part of a person’s name may logically be seen or read as ordinary words, and
thus may arguably serve as corporate names provided they comply with other rules thereon.

The use of personal names is of course applicable to One Person Corporations, but there should be
descriptive words to go along with the corporate name, aside from the suffix “OPC.”

The SEC can always inquire into the reasons a particular corporate name is being adopted, especially
if it is an acronym, in which case the meaning should also be stated by the registrant in the articles, or
in a separate document signed by an incorporator, director, or partner.

Other rules on corporate names:

• The name of an internationally known foreign corporation cannot be used in the
Philippines unless by subsidiary, with the parent’s consent.
• A name expressed in foreign language will not be acceptable if, as expressed, it is violative
of public morals, public order, or public policy, or has an offensive or indecorous meaning
in any of the country’s official languages.
• The name of a local geographical unit must be accompanied by other descriptive words.
• As provided for by special laws, only companies engaged in the pertinent business may
use as or in their corporate names the following: finance, financing, finance and leasing,
leasing, investment, (RA 8556, PD 129), lending company, lending investor (RA 9474),
pawnshop (PD 114), bank, banking, banker, savings and loan, (RA 8367), trust (RA 8791),
United Nations, UN (RA 226), bonded (RA 247), SPV-AMC (RA 9182), any name of any
international organization, ASEAN (Art. 6ter, Paris Convention for the Protection of
Intellectual Property), engineer or engineering (RA 1582), architect (RA 9266), geodetic
engineer (RA 8560), red cross, red crescent, red crystal (RA 10530), stock exchange,
futures exchange, derivatives exchange, stock broker, securities broker, derivatives
broker, commodity or financial futures merchant or broker, securities clearing agency,
stock clearing agency, plans (RA 8799, the Securities Regulation Code).
• In a similar fashion, the SEC also limits the use of the following words to corporations
engaged in the pertinent business described: capital for investment houses or holding
companies, asset/investment/fund/financial management or adviser for investment
management activities, national, bureau, commission, state, for governmental functions,
and association, organization, for non-stock, non-profit companies.

If a company has dissolved or had its license revoked, its name cannot be used by another corporation
or partnership until after 5 years from the date of approval of the dissolution, unless the name is
released at the time of dissolution or revocation by stockholders, members, or partners representing
a majority of the outstanding capital stock.
No application for re-registration of the expired corporation, however, shall be processed by the
Commission unless the application is accompanied by the following documents:
1. A board resolution, executed and signed under oath by the holdover board of
directors/trustees of the expired corporation, attesting that:
a. The applicant for re-registration is a new corporation intending to use the name of
the expired corporation (specially identifying the corporate name and registration
number)
b. The re-registration is approved by the majority vote of the board of directors or
trustees and the vote of the stockholders representing the majority of the outstanding
capital stock or membership
c. A statement in the articles of incorporation that they are using the name of the
expired corporation
d. If applicable, they will no longer file a petition to set aside the order of revocation
2. Latest GIS with an SEC receipt stamp
3. Affidavit by the holdover corporate secretary, attesting that
a. There are no properties owned by the dissolved/revoked corporation due for
liquidation, or in case there are properties owned by the dissolved corporation, no
property is transferred to the new corporation, or in case of stock corporations, used
for subscription payment without undergoing corporate liquidation
b. There is no pending intra-corporate dispute or claim involving the expired corporation
c. The expired corporation has no derogatory information with the commission at the
time of its application for re-registration

If a corporation or partnership changed its name through an amendment of the articles of

incorporation, the name that was changed cannot be used by another corporation or partnership for
a period of 3 years from the date of approval of the adoption of the new name. Again, the consent of
the corporation that changed its name is necessary, and should be embodied in

For Corporations
a. Directors/Trustees certificate approved by a majority of such directors/trustees
b. Secretary’s Certificate of the non-existence of intra-corporate dispute from the
corporation that used the name

For Partnerships
a. Resolution of approval approved by majority of the partners

For OPC
a. The consent of the sole stockholder, or in case of incapacity or death, his/her designated
nominee, given in a notarized instrument and countersigned by the Corporate Secretary

In case of mergers or consolidations, the names of the absorbed/constituent corporations may not be
used unless by the surviving corporation. If the surviving corporation does not elect to use the name
of the absorbed or constituent corporations, it may release such names through a directors’ certificate
and secretary’s certificate, as above mentioned for corporations.

At the time of registration, a corporation or partnership shall submit an affidavit signed by two
incorporators or partners containing an unqualified undertaking to change its name upon receipt of
notice that another corporation, partnership, or person has acquired prior right to the use of the
name, or that the name is not distinguishable from one already registered or reserved, or that it is
contrary to law, public morals, good customs, or public policy. But this undertaking can also be stated
as a provision in the articles of incorporation.

Having considered all of the above rules on corporate names, the corporation undergoing registration
must secure a name verification slip from the SEC to show that the corporate name has been evaluated
and reserved in its favor.

Corporate Purpose
The purpose of the corporation must be stated, and if there is more than one purpose, all the purposes
must be listed but only one will be listed as the primary purpose, while the rest are secondary
purposes. It goes without saying that corporations under formation cannot engage in unconstitutional,
unlawful, or immoral business or purposes, or those contrary to government rules and regulations.
This is also a ground to disallow the registration of the corporation under Sec. 16 b. Section 16 however
allows that the articles be amended and re-submitted for approval. The other grounds of disapproval
under that section are when the articles are not substantially in accord with the prescribed form in
Sec. 14, when the certificate of capital subscribed and paid was falsified, or the percentage of Filipino
ownership in some industries was not complied with. The articles of banks, banking and quasi-banking
institutions, preneed, insurance, and trust companies, NSSLAs, pawnshops, and other financial
intermediaries shall likewise be not approved if not accompanied by a recommendation by the
appropriate government agency regulating them.

Amendments
If there is a need to amend the articles of incorporation, Sec. 15 requires that a majority of the
directors or trustees, and stockholders representing 2/3 of the outstanding capital stock, vote to
approve the amendment. The amended articles, provisions, or words should be underlined in the new
Articles of Incorporation, and accompanied by a sworn statement by the corporate secretary and
majority of the directors as to the changes and approvals. The changes take place upon the approval
of the Commission or after 6 months from submission, whichever comes sooner. It seems, though,
that Sec. 15 refers to amendments after incorporation. For amendments during incorporation, when
there may as yet be no organization of directors and stockholders meetings to speak of, the first
paragraph of Sec. 16 may apply, that is, the Commission may give the incorporators ample time within
which to correct the offending provisions.

Registration
In addition to the Articles of Incorporation and name verification slip mentioned above, other
documentary requirements for the registration of a corporation with the SEC are the By-Laws and
treasurer’s sworn statement on capital, as well as the undertaking to change the corporate name if
necessary, if this last has not been included in the Articles. The treasurer’s affidavit as a requirement
is worth noting, because, although the form for the same has been removed after the form of the
Articles in Sec. 14 (unlike in the old law which had it), it is still a requirement because one of the things
the SEC will look at before approving the registration is whether or not the statement on capital is true
or not (See. Section 16 c). So this means the treasurer still has to set forth in, and swear to, a separate
document the total amount of capital that the forming corporation has, and how much of that capital
has been subscribed to and paid. The only difference is that, since there is no longer any minimum
paid-up capital unlike in the old law, the treasurer no longer has to swear that a certain percentage of
paid-up capital has been met.
If the company is engaged in an activity or business that is regulated by any government agency, such
the Banko Sentral ng Pilipinas for banks and other companies with financial activities, an endorsement
from that agency is also necessary. Should there be foreign equity, for those businesses that are open
to foreign investments more than that allowed for partly nationalized industries (more than 40%),
they are likewise required to accomplish an application form under the Foreign Investments Act (RA
7042, as amended). Finally, if the company will operate in a special zone, they must be cleared by the
authorities of those zones, such as the Philippine Economic Zone Authority (RA 7916) Subic Bay
Metropolitan Authority (RA 7227), Clark Development Corporation (RA 7227), or Cagayan Economic
Zone Authority (RA 7922).

Afterwards, if there is nothing wrong with the documents, the corporation gets registered and a
certificate of registration is issued in its favor. Legal commentators say this is a case of a corporation
de jure, a corporation in law. But the system is not perfect and something might be wrong with a
corporation that has been registered. However, as long as it drafted and filed its papers in good faith,
and was incorporated in good faith, it is considered a de facto corporation (a corporation in fact) and
as such may exercise corporate powers without fear of being questioned as to the legality of its
existence in any private suit that it may find itself a party to, unless that suit was filed specifically to
question the validity of its incorporation. But in that case, only the government, through the Solicitor
General, can file it. The suit is called a quo warranto proceeding. So if there are cases or claims filed
against a corporation, the complainants or other parties in those cases cannot just raise the validity of
the corporation’s existence as one of the issues to be determined for the resolution of such claims or
cases (See Sec. 19).

If there was actually no incorporation that happened, or the incorporation did not happen in
compliance with law or regulations and thus the incorporators were not granted a certificate of
incorporation, and they still represent themselves collectively to be a corporation when in reality they
are not, they are estopped from denying this fact later, and will be treated as a collective if only to
protect third parties from their misrepresentation. More accurately, Sec. 20 treats each member of
the collective as a general partner. In partnership law, general partners are liable not just for the
investment they made in the partnership, but up to their personal assets. This is to make sure that
creditors can collect. Further, the members of the collective cannot use the lack of incorporation
precisely to get out of trouble, because they misrepresented themselves as a real corporation in the
first place. So while they are not real, they are considered real and liable by the principle of estoppel.
This rule helps preserve the sanctity of contracts, so much so that would-be participants in
transactions with corporations by estoppel will themselves be estopped from invoking the defense
that there is no corporation. Thus, they must perform their obligations to the collective.

Revocation for Non-usage

Once registered, the corporation sets out to organize. Legal opinion says this does not mean the
corporation immediately does business, because it may not be possible yet. There are other
registrations and compliances that must be undertaken, such as for tax and labor requirements. So,
under Sec. 21, the company is given 5 years from date of incorporation to formally organize and
commence its business. At the very least, this means that by that time, a board of directors or trustees
should have already been elected to replace the temporary ones stated in the Articles of Incorporation
during the time of registration. This period of 5 years was originally just 2 years in the last law, which
just recognizes the possible difficulties of getting a new business up and really running. If there is no
sign that the corporation is up and running, such the supposedly yearly filing of reports to the SEC, the
certificate of incorporation is deemed revoked as of the day following the end of the 5-year period.
But it can also happen that a company commences its operations and then, for any reason, suspends
it later. The contingencies of doing business are not lost to law, which gives corporations as much
leeway as is reasonable. In this regard, the Revised Corporation Code gives the company a maximum
of 5 consecutive years of idleness, before it is declared delinquent. The status of delinquency is a
significant change from the old law, which stated that the lack of operations over a similar period was
a ground to revoke its certificate of incorporation. Now, corporations have 2 extra years from the
declaration of delinquency within which to reanimate the corporation by resuming operations and
complying with whatever the SEC might require them to submit as proof that they have resumed
operations. This is not to mention the period of “reasonable notice” mentioned in the last paragraph
of Sec. 21 that the SEC must give to the government agency regulating the business of the corporation
concerned before the actual suspension or revocation of the certificate of incorporation. Thus, when
a corporation is finally suspended or ceases to be a corporation because of the revocation of its
certificate, it cannot be said that it did not have ample time within which to comply with regulatory
requirements.