Definition of Corporation

A corporation is an artificial being created by operation of law, having the right of

succession and the powers, attributes, and properties expressly authorized by law or
incidental to its existence. (Section 2. Corporation Defined. Revised Corporation
Code of The Philippines.)

Concepts and Attributes of A Corporation

Concession Theory (also known as “Fiat Theory,” “Government Paternity Theory,”
or “Franchise Theory”).
- A corporation is an artificial creature without any existence until it has
received the imprimatur of the state acting according to law, through the SEC
(Tayag v. Benguet Consolidated, Inc., G.R. No. L-23145, November 29,
1968).
- There is thus a rejection of Gierke’s genossenchaft theory, the basic theme of
which is the reality of the group as a social and legal entity, independent of
state recognition and concession (Tayag v. Benguet Consolidated Inc., supra)

Theory of Corporate Enterprise or Economic Unit

- It is not legal fiction alone that creates a corporate entity. Any State-grant
must presuppose the existence of consent or common venture among those
who will form the corporation. The corporate fiction cannot be created unless
there is an enterprise or group upon whom it would be conferred
(VILLANUEVA, Corporate Law, supra at 14)

Attributes of a Corporation
1. It has the rights to succession.
The corporation’s rights to succession is not only limited to acquiring
ownership of properties but also the continuance of its existence even with the
changes in its stockholders, board of directors, members or officers.
2. It is an artificial being with a separate and distinct personality.
It is a legal entity recognized by law as artificial persons that have the
right to enter into contracts, hire lawyers, file lawsuits, collect damages, and
vice versa. It is almost treated the same as natural persons except
corporations are artificial beings hence, are not entitled to moral damages
 because unlike natural persons, corporations have no feelings nor emotions.
(ABS-CBN vs. Court of Appeals, G.R. No. 128690, Jan. 21, 1999)
3. It is created by operation of law.
Unlike in partnerships which can be created by mere agreement of
persons (Article 1767, Civil), corporations are only valid if it is allowed
by law because the rights which the corporation have are granted and
governed by law or incidental to its existence (Section 2, Revised
Corporation Code). Except when a corporation of estoppel is applied,
in this case, the persons acting as a corporation knowing that it is
without authority and is sued as a corporation is prevented to use the
excuse of not having enough authority as a corporation as a defense
(Section 20, Revised Corporation Code).
4. It has only the powers, attributes and properties expressly authorized by law
or incidental to its existence.
Since a corporation is created by operation of law it is only right that all
of its acquired rights, attributes and properties are granted by law or incidental
to its existence. What governs or rules over corporations are what the law has
expressly granted whether it is created by general rule or special laws
(Section 4, Revised Corporation Code).

Consequences
a. Liability for acts of contracts
When obligations incurred by the corporation through its authorized
agents results in liabilities shall only be shouldered by the corporation itself,
similarly how a corporation, generally, cannot be made responsible for the
acts or liabilities of its stockholders, members or those to those legal entities it
may be connected.
b. Right to bring actions
Since a corporation is recognized by law that is separate and distinct
from its stockholders, as a legal entity may bring civil and criminal actions in
its own name in the same manner as natural persons (Article 46, Civil Code).
c. Separate Properties
It is stated in the definition of corporation that it has the rights to
acquire properties, as well in the doctrine of separate personality where it is
 determined that a corporation has a juridical personality separate and distinct
from its stockholders or members hence, its properties are not the property of
its stockholders or members but the corporation. (Section 2, Corporation
Code, Doctrine of Separate Personality)
d. Acquisition by court of Jurisdiction
When the defendant is a corporation, partnership or association
organized under the laws of the Philippines with a juridical personality, service
may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel. (Section 11, Rule 14,
1997 Rules of Court). This section means that the corporation will be notified
when a suit or case is filed against it giving the court jurisdiction over the
corporation, as a defendant, that any court order or ruling will be binding to
the corporation.
e. Changes in individual membership
The changes in individual membership does not affect the corporation.
But there is a need to make amends with regards to the changes in the
members in the articles of incorporation which shall take effect upon their
approval by the Commission or from the date of filing with the said
Commission if not acted upon within six (6) months from the date of filing for a
cause not attributable to the corporation. (Section 15, Revised Corporation
Code).

Doctrine of Separate Personality

As a general rule, a corporation has a juridical personality separate and distinct from
its stockholders or members. It is a fiction created by law for convenience and to
prevent injustice, meaning, it cannot suffer for crimes committed by its officers,
simply because a corporation does not have malice, rather those officers who
participated or who acted shall be the persons responsible for the liability. It can be
confusing when it is stated that a corporation through its authorized agents binds the
corporation has incurred damages or liabilities shall be the corporation’s sole
liabilities, to make it clear it is when the corporation’s business involves a violation of
the law, not when its officers use the corporation as a defense for the violation they
have committed (People vs. Tan Boon Kong). The doctrine which allows the
corporation to act as though it is a person, but take note that it must be expressly
authorized by law or incidental to its existence (Section 2, Revised Corporation
Code).

Doctrine of Piercing the Veil of Corporate Entity

General Rule: A corporation has a separate personality distinct from its stockholders
and members.
Exception: Though the corporation has separate and distinct personality from its
stockholders, however, such personality may be disregarded, or veil of corporate
fiction may be pierced, attaching personal liability to the responsible person, if the
personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or use to defeat the labor laws ( Dutch Movers, Inc., Cesar and Ylonda
Lee vs. Ediberto Lequin, Christopher R. Salvador, Reynaldo L. Singsing, And Raffy
B. Mascardo, G.R. No. 210032, April 25, 2017).

The corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled
only when it becomes a shield for fraud, illegality, or inequity committed against third
persons (Sarona v. NLRC, G.R. No. 185280, January 18, 2012).

Nature of Piercing the Corporate Veil Doctrine

1. It has no res judicata effect
The corporate mask may be removed and the corporate veil pierced when a
corporation is the mere alter ego of another. When that happens, the
corporate character is not necessarily abrogated. It continues for other
legitimate objective (Pamplona Planters Company. Inc. v. Tinghil, G.R. No.
159121, February 03, 2005).
2. To prevent fraud or wrong and not available for other purposes
The doctrine could not be employed by a corporation to complete its claims
against another corporation and cannot therefore be employed by the
claimant who does not appear to be the victim of any wrong or fraud. The
court must be sure that the corporate fiction was misused, to such an extent
that injustice, fraud, or crime was committed upon another, disregarding, thus,
 his, her, or its rights. (Traders Royal Bank v. CA, G.R. No. 93397, March 3,
1997).
3. Essentially a judicial prerogative only
To pierce the veil of corporate fiction, being a power belonging to the courts, a
sheriff who has ministerial duty to enforce a final and executory decision
cannot pierce the veil of corporate fiction by enforcing the decision against the
stockholders who are not parties to the action (Cruz. Dalisay, A.M. R-181-P,
July 31, 1987).

4. It must be shown to be necessary and with factual basis

To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be
presumed (Luxuria Homes, Inc. v. CA, G.R. No. 125986, January 28, 1999).

Instrumentality Rule
Where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the “instrumentality” may be disregarded (VILLANUEVA-
CASTRO, Take Note, supra at 81, citing Concept Builders vs. NLRC, supra).

SEC. 10. Number and Qualifications of Incorporators. – Any person, partnership,

association or corporation, singly or jointly with others but not more than fifteen
(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 laws. 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 one

(1) share of the capital stock.
A corporation with a single stockholder is considered a One Person
Corporation as described in Title XIII, Chapter III of this Code.

General Rule: Any persons, partnership, association or corporation, singly or jointly

with others but not more than 15 in number, organize a corporation.

Exception: Following persons not allowed to organize as a corporation:

1. Natural persons who are licensed to practice a profession; and
2. Partnerships or associations organized for the purpose of practicing a
profession.
NUMBER OF INCORPORATORS:
- Not more than 15
- Note: RCC removed the minimum number of incorporators
QUALIFICATIONS OF INCORPORATORS
1. Natural persons
2. Legal age; and
3. Must own or be a subscribe to at least 1 share of the capital stock.

A. Creation of Corporation
Steps in the Creation of a Corporation (PIF)
1. Promotion
This includes activities done by promoter for the founding and
organizing of the business or enterprise of the issuer (SECURITIES
REGULATION CODE, Sec. 3(1) [hereinafter, SRC]).
Note: Promotion is not a formal part of the organization of a
corporation, inasmuch as it occurs outside the corporate form and
theoretically independent thereof.
2. Incorporation (Sec. 10.);
Steps of Incorporation: (DAPI)
a. Drafting and execution of AOI by the incorporators and other
documents required for registration of the corporation. The
person chosen as temporary treasurer pending incorporation
must also execute:
 i. An affidavit certifying compliance with subscription and paid-up
requirements as to capital stock (Corporation Code, Sec. 14).
b. Filing with the SEC of the AOI together with:
i. Treasurer’s Affidavit (Corporation Code, Sec. 15).
ii. In case the corporation is governed by special law (i.e.
educational institution), a favorable recommendation of the
appropriate government agency (i.e. Department of Education)
that such AOI is in accordance with law (Corporation Code, Sec.
17).
Note: SEC determines whether the name of the corporation is
similar or confusingly similar with another corporation’s name.
c. Payment of filing and publication fees; and
d. Issuance by the SEC of the certificate of incorporation (DE
LEON, Corporation Code, supra at 123-124).

3. Formal Organization and Commencement of the Transaction of

Business
Formal Organization:
a. Adoption of By-Laws and filing of the same with the SEC;
b. Election of board of directors/trustees, and officers;
c. Establishment of principal office; and
d. Providing for subscription and payment of capital stock (DE
LEON, Corporation Code, supra at 208-209).

Number and Qualifications of lncorporators (5-MOAN) (CORPORATION

CODE, Sec. 10)

a. Not less than 5 but not more than 15;

Exception: There is only 1 incorporator in a corporation sole in a corporation

sole (CORPORATION CODE, Sec. 11O).
b. Majority must be residents of the Philippines;
General Rule: A corporation composed entirely of aliens may be incorporated as
long as the majority of the incorporators are residents of the Philippines (DE
LEON, Corporation Code, supra at 127).
 c. If the corporation is a stock corporation, each must Own or subscribe to at
least 1 share capital stock of the corporation;
Reason: The presumption is that where an incorporator has a pecuniary
interest in the corporation, he will be concerned with the management of
its affairs (Id. at 128).
d. Of legal Age; and
Note: The incorporators must have the capacity to enter a valid contract.
It is to be noted that Sec. 15 of the Corporation Code requires that the
AOI must be acknowledged by the incorporators before a notary public.
e. Natural person not suffering from any legal incapacity.
Reason: A corporation is an artificial person without brain or body,
existing only on paper through legislative command and incapable of
thought or action except through natural persons.

SEC. 11. Corporate Term. – A corporation shall have perpetual existence unless
its articles of incorporation provides otherwise.

Corporations with certificates of incorporation issued prior to the effectivity of

this Code, and which continue to exist shall have perpetual existence, unless
the corporation, upon a vote of its stockholders representing a majority of its
outstanding capital stock, notifies the Commission that it elects to retain its
specific corporate term pursuant to its articles of incorporation: Provided, that
any change in the corporate term under this section is without prejudice to the
appraisal right of dissenting stockholders in accordance with the provisions
of this Code.

A corporate term for a specific period may be extended or shortened by

amending the articles of incorporation: Provided, That no extension may be
made earlier than three (3) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an earlier extension as may be
determined by the Commission: Provided, further, That such extension of the
corporate term shall take effect only on the day following the original or
subsequent expiry date(s).
A corporation whose term has expired may, at any time, apply for a revival of
its corporate existence, together with all the rights and privileges under its
certificate of incorporation and subject to all of its duties, debts and liabilities
existing prior to revival. Upon approval by the Commission, the corporation
shall be deemed revived and a certificate of revival of corporate existence
shall be issued, giving it perpetual existence, unless its application for revival
provides otherwise.

No application for revival of certificate of incorporation 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 shall
be approved by the Commission unless accompanied by a favorable
recommendation of the appropriate government agency.

Term of Existence
General Rule: The Corporation shall exist for the term specified in the AOI
(CORPORATION CODE, Sec. 11).

Limitations:
a. The Corporate term shall not exceed 50 years unless:
i. Sooner dissolved; or
ii. Said period is shortened or extended.
b. The extension cannot be made earlier than 5 years prior to
the expiration date (Corporation Code, Sec. 11).
Exception: There may be an earlier extension if a justifiable
reason has been determined by SEC (DE LEON,
Corporation Code, supra 131).

SEC. 12. Minimum Capital Stock Not Required of Stock Corporations. – Stock
corporations shall not be required to have a minimum capital stock, except
as otherwise specifically provided by special law.
Capital Stock Requirement
General Rule: No minimum authorized capital stock as long as the paid-up
capital is not less than P5,000 (CORPORATION CODE, Sec.12-13).

Capital Stock or Legal Stock or Stated Capital

It is the entire property or assets of the corporation. It includes the amount
invested by the stockholders plus the undistributed earnings less· losses and
expenses (Id.).

Authorized Capital Stock

It is the amount fixed in the AOI that may be subscribed and paid by the
stockholders of the corporation (DE LEON, corporation Code, supra at 73).

Note: Authorized Capital Stock is synonymous with Capital Stock where the
shares of the corporation have par value. If the shares of the stock have no par
value, the corporation has no authorized capital stock, but it has a capital stock
the amount which is not specified in the AOI as it cannot be determined until all
the shares have been issued (Id.)

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 the secondary purpose or purposes:
Provided, That a non-stock corporation may not include a purpose which would
change or contradict its nature as such;
© 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 fifteen (15) or the number
of trustees which may be more than fifteen (15);

(g) The names, nationalities, and residence addresses of persons who shall act as
directors or trustees until the first regular directors 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

(j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.

An arbitration agreement may be provided in the articles of incorporation

pursuant to Section 181 of this Code.

The articles of incorporation and applications 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.
Articles of Incorporation (AOI)
It is the basic contract document in corporate law, defining the charter of the
corporation (VILLANUEVA, supra at 171).

Incorporators
The AOI must specify the name, nationalities, and residences of the incorporators
and must show that at least a majority of the incorporators are residents of the
Philippines (Corporation Code, Sec. 14).

Principal Office
The AOI must state the place where the principal office of the corporation is to be
located, which must be within the Philippines (Corporation Code, Sec 14(3)).

Purpose:
a. To fix the residence of the corporation in a definite place, instead of allowing it
to be ambulatory (Young Auto Supply Co_ v. CA, G.R. No. 104175, June 25,
1993);
 b. To determine the venue of court cases involving the corporation (SUND/ANG
& AQUINO, Reviewer on Commercial Laws, supra at 208);
c. For purposes of stockholders' or members' meeting (CORPORATION CODE,
Sec. 51); and
d. To determine the place where the books and records of the
corporation are ordinarily kept (CORPORATION CODE, Sec.
74).
Components of a Corporation
Corporators - those who compose a corporation, whether as stockholders (in stock
corporations) or as· members (in non-stock corporations).
lncorporators - those mentioned in the AOI as originally forming and composing
the corporation, having signed the AOI and acknowledged the same before a notary
public. They have no powers beyond those vested in them by the statute (V/TUG,
Commercial Laws, supra at 49).

Directors and Trustees - The number of directors or trustees s' than 5 nor more
than 15 (Corporation Code, Sec. 14(6)).

Matters Required to be State in the AOI of Stock Corporation: (P-WATSAN).

a. In case the shares are par value shares, the Par value of each;
b. If some or all of the share are Without par value, such fact must be stated;
c. The Amount of its authorized capital stock in lawful money of the Philippines;
d. Treasurer’s Affidavit;
e. The names, nationalities and residences of the original Subscribers;
f. The Amount subscribed and paid by each original subscribers on his
subscription; and
g. The Number of shares and the kind of shares into which it is divided
(Corporation Code Sec. 14).

Matters Required to be Stated in the AOI of a Non-Stock Corporation:

a. The amount of its capital or money contributed or donated by specified
persons;
b. The names, nationalities, and residences of the donors or contributors; and
 c. The respective amount contributed by each (CORPORATION CODE, Sec.
14).

Classification of Corporations
1. Stock and Non-Stock Corporation:
a) Stock Corporation
A corporation which has capital stock divided into shares and is
authorized to distribute to holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held.
(CORPORATION CODE Sec. 3);
b) Non-Stock Corporation
It is one where no part of its income is distributable as dividends to its
members, trustees or officers (Corporation Code. Sec. 87)

2. Public vs. Private Corporations

PPublic Private

As to organizers

by State only by private persons alone or with the

State (SUNDIANG & AQUINO Reviewer
on Commercial Law supra at 184)

As to manner of creation

created by special law passed by the created by general law, i.e. The Revised
Congress; Corporation Code (AQUINO, Corporate
Law, supra at 104).

As to purpose

organized for the government of a formed for some private purpose,

portion of the State for the general benefit or end (VILLANUEVA,
good and welfare. Corporate Law, supra at 71.)
 3. De Jure Corporation, De Facto Corporation and Corporation by
Estoppel

De Jure De Facto By Estoppel

As to creation

Complied with all Has not complied with Absence of conditions

mandatory all requirements but precedent needed for
requirements for there has been a a de facto corporation
incorporation colorable compliance

As to liabilities of officers and creditors

Liable only to the Same as de jure All who have

extent of their knowledge of its lack
subscription unless of authority to act as
acted in bad faith such are liable as
general partners

As to capacity to sue or be sued

Can be sued and be Can be sued and be Cannot sue or be sued

sued sued except by a third party
who relied on its
representations in
good faith

4. Domestic Corporation and Foreign Corporation

a. Domestic Corporation – corporation formed, organized or
existing under Philippines laws (SUNDIANG & AQUINO
Reviewer on Commercial Law, supra at 186)
 b. Foreign Corporation – corporation formed, organized or
existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do
business in its own country or state. (CORPORATION CODE,
Sec. 123)

SEC. 6. Classification of Shares. – The classification of shares, their

corresponding rights, privileges, or restrictions, and their stated par value, if any,
must be indicated in the articles of incorporation. Each share shall be equal in all
respects to every other share, except as otherwise provided in the articles of
incorporation and in the certificate of stock.

The shares in stock corporations may be divided into classes or series of

shares, or both. No share may be deprived of voting rights except those classified
and issued as “preferred” or “redeemable” shares, unless otherwise provided in this
Code: Provided, That there shall always be a class or series of shares with complete
voting rights.

Holders of nonvoting shares shall nevertheless be entitled to vote on the

following matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or
substantially all of the corporate property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with another corporation or other
corporations;
(g) Investment of corporate funds in another corporation or business in
accordance with this Code; and
(h) Dissolution of the corporation.
 Except as provided in the immediately preceding paragraph, the vote required
under this Code to approve a particular corporate act shall be deemed to refer only
to stocks with voting rights.

The shares or series of shares may or may not have a par value: Provided,
That banks, trust, insurance, and preneed companies, public utilities, building and
loan associations, and other corporations authorized to obtain or access funds from
the public, whether publicly listed or not, shall not be permitted to issue no-par value
shares of stock.

Preferred shares of stock issued by a corporation may be given preference in

the distribution of dividends and in the distribution of corporate assets in case of
liquidation, or such other preferences: Provided, That preferred shares of stock may
be issued only with a stated par value. The board of directors, where authorized in
the articles of incorporation, may fix the terms and conditions of preferred shares of
stock or any series thereof: Provided, further, That such terms and conditions shall
be effective upon filing of a certificate thereof with the Securities and Exchange
Commission, hereinafter referred to as the “Commission”.

Shares of capital stock issued without par value shall be deemed fully paid
and nonassessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided, That no-par value shares
must be issued for a consideration of at least Five pesos (P5.00) per share:
Provided, further, That the entire consideration received by the corporation for its no-
par value shares shall be treated as capital and shall not be available for distribution
as dividends.

A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

Classes of Shares
a. Par and No Par Value Shares
 Par Value Shares
- Shares with a value fixed in the AOI and the certificates of stock (DE LEON,
Corporation Code, supra at 82).
- Purpose: To fix the minimum subscription or issue price of the shares, thus
assuring creditors that the corporation would receive a minimum amount for
its stock (Id.).

Advantages and Disadvantages of Par Value Shares

Advantages Disadvantages

Easily sold as the public is more Subscribers are liable to the corporate
attracted to buy this kind of share. creditors for their unpaid subscription.

Greater protection to creditors. The stated value of the share is not an

accurate criterion of its true value.

Unlikelihood of sale of subsequently

issued shares at a lower price.

Unlikelihood of the distribution of

dividends that are only ostensible
profits.
(DE LEON, Corporation Code, supra at 92)

No Par Value Shares

- Shares without any stated value appearing on the face of the certificate of
stock. The issued value will be fixed by the Board of Directors and stated in
the certificate or AOI. No par value stockholders have the same rights as
holders of par value stock (DE LEON, Corporation Code, supra at 82)

b. Voting and Non-Voting Shares

Voting Shares
- Shares with a right to vote (DE LEON, Corporation Code, supra at 83)
Non-Voting Shares
- Shares without right to vote (DE LEON, Corporation Code, supra at 83)

c. Common and Preferred Shares

Common shares
 - The basic class of stock ordinarily and usually issued without extraordinary
rights and privileges, and the owners thereof are entitled to a pro rata share in
the profits of the corporation and in its assets upon dissolution and, likewise,
in the management of its affairs without preference or advantage whatsoever.
- These shares:
i. Represent the residual ownership interest in the corporation; and
ii. Have complete voting rights. They cannot be deprived of said rights except
as provided by law (DE LEON & DE LEON Jr., supra at 84)
- General rule: Common shares have complete voting rights (Id.)
- Exception: Delinquent shares, treasury shares, and founder’s shares where
the exclusive voting rights are granted to them for a period not exceeding 5
years.
Preferred Shares
- Shares with a stated par value which entitle the holders thereof to certain
preferences over the holders of common stock. The preference may be (a) as
to asset; (b) as to dividends; or (c) as may be determined by the board of
directors when so authorized to do so.

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.

Grounds for Rejection of Articles of Incorporation or Amendment thereto.

1. The Securities and Exchange Commission is required to give the the incorporators
reasonable time within which to correct or modify the objectionable portions of the
articles of incorporation or amendment when the same is rejected or disapproved for
non-compliance with the requirements of the Code.
2. In case of corporations governed by special laws such as, banks, insurance
companies, and educational institutions, the articles of incorporation or amendment
shall not be accepted or approved by the Securities and Exchange Commission
unless accompanied by a favorable recommendation of the appropriate government
agency that such articles or amendment is in accordance with law.
3. The Securities and Exchange Commission shall not also accept the articles of
incorporation of any stock corporation unless accompanied by a sworn statement of
the treasurer elected by the subscribers showing the amount of the capital stock
subscribed and paid.
SEE: Relatives of the Passenger-Victims of the MV Princess of the Stars v.
Philippine Span Asia Carrier Corporation, March 11, 2011, Sec Case No. 04-10-309.

SEC. 18. Registration, Incorporation and Commencement of Corporate

Existence. – A person or group of persons desiring to incorporate shall submit the
intended corporate name to the Commission for verification. If the Commission finds
that the name is distinguishable from a name already reserved or registered for the
use of another corporation, not protected by law and is not contrary to law, rules and
regulations, the name shall be reserved in favor of the incorporators. The
incorporators shall then submit their articles of incorporation and bylaws to the
Commission.
 If the Commission finds that the submitted documents and information are
fully compliant with the requirements of this Code, other relevant laws, rules and
regulations, the Commission shall issue the certificate of incorporation.

A private corporation organized under this Code commences its corporate

existence and juridical personality from the date the Commission issues the
certificate of incorporation under its official seal and thereupon the incorporators,
stockholders/members and their successors shall constitute a body corporate under
the name stated in the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is sooner dissolved in
accordance with law.

Concession Theory (also known as “Fiat Theory,” “Government Paternity Theory,”

or “Franchise Theory”).
- A corporation is an artificial creature without any existence until it has
received the imprimatur of the state acting according to law, through the SEC
(Tayag v. Benguet Consolidated, Inc., G.R. No. L-23145, November 29,
1968).
- There is thus a rejection of Gierke’s genossenchaft theory, the basic theme of
which is the reality of the group as a social and legal entity, independent of
state recognition and concession (Tayag v. Benguet Consolidated Inc., supra)

SEC. 15. Amendment of Articles of Incorporation. – Unless otherwise prescribed

by this Code or by special law, and for legitimate purposes, any provision or matter
stated in the articles of incorporation may be amended by a majority vote of the
board of directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this Code. The articles of incorporation of a nonstock corporation may
be amended by the vote or written assent of majority of the trustees and at least two-
thirds (2/3) of the members.
The original and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation. Amendments to the articles shall be
indicated by underscoring the change or changes made, and a copy thereof duly
certified under oath by the corporate secretary and a majority of the directors or
trustees, with a statement that the amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted to the Commission.

The amendments shall take effect upon their approval by the Commission or from
the date of filing with the said Commission if not acted upon within six (6) months
from the date of filing for a cause not attributable to the corporation.

- The formation of board of directors or trustees of a corporation is discussed in

Title 3 of the Revised Corporation Code.

Limitations:
a. The corporation must comply with the procedure stated above;
b. The amendment of any provision or matters stated in the AOI is not
allowed .when it will be contrary to the provisions or requirement prescribed
by the Code or by special law or changes any provision in the AOI stating an
accomplished fact;
c. It must be for legitimate purposes;
d. The original articles nd amended articles together must contain all provisions
required by law to be set out in the AOI;
e. Such articles, as amended, shall be indicated by underscoring the changes
made, and a copy thereof duly certified under oath by the corporate secretary
and a majority of the directors or trustees stating the fact that the
amendments have been duly approved by the required vote of the
stockholders or members shall be submitted to the SEC;
f. The amendments shall take effect only upon the approval by the SEC;
g. A corporation cannot provide for a different,..; procedure for the amendment
of AOI other than the procedure provided for in Sec. 16;
h. Amendment cannot be allowed if it goes against the nature of the· corporation
(DE LEON, Corporation Code, supra at 169-171).
Amendment of Articles of Corporation

1. Change of corporate name

2. Extension of term of the Corporation
3. Change in classes or series of shares
4. Change in rights, privileges or restriction in share ownership
5. Increase or decrease in the number of directors
6. Change in purpose or purposes and other necessary changes

SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation.

- If a corporation does not formally organize and commence its business within five
(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 five (5)-year period.

However, if a corporation has commenced its business but subsequently

becomes inoperative for a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing, place the corporation under
delinquent status.

A delinquent corporation shall have a period of two (2) years to resume

operations and comply with all requirements that the Commission shall prescribe.
Upon compliance by the corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume operations
within the period given by the Commission shall cause the revocation of the
corporation’s certificate of incorporation.

The Commission 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.