Grounds for Rejection of the ARTICLES OF INCORPORATION OF GANGZA

CULTURE AND ARTS, INC.

FIRST GROUND: Articles of Incorporation are not duly signed and

acknowledged or authenticated:

Legal basis: Section 13 of the Revised Corporation Code - 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.

Furthermore, Sec. 2 of Memorandum Circular No. 16, Series of 2020 of the Securities
and Exchange Commission provided for the format for the authentication of the
Articles of Incorporation. Section 2 provides:

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SECTION 2. Authentication by Incorporators.–The Commission will accept for registration

Articles of Incorporation that are accompanied by a Certificate of Authentication signed by
all incorporators in the form prescribed by the Commission. The prescribed format of the
Certificate of Authentication referred to in the immediately preceding paragraph is provided
in Annex "A" of these guidelines, or as may be revised hereafter.

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Through the mode of authentication provided under this section, both the Articles of
Incorporation and the Certificate of Authentication need not be notarized nor
consularized.

SECOND GROUND: Purpose of corporation leads to unwanted confusion and

issues with regards to the category of where it would fall under Executive Order
No. 65 RRD, or the ELEVENTH REGULAR FOREIGN INVESTMENT
NEGATIVE LIST.

Legal Basis: Section 16 (b), Revised Corporation Code - SEC. 16. Grounds When
Articles of Incorporation or Amendment may be Disapproved. – The Commission
may disapprove the articles of incorporation or any amendment thereto if the same is
not compliant with the requirements of this Code: Provided, That the Commission
shall give the incorporators, directors, trustees, or officers a reasonable time from
receipt of the disapproval within which to modify the objectionable portions of the
articles or amendment. The following are grounds for such disapproval:
(b) The purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral or contrary to government rules and regulations;

In addition, Section 11 of the Articles of Incorporation of GANGZA CULTURE

AND THE ARTS, INC does not specify the percentage of capital stocks allowed to
be owned by foreign investors, if there may be, or if it falls on the category of
businesses not allowed by EO No. 65 to have a foreign equity.

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Eleventh: That no transfer of stock or interest which shall reduce the ownership of Filipino
citizens to less than the required percentage of capital stock as provided by existing laws
shall be allowed or permitted to be recorder in the proper books of the corporation, and this
restriction shall be indicated in all stock certificates issued by the corporation.

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The purpose of the Corporation herein requested to be incorporated may fall under
LIST A, specifically; No. 7 - Utilization of marine resources in archipelagic
waters, territorial sea and exclusive economic zone as well as small scale
utilization of natural resources in rivers, lakes, bays and lagoons; No. 3 - Retail
trade enterprises with paid up capital of less than US $2,500,000.00; and No. 11 -
Manufacture of firecrackers and other pyrotechnic devices. Indication of this
interpretation may be seen in Section 2 of the AOI of GANGZA CULTURE AND
THE ARTS INC. herein as follows:

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Second: That the purpose or purposes for which such corporation is incorporated are:

PRIMARY PURPOSE

To carry on the business of buying, selling, trading and dealing with novelty goods,
commodities, wares and merchandise of every kind and description principally produced or
made in the Philippines and by indigenous peoples and groups; to acquire all such
merchandise, supplies, materials and other articles as shall be necessary or expedient in
conducting the business of the corporation; to enter into all kinds of contracts for the export,
import, purchase, acquisition, sale at wholesale or retail and other dispositions for its own
account as principal or representative capacity as manufacturing representatives,
merchandise broker, commission merchant, factors or agents upon consignment of all kinds
of goods, wares, merchandise or product whether natural or artificial; and in general to
carry on the business of a boutique and department store operator.

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The provision “To carry on the business of buying, selling, trading and dealing with
novelty goods, commodities, wares and merchandise of every kind and description
principally produced or made in the Philippines and by indigenous peoples and
groups” casts such a wide net that it may also encompass marine objects as well as
firecrackers falling under the Negative list of EO No. 65.
Furthermore, the corporation will fall incontestably under No. 3 of LIST A of EO 65
RRD, as its paid up capital is less than US$2,500,000.00.

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Seventh: That the authorized capital stock of the corporation is Five Hundred Thousand
Pesos (₱500,000.00), divided into One Hundred Thousand shares with the par value of Five
Pesos (₱5.00) per share.

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THIRD GROUND: Purpose of the Corporation is not specific. Secondary

purpose(s) leaves room for doubt in its relation to the primary purpose.

Legal Basis: Sec. 42, Revised Corporation Code & Sec. 16 par. 2 of the Revised
Corporation Code.

Although Section 10 allows the formation of corporations "for any lawful purpose or
purposes," the purposes, where there are more than one, must be capable of being
lawfully combined. (pg. 62, De Leon, The Corporation Code of the Philippines, 10 th
Ed.)

Furthermore, with the wide net that was cast by the Purpose Clause of the Articles of
Incorporation of Gangza Culture and the Arts, its specific nature of business seems
lost or muddled with confusion. An example of which is with the Secondary purposes,
to wit:

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SECONDARY PURPOSES

To invest in, purchase, subscribe for, or otherwise acquire and own, hold, use,
develop, sell, assign, transfer, lease, mortgage, pledge, exchange or otherwise
dispose of real and personal property of every kind and description, including shares
of stock, bonds, debentures, notes, evidence of indebtedness, and other securities,
contracts, or obligations of any corporation or corporations, association or
associations, domestic or foreign, and to pay therefore in whole or in part in cash or
by exchanging therefor stocks, bonds, or other evidence of indebtedness or securities
of this or any other corporation, and while the owner or holder of any such real or
personal property, stocks, bonds, debentures, notes, evidences of indebtedness or
other securities contracts, or obligations, to receive, collect and dispose of the
interest, dividends and income arising from such property, to possess and exercise in
respect thereof, all the rights, powers and privileges of ownership, including all
voting powers on any stocks so owned, and to guarantee any debt or obligation of any
corporation, any stocks, bonds, debentures, notes, evidence of indebtedness or other
securities of which are held or to be acquired by it.
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By virtue of the provisions of Section 42, a corporation may be organized with

multiple lawful purposes so long as the primary purpose is indicated in the articles of
incorporation. However, the investment of its funds is limited to the primary purpose.
(pg. 388, De Leon, The Corporation Code of the Philippines, 10 th Ed.). Therefore,
such secondary purpose would then be contradictory of the requirements stated under
Section 42 of the Revised Corporation Code, as the purpose mentioned in the
Secondary Purposes, No. 1 would allow the corporation to utilize its funds or invest it
as such without the required 2/3 majority vote of the stockholders, or even the
consulting the stockholders for that matter.

In addition, the provision provided for in this secondary purpose leaves an impression
of belonging to the category of “banks, banking and quasi banking institutions,
preneed, insurance and trust companies, non-stock savings and loan associations
(NSSLAs), pawnshops, corporations engaged in money service business, and other
financial intermediaries” which falls under the requirement of Sec. 16 of the Revised
Corporation Code which states:

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SEC. 16. Grounds When Articles of Incorporation or Amendment may be Disapproved. –

The Commission may disapprove the articles of incorporation or any amendment thereto if
the same is not compliant with the requirements of this Code: Provided, That the Commission
shall give the incorporators, directors, trustees, or officers a reasonable time from receipt of
the disapproval within which to modify the objectionable portions of the articles or
amendment. The following are grounds for such disapproval:
(a) The articles of incorporation or any amendment thereto is not substantially in accordance
with the form prescribed herein;
(b) The purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral or contrary to government rules and regulations;
(c) The certification concerning the amount of capital stock subscribed and/or paid is false;
and
(d) The required percentage of Filipino ownership of the capital stock under existing laws or
the Constitution has not been complied with.

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.
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Provided that because of this, the corporation falls under that category, there would be
a need for a favorable recommendation of the appropriate government agency to the
effect that such Articles of Incorporation is in accordance with law.