Corporation Law | Atty.
MBL | 2021-2022 | Payr Notes
Bagonoc-Esparagoza-Hidalgo-Larino-Molina
MODULE 2
A. INCORPORATION AND ORGANIZATION
OF PRIVATE CORPORATIONS
I. STEPS IN THE CREATION OF A
CORPORATION
There are three (3) steps in the creation and
organization of a corporation, namely;
1. Promotion
The formation and organization of a
corporation are brought about generally at
the instance and under the supervision of
one or more so called “promoters.” The
activity on the part of such persons is not,
strictly speaking, a formal part of the
organization of a corporation, inasmuch as it
occurs outside the corporate form and
theoretically, at least, independent thereof.
Upon incorporation, the practice is for the
BOD to pass a resolution ratifying the
contract entered into by the incorporators
with the promoters.
A corporation, however, may be formed and
organized by the incorporators themselves
without getting the services of so-called
promoters.
2. Incorporation (Sec. 10.); and
3. Formal organization and commencement of
business operations. (see Sec. 21.)
II. STEPS IN INCORPORATION
Incorporation includes the following:
1. Drafting and execution of the articles of
incorporation by the incorporators and other
documents required for registration of the
corporation.
(a) 60Filing of the Articles of Incorporation
in the form prescribed by Section 14 and
application for amendments with the
Securities and Exchange Commission
which may be in the form of electronic
document. (Sec. 13, last par.)
Note: Treasurer’s affidavit is no longer
required.
(b) In case the corporation is governed by a
special law (e.g., educational institution),
a favorable recommendation of the
appropriate government agency (i.e,
Department of Education) that such
articles of incorporation is in accordance
with law (see Sec. 16, last par.);
Example:
Special law: educational institution
Appropriate government agency: DepEd
2. Payment of the registration, incorporation, and
other fees (see Sec. 175.); and
3. The issuance by the Securities and Exchange
Commission of the certificate of incorporation if all
the papers filed after verification and examination
are found in order." (see Sec. 18, par. 2.)
III. EFFECT OF SUBSTANTIAL COMPLIANCE
ONLY
Where the formation or organization of
corporations is not governed by special laws (ex.
Those engaged in real estate development), the
SEC may accept and approve the articles of
incorporation or amendments therein upon mere
showing of a substantial compliance with the
Corporation Code and that it meets the guidelines
established by the Commission.
Where there is substantial compliance with the
legal requirements, the registration of the proposed
corporation becomes a matter of right.
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MBL CLASSROOM
There are three steps in forming a corporation. First
promotion, second incorporation and third is a formal
organization and commencement of business.
The first step in the creation of a corporation promotion
involves people who will be called as promoters. The
promoters bring together who may form the corporation, they
would now try to meet people who would be interested in
becoming an incorporator of a corporation. Now remember,
that the first step promotion, you can actually do away with
it. Meaning you can skip that and your incorporators can
actually decide among themselves to incorporate to form the
corporation. They may actually do away with hiring promoters,
if they've actually already decided that they want to form the
corporation.
Which leads us to the second step of creating a corporation
and that is incorporation. Your incorporation now is actually
what is covered by Section 10 of your Revised Corporation
Code.
Now, what is incorporation?
Incorporation actually refers to the process of drafting
documents of getting certifications that bring about the
existence of the corporation. The incorporation being a
process it also involves several steps.
What are the steps?
The first step of incorporation is the drafting and execution of
the articles of incorporation by the incorporators. Again, who
are these incorporators They are the original formers of the
corporation. These are the people who want to form a
corporation. So they now draft and execute the articles of
incorporation. Now the articles of incorporation in fact, there
is already a prescribed form for that. And that's actually
available online. We just go to the SEC or Securities and
Exchange Commission website and you can just fill it out, or
you can actually make your own but you have to follow the
prescribed form. Where do you find the prescribed form? You
can find the prescribed form actually under Section 14 of your
Revised Corporation Code.
Included in the first step would also be gathering other
required documents for registration. Now what other
documents would we be referring to? So for example, for
corporations that are governed by special laws like your
educational corporations, they would need a recommendation
from the appropriate agency. So from the Department of
Education, so there must be a favorable recommendation
from the Department of Education and this shall be submitted
to your Securities and Exchange Commission, together with
your articles of incorporation.
So that is actually your second step. After you have drafted
your articles of incorporation, you have executed the articles
of incorporation. You have also all the other necessary
documents just like what we have mentioned earlier on just
like an educational Corporation, you then file it with the
Securities and Exchange Commission. So that is the second
step. Filing now the articles of incorporation together with the
other necessary documents.
Now, a third step upon registering Of course, you have to pay
the required fees. You know pay the registration, the
incorporation and other fees as may be assessed to you by
your Securities and Exchange Commission. After that, you will
have to wait what do you wait for? that is now the final step of
incorporation.
You will now have to wait for the Securities and Exchange
Commission to issue you that certificate of incorporation. Of
course, before your SEC, or your Securities and Exchange
Commission will issue you the certificate of incorporation of
course they will have to go over the requirements that you
have submitted. You have to make sure that you have
complied with all the requirements for the incorporation.
Remember, however, that what is required by law is
substantial compliance, not strict compliance of everything,
but substantial compliance.
Why do I say that what is required is merely substantial
compliance we can actually find that under Section 13 of your
Revised Corporation Code, where it says there that the
incorporators must file with the Securities and Exchange
Commission Their articles of incorporation containing
substantially all the matters that are enumerated under
Section 13. So the law requires only substantial compliance.
It is the issuance of a Certificate of Incorporation that now
brings to existence the corporation. Remember that the term
incorporation is different from Corporation. They are not the
same. As I've mentioned earlier, incorporation refers to the
process of creating the corporation. It refers to what you go
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through to create a corporation while the corporation is
already the juridical person that is being created.
What is our legal basis for saying that isn't the issue once of
the certificate of incorporation, that brings into existence
your corporation?
You can actually find that under the third paragraph of Section
18. Let's read the third paragraph of Section 18. It says
“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.”
So there you have it. The law under Section 18 of your Revised
Corporation Code tells you when you will consider the
corporation as already existing as to where that juridical
person has been formed. In other words, that is the birth of
your corporation, The issuance of the certificate of
incorporation by the Securities and Exchange Commission,
which is actually your last step in your incorporation.
Of course, after the corporation is now formed, then there is
now the final step of the creation of the whole of the
corporation and that is the formal organization now and the
commencement of business operations. So of course, your
corporation now, the stockholders can now elect who the
board of directors are, they can now commence the business.
And so there's now the creation of your corporation.
So again, just a very quick recap, what are the stages of
creating a corporation?
1) Promotion
2) Incorporation, to which we have also discussed the
steps of incorporation. And lastly,
The organization and the commencement of the business
operations.
IV. INCORPORATORS
Section 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.
1. NUMBER OF INCORPORATORS (SECTION
10)
Old Code: Must not be less than five nor more than
15. If the number of incorporators is more than 15,
the excess will not be considered as incorporators.
Revised Code: Not more than 15 persons
Only a One Person Corporation may have a single
stockholder, as well as a sole director.
2. QUALIFICATION OF INCORPORATORS
(SECTION 10)
1. Each incorporator of a stock corporation
must own, or be a subscriber to, at least
one share of the capital stock. Each
incorporator of a nonstock corporation must
be a member of the corporation.
2. The incorporator may be composed of any
combination of natural person/s, SEC
registered partnerships, SEC registered
domestic corporation/s or association//s, as
well as foreign corporations, partnerships,
and associations.
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3. Incorporators who are natural persons A Directors’ / Trustees’ Certificate or a Secretary’s

must be of legal age and must sign the Certificate, indicating the necessary approvals, as
Articles of Incorporation/ Bylaws. well as the authorized signatory to the
incorporation document, shall be executed under
There is no more residency requirement. oath and submitted by the applicant.

4. Natural persons who are licensed to

Domestic corporations under “delinquent”,
practice a profession, and partnerships or
“suspended”, “revoked” or “expired” status with the
associations organized for the purpose of
SEC shall not be authorized to become an
practicing a profession, are not allowed to
incorporator.
organize as a corporation unless otherwise
provided under special laws. (Sec. 10)
5. FOREIGN CORPORATIONS AS
INCORPORATORS
3. PARTNERSHIPS AS INCORPORATORS
When an SEC-recorded partnership is made an When a foreign corporation is made an

incorporator, the application for registration must incorporation, the application for registration must

be accompanied by a Partner’s Affidavit, duly be accompanied by a copy of a document (i.e., Board

executed by all the partners, to the effect that they Resolution, Directors’ Certificate, Secretary’s

have authorized the partnership to invest in the Certificate, or its equivalent), duly authenticated by

corporation about to be formed and that they have a Philippine Consulate or with an apostille

designated one of the partners to become a (marginal note) affixed thereto, authorizing foreign

signatory to the incorporation document. corporation to invest in the corporation being

formed and specifically naming the designated

Partnerships under “dissolved” or “expired” status signatory on behalf of the foreign corporation.

with the SEC shall not be authorized to become an

6. ADDITIONAL REQUIREMENT ON CERTAIN
incorporator.
CORPORATIONS

4. DOMESTIC CORPORATIONS OR No articles of incorporations of banks, banking and

ASSOCIATIONS AS INCORPORATORS quasi-banking institutions, preneed, insurance and trust
When a SEC-registered domestic corporation or companies, NSSLAS, pawnshops, and other financial
association is made an incorporator, its investment intermediaries shall be approved unless accompanied by
in the new corporation must be approved by a a favorable recommendation of the appropriate
majority of the board of directors or trustees and government agency to the effect that the Articles of
ratified by the stockholders representing at least Incorporation are in accordance with law.

2/3 of the outstanding capital stock, or by at least

2/3 of the members in the case of nonstock
corporations, at a meeting duly called for the
purpose.
MBL CLASSROOM
Let's talk about the incorporators, incorporators are the
original formers of the corporation. These are actually the
people, or the persons that you will find in the articles of
incorporation as being the first corporators of the corporation.
We call them again, your Incorporators, who can become
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incorporators of a corporation. The answer to that question is
found under Section 10 of your Revised Corporation code.
Let's read section 10. It says, “Any person partnership
association or corporation, singing 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 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 share of the capital stock. A
corporation with a single stockholder is considered a One
Person Corporation, as described in Title 13 Chapter 3 of this
code.
According to section 10 of your Revised Corporation Code, any
person can become an incorporator, and this person may
actually be a natural person or a juridical person. In other
words, you can be an incorporator or a partnership can also be
an incorporator of a corporation. A corporation can also be an
incorporator of another corporation.
Now, this is very important to remember, because prior to the
amendment of the Revised Corporation Code, only natural
persons were allowed to become incorporators, meaning the
original formers of the corporation, but with this amendment,
now under your Revised Corporation Code, both natural and
juridical persons can actually now become incorporators of a
corporation. Such that section 10 is now very clear, that it can
be a natural person, a partnership, an association, or a
corporation, who can actually bring about the formation of
another corporation.
Now, what are the qualifications to become an incorporator?
If you want to become an incorporator, you are a natural
person, you want to be part of the original formers of the
corporation, you must of course be of legal age.
Another requirement is that you must be a holder of at least
one share of stock, or at least subscribe to a share of stock.
What do you mean by subscribe? You have undertaken to at
least buy one share of stock. And of course, you have to sign
the articles of incorporation.
In section 10 also, it gives you exceptions, meaning those who
cannot become an incorporator in a corporation.
Partnerships which are created for the practice of a profession
cannot form a corporation.
Why? Because practicing a profession is supposedly for public
service and not for business purposes. Of course for other
partnerships, business partnerships, not professional
partnerships, they can become, or it rather, can become an
incorporator of a corporation. What is required, is that the
partnership is SEC registered. In other words registered with
the Securities and Exchange Commission. And all the partners
must execute an affidavit stating that the partnership will
invest in the corporation, and they will also have to designate
a partner who will sign the articles of incorporation in behalf
of the partnership.
Now, how about corporations? What is required of a
corporation becoming an incorporator of another corporation,
of course, a corporation must be SEC registered or registered
with the Securities and Exchange Commission, their certificate
of incorporation must not have been revoked or suspended, in
order to become an incorporator of another corporation.
What else is required, it is required that the decision to invest
in another corporation, as of course you invest when you
become an incorporator. Such decision must be approved by
majority of the board of directors or trustees, and ratified by
stockholders representing at least two thirds of the
outstanding capital stock if it's a stock corporation, or two
thirds of the members if it be non-stock corporation.
Of course, there must be the submission of the directors or
trustees certificate or Secretary certificate to show this
decision to invest that there was already such an approval by
the board of directors or trustees and ratification by the
stockholders representing at least two thirds of outstanding
capital stock or two thirds of the members.
Of course, the board of directors must designate an authorized
signatory because of course, an incorporator must sign the
articles of incorporation. The corporation of course, is not a
natural person, and so it cannot sign. And so there must be a
designated person who will sign in behalf of the corporation.
Now we have been talking about who may become
incorporators. Now let's talk about how many incorporators
should there be. This is another amendment in the Revised
Corporation Code. In the old Corporation code, it says a
minimum of five incorporators, not less than five, but not more
than 15. Again, that's the old corporation code.
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How about the Revised Corporation code. The revised
Corporation code no longer sets a minimum it just sets a
maximum that the incorporators must not be more than 15.
Your section 10 also now introduces you to another type of
corporation that we did not have under the old Corporation
Code. And that is the One Person Corporation where there is
only one incorporator, and that one incorporator in a One
Person Corporation will remain as the sole stockholder and the
one Person Corporation.
So remember that there is no more minimal number of
incorporators. You alone can form a corporation, you will fall
under the one person Corporation. If you do want to form a
corporation with others, whether your friends or with your
family members you can do so, but remember that the number
of incorporators must not exceed 15 as provided for under
Section 10 of your revised corporation.
V. CORPORATE TERM (SECTION 11)
Section 11. Corporate Term. - A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise.
A corporation whose term has expired may apply
for 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 its
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.

Corporations with certificates of incorporation

issued prior to the effectivity of this Code and 1. CORPORATIONS CREATED UNDER THE RCC
which continue to exist shall have perpetual OLD CODE REVISED CODE
existence, unless the corporation, upon a vote of Prescribed a maximum Corporations shall
its stockholders representing a majority of its corporate term of 50 have perpetual
articles of incorporation: Provided, That any years from the date of existence unless its
change in the corporate right of dissenting its incorporation and Articles of
stockholders in accordance with the provisions of required corporations Incorporation provide
this Code. to amend their Articles otherwise.
of Incorporation to
A corporate term for a specific period may be extend the corporate
extended or shortened by amending the articles life.
of incorporation: Provided, That no extension Its existence is deemed
may be made earlier than three (3) years prior to dissolved upon
the original or subsequent expiry date(s) unless expiration of the term.
there are justifiable reasons for an earlier
extension as may be determined by the The general provision on corporate term contained
Commission: Provided, further, That such in Article 11 does not apply to religious
extension of the corporate term shall take effect corporations.
only on the day following the original or
subsequent expiry date(s). 2. EXISTING CORPORATIONS CREATED PRIOR
TO THE RCC
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Automatically, it will have perpetual existence. If
you don’t want to avail, notify SEC. Prior to
notification, you need the vote of the stockholder
representing the majority of the outstanding capital
stock.
3. CHANGING CORPORATE TERM, HOW
The extension or shortening of the original corporate
term is subject to the following conditions:
1. By amending the AOI
2. In case of extension, it must be made no earlier
than three (3) years prior to the original or
subsequent expiry date unless there are
justifiable reasons for an earlier extension.
3. Such extension shall take effect only on the day
following the original or subsequent expiry date.
4. The change in corporate term is without
prejudice to the appraisal right of dissenting
stockholders.
5. The amendment must be effected before the
expiration of the corporate term of existence.
6. The application for revival of certificate of
incorporation of banks, etc., shall not be
approved by the SEC unless accompanied by a
favorable recommendation of the appropriate
agency.
4. EFFECT OF EXTENSION
The mere extension of the corporate term of existence
made before the expiration of the original term
constitutes a continuation of the old, and not the creation
of a new, corporation.
5. EFFECT OF EXPIRATION
In the absence of compliance with the legal requisites for
the extension of the period, the corporation ceases to
exist and is dissolved ipso facto,
The expiration of the term does not produce its
immediate dissolution for all purposes.
VI. REVIVAL OF CORPORATE EXISTENCE
1. WHO MAY APPLY
a. A corporation whose term has expired
b. An expired corporation whose Certificate of
Registration has been revoked for non filing
of reports.
c. An expired corporation whose Certificate of
Registration has been suspended.
d. An expired corporation whose corporate
name has already been validly re-used, and
is currently being used, by another existing
corporation duly registered with the
Commission, provided that the former shall
change the corporate name within 30 days
from the issuance of its Certificate of Revival
of Corporate Existence.
2. WHO MAY NOT APPLY
a. An expired corporation which has
completed the liquidation of its assets;
b. A corporation whose Certificate of
Registration has been revoked for reasons
other than non filing of reports.
c. A corporation dissolved by virtue of Section
6(c) and 6(d) of PD 902 A, as amended by
PD 1799; or
d. An expired corporation which already
availed of re-registration. Except when:
1. The re-registered corporation has
given its consent and there is
voluntary dissolution; or
2. The re-registered corporation has
given its consent and has undertaken
to change its corporate name.
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MBL CLASSROOM
HOW LONG DOES A CORPORATION EXIST?
Your revised corporation code says that it has perpetual
existence.
In other words it will live forever. That is the general rule and
that is provided for under section 11 of your corporation code.
Let us read that particular portion of section 11.
SEC. 11. Corporate Term. (1) – A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise.
This simply means that when a corporation is created when it
is now granted that existence by the state through your
securities and exchange commission, your corporation will live
forever. Tt will continue to exist that's precisely what is meant
by perpetual existence.
EXCEPTION
The exception to that is: if the incorporators have actually
decided to put a particular term or a particular number of
years for the corporation to exist and such is indicated or
stated in the Articles of incorporation.
So when the incorporators are now drafting their articles of
incorporation they have to decide whether they would want
to follow the general rule under your revised corporation code,
where the life of the corporation is perpetual. If they do not
want to follow that and they want to limit the life of the
corporation, then they must indicate that in their articles of
incorporation.
Now remember that prior to the revised corporation code, the
old code actually set a limit to the life of the corporation.
OLD CODE: It was set at 50 years the life of the corporation
was only for 50 years renewable for another 50 years.
NEW CODE: This code now gives continuity to the existence of
a corporation by making it perpetual. The existence is now
perpetual again, unless the incorporators decide otherwise. If
they do they have again as i've said to indicate it in the articles
of incorporation.
WHAT HAPPENS NOW TO THE CORPORATIONS WHICH WERE
CREATED PRIOR TO THE EFFECTIVITY OF THE RCC?
If you have watched my video on what a corporation is, I have
mentioned there that the effectivity of the revised corporation
code was February 23 2019. So what happens to the corporate
term or the life of the corporation of those corporations that
were created prior to the effectivity of this code or prior to
February, 23 2019?
What would be the corporate term would it follow the old
code or will it follow the revised corporation code on perpetual
existence?
The answer to the question is still found in Section 11 of your
revised corporation code and that is the second paragraph of
section 11.
Let us read the second paragraph.
SEC. 11. Corporate Term. (2) 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.
This means then that your section 11 actually provides for the
retroactivity of this particular provision, because this provision
on perpetual existence of the corporation is now being applied
even to corporations that were already existing prior to the
effectivity of the revised corporation code.
Example:
ABC corporation was already in existence in 2018 and
they were already issued a certificate of incorporation
in the year 2018 prior to the effectivity of the revised
corporation code and they have written on their
articles of incorporation that the life of the
corporation is only for 30 years because the limit prior
to the RCC or your revised corporation code is 50
years.
So if ABC corporation decided and it's written on their
articles that it is to to be existing or to live only for 30
years, the section 11 in your revised corporation code
tells you that the corporate's existence will now be
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perpetual with the effectivity of the revised
corporation code.
Now if the stockholders would want to retain the original
corporate term of 30 years, they should notify the SEC that
majority or rather the stockholders representing the majority
interest in the corporation has voted upon retaining the
original corporate term.
Remember that what is only required to retain the original
corporate term is the vote of the stakeholders representing
the majority interest and that such decision to retain as voted
upon by the stockholders representing the majority interest,
such decision must be made known to the securities and
exchange commission.
WHAT WILL HAPPEN TO THE STOCKHOLDERS AGAINST IT?
They will now be given their appraisal right.
APPRAISAL RIGHT
An appraisal right is when the dissenting stockholder can now
demand for the payment of the fair value of their shares
Q: Can you still change the corporate term? Meaning if you
created a corporation and you decided to follow the revised
corporation code of the corporation having perpetual
existence, can you still change it? Can you still shorten the
corporate term or if in the creation of the corporation in the
articles of incorporation the incorporators decided to have a
shorter term, say only for 30 years instead of following the
default corporate term of perpetual existence. Does that mean
that they can no longer change or amend the corporate term
of 30 years that they have indicated in the articles of
incorporation?
A: They actually can amend the corporate term by amending
the articles of incorporation. They have to follow the
requirements for amending the articles of incorporation as
required and provided by on by in Section 15 of the revised
corporation code.
I will also be discussing about amending the articles of
incorporation in another video.
So if they incorporated or created the corporation under the
revised corporation code meaning after February 23 2019 and
they were issued a certificate of incorporation and they did not
indicate in the articles of incorporation the corporate term,
then the law will now be followed. That corporation has
perpetual existence.
If they want to shorten it then they can do so by amending the
articles of incorporation.
Q: If in the articles of incorporation they already put a
corporate term say for 30 years, can they still extend it?
A: The answer is yes. That is answered by the third paragraph
of your section 11.
Let's read your third paragraph.
SEC. 11. Corporate Term. (3) - 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).
So yes, the corporation can extend the corporate term. They
just have to make sure that the extension must be made NOT
EARLIER THAN THREE YEARS from the time that the original
term will expire or the renewed term will expire if there was
already an extension or a prior renewal, unless of course you
can justify an earlier renewal and such is approved by the
securities and exchange commission
Q: So when will the renewal or the extension of the corporate
term when will it take effect
A: Your law is very clear it will take effect the day after the
expiration of the original term or the day after the expiration
of the previous renewed term if there was already a renewal
prior to this current renewal or extension.
Q: What if the corporate term has expired and the corporation
was not able to file for an extension, the corporation was not
able to renew it and they want to continue on with the
business. Can they still ask for a revival of their certificate of
incorporation or of their corporate existence.
A: The answer is yes, the corporation may apply for revival of
their corporate existence and that is actually provided for still
under your section 11.
Let's read that particular paragraph.
SEC. 11. Corporate Term. (4) A corporation whose
term has expired may apply for a revival of its
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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 its 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.
It tells you that if a corporation has expired and they want to
actually continue with a business, but unfortunately they were
unable to file for an extension. They still have a remedy. They
can file for an application for revival of corporate existence
and they will have the same rights and privileges as when they
had before. Of course the corporation will also be subject to all
the duties debts and liabilities that were existing prior to its
revival.
So when the SEC approves their application for revival of
corporate existence, they will now be issued a certificate of
revival of corporate existence.
Q: What is the corporate term now?
A: It will now be the default corporate term which is perpetual
existence. Unless in their application for revival the
corporation has indicated there a different corporate term
There are however corporations certain types of corporations
that would need more than just the application for revival of
corporate existence. It would also need a favorable
recommendation from an from an appropriate agency.
Q: What are these corporations? You'll find that in the last
paragraph of section 11.
Let's read the last paragraph.
SEC. 11. Corporate Term. (5) 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.
So for those types of corporations, should their corporate
existence expire and they fail to renew or file for an extension
of their corporate term, they can still file an application for
renewal of corporate existence.
But of course it has to be accompanied with a favorable
recommendation from the appropriate government agency.
Q: How about corporations whose corporate term has expired
but such corporation has been revoked by the securities and
exchange commission due to non-filing of reports. Can they
ask that their corporate existence be revived?
A: The answer is yes they can still file for an application or
petition for revival of corporate existence. They also first have
to ask for the lifting of the revoked status. They have to file a
petition to lift the revoked status. Such petition can actually be
incorporated with a petition for revival of corporate existence
now
Q: How about an expired corporation whose certificate of
registration was suspended by your SEC, can they file a petition
for revival of corporate existence?
A: The answer also is still yes, but just like an expired
corporation whose certificate of registration has been
revoked, that corporation must also file a petition to lift the
suspended status. Also, that petition can be incorporated with
the petition to revive the corporate existence.
Q: How about an expired corporation whose name has now
been validly reused or validly used by another corporation, can
they still file a petition for revival of corporate existence?
A: The answer is still yes. However, they must now change
their name within 30 days from the issuance of the certificate
of revival of corporate existence.
However, expired corporations who have already completed
the liquidation of their assets can no longer apply or petition
for revival of their corporate existence.
Q: Why?
A: Because they have already completed the liquidation and
another is an expired corporation whose certificate of
registration has been revoked on grounds other than the non-
filing of the reports. They cannot also ask for revival of
corporate existence.
So that ends our discussion on the corporate term on
answering the question of how long a corporation can actually
exist and on the question of whether we can amend the
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corporate term and also the question on whether we can Advertising At least 70%
revive the corporate existence if it has already expired. Banking Corporations At least 60%
Retail trade with a capital of 100%
VII. CAPITAL STOCK REQUIREMENT (SEC. 12)
less than 2.5 million US
Section 12. Minimum Capital Stock Not Required of dollars
Stock Corporations. - Stock corporations shall not Rural banks At least 40%
be required to have minimum capital stock, except
coastwise shipping, At least 60%
as otherwise specially provided by special law.
Pawnshop business At least 70%
Under the old law, at least 25% of the authorized
Recruitment and placement At least 75%
capital stock as stated in the articles of of workers
incorporation must be subscribed at the time of Detective, watchman or 100%
incorporation, and at least 25% of the total security guard agencies
subscription must be paid upon subscription.
Currently, there’s no minimum capital stock
required, unless provided by special law. It merely 1. CORPORATION FOR EXPLORATION,
requires that the articles of incorporation state the DEVELOPMENT, AND UTILIZATION OF
NATURAL RESOURCES (ART. XII, SEC. 2,
amount of the corporation’s capital stock.
PHILIPPINE CONSTITUTION)

A minimum capital stock requirement is considered
arbitrary and does not assure any practical
protection to the corporate creditors. Special laws
may, however, require a higher paid-up capital, as
in the case of commercial banks, insurance
companies, and investment houses.
At least 60% of the capital of which is owned by citizens
of the Philippines;
The word "capital" in the above constitutional provision
should be understood to mean "outstanding capital
stock" in case of stock corporation.

2. PUBLIC SERVICE CORPORATIONS (ART. XII,

Minimum capitalization required in:
SEC. 11, PHILIPPINE CONSTITUTION)
● Insurance law
● Banking laws At least 60% of the capital of which is owned by citizens
● Security law of the Philippines.
● Regulated corporations are normally
The participation of foreign investors in the governing
required to have a minimum capitalization.
body of any public utility enterprise shall be limited to
However, there’s no minimum required for
ordinary corporations. their proportionate share in its capital, and all the
executive and managing officers of such corporation
VIII. FILIPINO PERCENTAGE OWNERSHIP IN: must be Filipino citizens.
Corporations for the At least 60%
exploration, development 3. EDUCATIONAL CORPORATIONS (ART. XIV,
and utilization of natural SEC. 4[2], PHILIPPINE CONSTITUTION)
resources
Public service corporations At least 60% Other than those established by religious orders and
Educational corporations At least 60% mission boards, at least 60% of the capital of which is
Mass Media 100% owned by citizens of the Philippines
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The control and administration of educational institutions
shall be vested in Filipino citizens.
4. CORPORATIONS ENGAGED IN MA SS MEDIA
AND ADVERTISING INDUSTRY (ART. XVI, SEC.
11, PHILIPPINE CONSTITUTION)
The first must be wholly (i.e., 100%) owned and
managed by Filipino citizens, while at least 70% of the
capital stock of the second must be owned by citizens of
the Philippines.
The participation of foreign investors in the governing
body of a corporation engaged in the advertising industry
shall be limited to their proportionate share in the capital
thereof, and all the executive and managing officer of
such corporation must be Filipino citizens.
5. BANKING CORPORATIONS (R.A. NO. 8791,
R.A. NO. 1064)
At least 60% of the voting stock of domestic corporation
shall be owned or controlled by Filipino citizens; RA No
1064 allows the full entry of foreign bank in the
Philippines subject to guidelines approved by the
Monetary Board of Bangko Sentral ng Pilipinas.
6. CORPORATIONS ENGAGED IN RETAIL
TRADE (R.A. NO. 8762, SEC. 5)
Enterprises with less than US $25 million paid-up
capital are reserved exclusively for Filipino citizens and
corporations wholly-owned by Filipino citizens.
Retail Trade Liberalization Act of 2000 (R.A. No. 8762,
Sec. 5)
Section 5. Foreign Equity Participation. -
Foreign-owned partnerships, associations and
corporation formed and organized under the
laws of the Philippines may, upon registration
with the Securities and Exchange Commission
(SEC) and the Department of Trade and
Industry (DTI), or in case of foreign owned
single proprietorships, with the DTI, Engage or
invest in the retail trade business, subject to
the following categories.
Category A – Enterprises with paid-up capital of the
equivalent in Philippine Peso of the then Two million five
hundred thousand US dollars (US$2,500,000.00) shall
be reserved exclusively for Filipino citizens and
corporations wholly owned by Filipino citizens.
Category B – Enterprises with a minimum paid-up
capital of the equivalent in Philippine Pesos of two
million five hundred thousand US dollar
(US$2,500,000.00) but less than Seven million five
hundred thousand US dollars (US$7,500,000.00) may
be wholly owned by foreigners except for the first two
(2) years after the effectivity of this Act wherein foreign
participation shall be limited to not more than sixty
percent (60%) of total equity.
Category C – Enterprises with a paid-up capital of the
equivalent in Philippine Pesos of Seven million five
hundred thousand US dollars (US$7,500,000.00), or
more may be wholly owned by foreigners: Provided,
however, That in no case shall the investments for
establishing a store in vestments for establishing a store
in Categories B and C be less than the equivalent in
Philippine pesos of Eight hundred thirty thousand US
dollars (US$830,000.00).
Category D – Enterprises specializing in high-end or
luxury products with a paid-up capital of the equivalent
in Philippine Pesos of Two hundred fifty thousand US
dollars (US$250,000.00) per store may be wholly
owned by foreigners.
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The foreign investor shall be required to maintain in the
Philippines the full amount of the prescribed minimum
capital unless the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and
cease operations in the Philippines. The actual use in
Philippine operations of the inwardly remitted minimum
capital requirement shall be monitored by the SEC.
Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and the
DTI, shall subject the foreign investor to penalties or
restrictions on any future trading activities/business in
the Philippines.
Foreign retail stores shall secure a certification from the
Bangko Sentral ng Pilipinas (BSP) and the DTI, which
will verify or confirm inward remittance of the minimum
required capital investments.
7. RURAL BANKS (R.A. NO. 7353, SEC. 4)
Before, no less than 40% of the voting stocks of which
shall be owned by citizens of the Philippines or
corporations at least 60% of whose capital is owned by
such citizen; Foreign investors are now allowed to own,
acquire or purchase up to 60% of a voting stock in a rural
bank.
8. CORPORATIONS ENGAGED IN COASTWISE
SHIPPING (P.D. 1464, SEC. 806)
At least 60% of the capital stock of which or of any
interest in said capital is totally owned by citizens of the
Philippines.
9. CORPORATIONS ENGAGED IN THE
PAWNSHOP BUSINESS (P.D. NO. 114, SEC. 8)
o At least 70% of the voting capital stock shall be owned
by citizens of the Philippines.
Regulating the Establishment and Operation of
Pawnshops (P.D. No. 114, Sec. 8)
Section 8. Citizenship requirement. Upon the
effectivity of this Decree, only Filipino citizens
may establish and own a pawnshop organized
in the form of a single proprietorship: Provided,
however, That in the case of a partnership, at
least seventy per cent (70%) of its capital shall
be owned by Filipino citizens: Provided,
further, That in the case of a corporation, at
least seventy per cent (70%) of the voting
capital stock shall be owned by citizens of the
Philippines, or if there be no capital stock, at
least seventy per cent (70%) of the members
entitled to vote, shall be citizens of the
Philippines.
The percentage of foreign-owned voting stock
or non-citizens entitled to vote in any domestic
pawnshop existing prior to the effectivity of
this Decree, if such percentage is in excess of
thirty per cent (30%) of the voting stock or
members entitled to vote of the pawnshop
shall not be increased but may be reduced,
and once reduced, shall not be increased
thereafter beyond thirty per cent (30%) of the
voting stock, or number of members entitled to
vote, of the pawnshop.
The percentage of foreign-owned voting
stocks in any pawnshop shall be determined
by the citizenship of the individual
stockholders in that pawnshop. In the case of
corporations owning shares in a pawnshop,
the citizenship of the individual owners of
voting stock in such corporations shall be the
basis of computing the percentage.
10. CORPORATIONS ENGAGED IN THE
RECRUITMENT AND PLACEMENT OF WORKERS
(SEC. 27, LABOR CODE AS AMENDED)
At least 75% of the authorized and voting capital stock
is owned and controlled by Filipino citizens
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11. CORPORATIONS ENGAGED IN THE
OPERATION OF PRIVATE DETECTIVE,
WATCHMAN OR SECURITY GUARD AGENCIES
(R.A. NO. 5487, SEC. 27)
Must be 100% Filipino owned.
MBL CLASSROOM
What is capital stock? A capital stock is actually the amount
that incorporators will have to indicate in the articles of
incorporation. This is the amount or representing capital that
will be paid for or subscribed for by the stockholders of the
corporation.
The term capital stock is actually synonymous also to the term
authorized capital stock. So this is the amount that the
incorporators have actually decided to be the maximum
amount of capital that they can raise by having it available to
be distributed, again to be paid for or subscribed by the
stockholders.
On the other hand, the share of stock actually refers to the
units in a capital stock, because your capital stock is the
collective sense and this capital stock will now then be divided
into units, and that is your share of stock. Because how then
can you distribute the capital stock to shareholders, it has to
be through units and that is what we call your share of stock.
Q: Is there a minimal capital stock that is required by law for
incorporators to indicate in their articles of incorporation? The
answer to the question is found in your Revised Corporation
Code under Section 12.
Section 12. Minimum Capital Stock Not Required of Stock
Corporations. - Stock corporations shall not be required to
have minimum capital stock, except as otherwise specially
provided by special law.
The Revised Corporation Code does not give a minimum
capital stock that must be raised by a corporation because it
actually does not afford any protection to the creditors or third
persons dealing with the corporation.
However, there are certain corporations provided by special
laws that must have a higher paid up capital, like your
commercial banks, because of course, these businesses and
corporations are vested with public interest. And so it is
needed that there is a higher paid up capital for the protection
of depositors and creditors of such corporations. Other
corporations that special laws may require a higher feed of
capital would be your investment houses and your insurance
companies. Because again, they are vested with public
interest.
Filipino percentage of ownership requirement
Q: Is there a particular percentage ownership by Filipinos that
would be required in certain corporations?
A: Yes, and you can find that in your constitution and in several
other laws.
Now I'm going to show here, a list of corporations and the
required Filipino percentage ownership.
IX. CONTENTS OF ARTICLES OF
INCORPORATION (SECTION 13)
Section 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 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 nonstock 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;
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(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 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 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 rule and
regulations on electronic filing.
1. ARTICLES OF INCORPORATION, DEFINITION
Articles of incorporation is the document prepared by the
persons establishing a corporation and filed with the
Securities and Exchange Commission containing matters
required by law.
It defines the charter of the corporation and the
contractual relationships (a) between the State and the
corporation, (b) the stockholders and the State, and (c)
between the corporation and the stockholders.
Note: A corporation created by special law has no
articles of incorporation.
2. PRINCIPAL OFFICE ADDRESS,
REQUIREMENT (SEC MEMO CIRCULAR NO. 6,
SERIES OF 2014)
Requirement: Specific address of the principal office, not
general address
Existing corporations whose articles of incorporation
indicate only a general address as their principal office
address (i.e. refers to only a city or municipality) are
directed to file an amended articles of incorporation in
order to specify their complete address. If feasible and
applicable, complete address includes:
1. street number;
2. street name;
3. barangay, city or municipality;
4. name of the building;
5. number of the building; and
6. name or number of the room or unit
Note: Deadline for effecting change in the principal office
address was December 31, 2014. Those corporations
which failed to meet this requirement were given
sanctions.
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A. PRINCIPAL OFFICE VS. PRINCIPAL PLACE OF
BUSINESS
Principal office is the fixed residence of a
corporation in a definite place.
Principal place of business is the place where the
books and records are ordinarily kept and its officers
usually meet for the purpose of managing the
affairs and transacting the business of the
corporation.
B. CHANGE OF ADDRESS, REQUIREMENT
In case of change of address involving a change of
city or municipality, an amended articles of
incorporation stating the new address must be
filed with the SEC.
If the new address is located within the same city or
municipality, no corporate document is required to
be filed with the SEC except a notice regarding the
change of address.
3. POWER OF SEC TO REJECT ARTICLES OF
INCORPORATION
SEC has no discretionary power to look beyond the
face of the articles of incorporation because it is not
clothed with judicial discretion or arbitrary power.
However, simply because the duties of the
Commission happen to be ministerial, it does not
necessarily follow that it has no authority to pass
upon the lawfulness of the object or purpose of the
corporation as expressed in the articles of
incorporation. Its duties are ministerial and it has
no authority to exercise discretion in receiving
and registering articles of incorporation, but it
may exercise judgment, that is, the judicial
function, in the determination of the question of
law whether or not the objects of a proposed
corporation are lawful. If it errs in the
determination of the question and refuses to file
the articles of incorporation, its decision is subject
to review and correction by the court. Thus, if the
articles of incorporation substantially comply with
the statute, SEC has no discretion, but may be
compelled by mandamus to file them.
A. ASUNCION VS. DE YRIARTE (G.R. NO. 9321,
SEPTEMBER 24,1914)
Doctrine: The duties of the chief of the division of
archives (now SEC) is ministerial, however, he can still
determine questions of law. This means that he may pass
upon the lawfulness of the purposes of the proposed
corporation but he cannot use discretion. The question of
whether the objects of a proposed corporation are lawful
can be decided in one way only.
If he errs in the determination of that question and refuse
to file articles which should be filed under the law, the
decision is subject to review and correction and, upon
proper showing, he will be ordered to file the articles.
4. CORPORATE NAME
Importance: Corporate name identifies and
distinguishes it from other corporations. By its
name, a corporation is authorized to transact
business.
Nature: A corporation's right to use its corporate
and trade name is a property right, a right in
rem which it may assert and protect against the
whole world.
5. PURPOSE/S
Purpose Clause: clause in the articles of
incorporation which states the specific purpose
or purposes for which the corporation is being
incorporated
The purpose clause operates as authorization to the
management to enter into contracts and
transactions and serves an implied limitation on the
powers of the corporation.
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If the purpose clause contains different purposes,
the corporation may be allowed to have separate
"modus operandi" for each of the stated corporate
purposes.
For non-stock corporations: They may not include
a purpose which would change or contradict its
nature as such. The RCC enumerates the
allowable purposes for which a non-stock
corporation may be organized.
In order to be in compliance with law, purpose/s
must be:
1. lawful – Thus, the purpose of the
corporation is unlawful if it is malum in se
or malum prohibitum. It is also unlawful if
it is not authorized by law (i.e. a
corporation cannot be formed for the
practice of law in absence of express
authority in the RCC)
2. stated in sufficient clarity – While the
purposes may be stated in broad and
general terms, they should not be so
stated indefinitely; otherwise, the articles
of incorporation may be rejected. Thus, an
articles of incorporation authorizing the
corporation "to carry on any lawful
business or purpose” or one, after
stating certain distinct purposes, adding
"and for such other purposes as may be
agreed upon by the corporation in the
future," will be rejected because the
purpose or purposes are not definitely
stated.
3. capable of being lawfully combined.
4. The main purpose must also
specified. – The law allows a corporation
to have secondary purposes because the
primary purpose may not turn out to be
profitable, and in such a case, all it has to
do is invest its funds in any such purposes
instead of organizing a new corporation.
Effect where primary purpose/secondary
purposes unauthorized.
1. If the primary purpose is an
unauthorized, the corporation has no legal
existence even though other secondary
lawful purposes are included
2. If the secondary purposes are
unauthorized, but a principal lawful
purpose is authorized, then additional
and unauthorized assumptions may
be treated as surplusage and the
corporation regarded as entitled to
exercise the lawful powers only.
Reasons for statement of purpose or purposes.
1. A person who intends to invest his money
in the business corporation will know
where and in what kind of business or
activity his money will be invested;
2. The directors and the officers of the
corporation will know within what scope
of business they are authorized to act; and
3. A third person who has dealings with the
corporation may know whether the
transaction or dealing he has with the
corporation is within the authority of the
corporation or not.
6. INCORPORATING DIRECTORS/TRUSTEES
A. MATTERS TO BE STATED
be
● names, nationalities, and residence addresses of
the incorporators
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● must show that at least majority of the
incorporators are residents of the Philippines
● names, nationalities, and residence addresses of
the persons who will be first directors or
trustees
B. NUMBER
● number of directors (in case of stock corporation)
= not be more than 15
● number of trustees (in case of non-stock
corporation) = may be more than 15
C. SUBSCRIPTION REQUIREMENT
A director who ceases to own at least one (1) share of
stock or a trustee who ceases to be a member of the
corporation shall cease to be such.
7. CAPITAL STOCK/CAPITAL AND
SUBSCRIBERS/CONTRIBUTORS
Stock Corporation – articles of incorporation must state:
1. amount of its authorized capital stock
2. number of shares into which it is divided
3. par value in pesos of each share
4. names, nationalities, and residence addresses
of the original subscribers
5. amount subscribed and paid by each subscriber
on the subscription
6. a statement that some or all of the shares are
without par value, if applicable
Non-stock Corporation – articles of incorporation must
state:
1. amount of its capital
2. names, nationalities, and residence addresses
of the contributors
3. amount contributed by each contributor
A. WHERE SHARES ARE WITH PAR VALUE
Where the shares issued by a corporation have only one
par value, the authorized capital stock would be the
number of shares multiplied by the par value.
If a corporation is authorized to issue different classes of
shares with different par values, the authorized capital
stock would be the total of the products of the number
of shares in each class multiplied by the par value of such
class of shares.
B. WHERE SHARES ARE WITHOUT PAR VALUE
The articles of incorporation need only state the fact that
the capital stock consists of shares without par value,
together with the number of shares into which said
capital stock is divided.
Reason: The price of no par value shares vary from time
to time and, therefore, the total amount of the capital
stock cannot be known until all the shares are issued.
8. ACKNOWLEDGMENT, SIGNATURE AND
VERIFICATION
Acknowledgement and signature: In order to
become a corporation de jure, articles of
incorporation must be acknowledged and signed.
Verification: Each of the signatories must
acknowledge his signature to the articles.
Purpose in requiring acknowledgment under
oath: to secure the State and all concerned against
the possibility of any fictitious names being
subscribed to the articles, and to furnish proof of the
genuineness of the signatures.
Note: Unless otherwise provided by the statute, the
acknowledgment of the signatures of the
incorporators is NOT a part of the articles of
incorporation.
X. FORM OF ARTICLES OF INCORPORATION
(SECTION 14)
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MBL CLASSROOM
The Articles of Incorporation is the document prepared by the
incorporators and filed with the SEC.

The articles of incorporation is a document that is prepared by

those establishing the corporation or your incorporators. This
is a document that the file before the Securities and Exchange
Commission.

Now what should we see in that document? What should be

the contents of the articles of incorporation?

The answer to that question is found in Section 13 of your

Revised Corporation code.

So let's talk about Section 13.

Section 13 tells you but one of the matters that must be

contained in the articles of incorporation should of course be
the name of the corporation. The corporation being a juridical
person must of course have a name by which it will use to
conduct its business.

You must also find the purpose or purposes of the corporation.

You must state there your primary purpose and your
secondary purpose.

Why do we have to state the purpose of the corporation in the

articles of incorporation?

The purpose/s will limit the powers of the corporation.

Because that will tell the corporation all the limits of its power
to conduct business or to enter into transactions. The
corporation must only venture into a business or enter into a
transaction that is in line with the purpose for which it was
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created or any other transaction that is incidental to the
purpose by which the corporation was created.
Any other act or transaction by the corporation beyond the
purpose or purposes written, or stated in the articles of
incorporation is considered as Ultra vigorous meaning beyond
the power or powers of the corporation.
Of course, the purpose of the corporation must be lawful. And
it must be stated in a way that gives sufficient clarity so that
people who would want to invest in the business would
actually know what they are investing on. Apart from that, the
directors of the corporation or the trustees of the corporation
will be able to know the limits of its authority or the limits of
its power. So again, the purpose or purposes must be lawful,
and it must be stated in sufficient clarity.
Another matter that we should find in the articles of
incorporation is the principal place of business of the
corporation. Now, what does this refer to what address are we
talking about? Does this necessarily refer to where the actual
business or the corporation is conducted?
The answer is no. It can actually refer to the place where the
books of the corporation are kept or where the officers will
usually need for the purposes of managing the affairs of a
corporation.
So for example, there is a corporation and the business of the
corporation is a grocery store. Does that mean that in the
articles of incorporation, the principal place of business that
you must see there is the address of where the grocery store is?
Not necessarily. Because if the grocery store is in a different
address, but the main office where the officers would usually
meet, or where the books of the corporation is kept, is actually
in a different building in another address that what you will see
in the articles of incorporation is the address of that office,
where the books of the corporation are kept and where the
officers would usually meet again for the purpose of managing
the affairs of the corporation. Of course, if the grocery store
and the main office where they keep the books are in one in
the same building, of course you find that address in the
articles of incorporation.
What else must be stated in the articles of incorporation?
If you do not elect the perpetual existence of a corporation,
then you must state there, the number of years that you
would want the corporation to exist, of course, as agreed to by
all the incorporators. IOW, if you do not put there the term of
the corporation, the corporate term, or the life of the
corporation, then the default will now be applicable.
What is the default corporate term?
If corporate term is not indicated, the corporation shall have
perpetual existence.
It is the perpetual term or that the corporation shall exist
forever.
Another matter that you should find in the articles of
incorporation should be the names, the nationalities and the
residence addresses of all the incorporators.
Why is it necessary to indicate the nationality?
Because as I have mentioned in another video there are certain
corporations that would require a certain percentage of
Filipino ownership. So for the Securities and Exchange
Commission to easily determine if you have followed the
percentage ownership by Filipinos and it's necessary that you
put there the nationality of the incorporator.
Another important matter that must be stated in the articles
of incorporation would be the number of directors if it could
be a stock corporation and the number of trustees if it be a
non-stock corporation.
Now, your Section 13 will tell you that the number of directors
in a stock corporation should not be more than 15.
However, for nonstock corporations, Section 13 of the Revised
Corporation Code allows the number of the members of the
board of trustees to be more than 15.
Do not confuse the number of board of directors and the
number of board of trustees with the incorporators. Because
the law is very clear under Section 10 that for incorporators
the maximum number is only 15.
However, for board of directors, the maximum also is 15.
But for the board of trustees, your Revised Corporation Code
allows more than 15.
Apart from the number of directors and the number of
trustees that you will have to state in the articles of
incorporation, you will also have to state the name,
nationalities, and residence addresses of the directors or the
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trustees who will be acting as such until such time that there is
an election, the regular election of directors or trustees for the
corporation.
What else should we state in the articles of incorporation?
Your authorized capital stock if it is a stock corporation. So you
have to state there the amount of your authorized capital
stock, the number of shares of stocks that is divided into, the
par value of each share, the original subscribers of the shares
of stocks, how much they have subscribed and how much
they have paid for the shares that they have subscribed. If
there are no par value shares that must be stated as well.
If it is a non-stock corporation, you must also state the capital,
you must also state the names, residence addresses and the
nationalities of the contributors of such capital and how much
they have each contributed.
Can there be other matters that the incorporators can add in
the articles of incorporation?
Any other term or matter may be added in the articles of
incorporation so long as it is in accordance with law.
The answer is yes, so long as it is in accordance with law. If they
deem that it is convenient to put it there, the articles of
incorporation then they may do so.
The articles of incorporation is a very important document in
the creation of a corporation. Why?
Because that is the charter or the law of the corporation. It
also defines the contractual relations between the corporation
and the speed between the stockholders and the speed and
between and among the stockholders. So this is the law that
the corporation must follow, that's why it's very important that
the articles of incorporation must state those matters. That we
have discussed, because that is what is submitted with the
Securities and Exchange Commission. It is then being
determined by the SEC by looking at your articles of
incorporation, if you have complied with all the requirements
set forth under Section 13.
Section 13 will also tell you that substantial compliance is
enough in stating the matters required under the Revised
Corporation Code.
Now is there a particular form that we should follow in the
making of the articles of incorporation?
Your Section 14 actually prescribes a form of the articles of
incorporation. In fact, you can find that in the Securities and
Exchange Commission website where you can actually just fill
out the form. You may also make your form originally, but you
may also type your own form, but you have to substantially
follow the prescribed form under Section 14.
So that's it for this video. I hope you now know how to make
your articles of incorporation. You must remember that all of
those matters that I have discussed, that I have enumerated
must be stated in the articles of incorporation. Otherwise,
there is a risk that your Securities and Exchange Commission
will reject your application for a certificate of incorporation.
XI. AMENDMENT OF ARTICLES OF
INCORPORATION (SECTION 15)
Section 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.
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1. REQUIREMENT
Stock Corporation
1. Approval by majority vote of the board of
directors
2. Ratified by the stockholders representing
two thirds (2/3) of the outstanding capital
stock.
TN: The vote is not on the stockholders, but on the
outstanding capital stock. You don’t count by
person. You count by shares. Moreover, the first
paragraph of Section 15 also provides that the
amendment may be affected by the “written assent”
of the stockholders or members, meaning that such
action need not be taken in a meeting and upon a
vote.
Except: If the amendment consists in extending or
shortening the corporate term, or increasing or
decreasing capital stocks, a meeting of the
stockholders is necessary.
Non-stock Corporation
1. Approval by majority vote of the trustees
2. Ratified by at least two thirds (2/3) of the
members.
TN: Both 1&2 could either be by vote or written
assent
2. LIMITATIONS ON AMENDMENT
Section 16 imposes limitations on the power of a
corporation to amend its articles of incorporation. They
are as follows:
1. Requirements imposed by the Code or by special laws
2. Must be for a legitimate purpose
3. Must be approved by the directors/trustees, and the
stockholders/members through the vote requirement
4. Appraisal right
5. Both the original and the amended articles together
must contain all the provisions required by law to be set
out in the articles
6. Will take effect only:
a. Upon their approval by the SEC by the issuance of a
certificate of amended articles; or
b. From the date of filing with the SEC, if the SEC did not
act upon it within 6 months from the date of filing for a
cause not attributable to the corporation.
In the case of foreign corporations authorized to transact
business in the Philippines, they are merely required to
file, within sixty (60) days after the amendment to the
articles of incorporation (or by-laws) becomes effective,
with the Securities and Exchange Commission and in
proper cases, with the appropriate government agency,
a duly authenticated copy of the articles of incorporation
(or by-laws) for record purposes. The filing thereof,
however, shall not of itself enlarge or alter the purpose
or purposes for which such corporation is authorized
under its license to transact business in the Philippines,
(see Sees. 130,125.)
Such portions of the articles of incorporation which
state an established or accomplished fact at the time of
incorporation, e.g., the portion stating the names of the
original subscribers or incorporators (Sec. 5.), cannot be
changed or amended.
Q: What is an appraisal right?
A: This is a right that may be exercised by the
dissenting stockholders, where they can demand for
the payment, for the full payment of the value of their
shares.
Q: What to submit to the SEC?
A: Original and Amended provisions in the AOI, with the
amended provisions being duly certified under oath by
the Corporate Secretary, accompanied by a Director’s or
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Trustee’s certificate stating that the required vote was
obtained.
3. EFFECTIVITY OF AMENDMENT
1. Takes effect upon approval by the
Commission, or
2. from the date of filing with the Commission
if not acted upon within 6 months from the
date of filing for a cause not attributable to
the corporation.
Q: What are matters that cannot be amended?
· Name of the incorporators
· First Directors/Trustees
· Officers elected
· Names of subscribers
· Names of witnesses
EXC: When it is for correcting typographical errors.
MBL CLASSROOM:
Now you have to remember that your articles of incorporation
is basically the contract between the corporation and the
State. Having said that, if you do make any changes or
amendments to the articles of incorporation, you have to ask
permission from the State.
Q: How do you ask permission from the State?
A: You have to apply for an amendment of the articles of
incorporation before the Securities and Exchange
Commission.
Also, your Articles of Incorporation would also represent a
contract between the corporation and the stockholders and
also among the stockholders themselves. So, if there are any
changes to that contract, you will also have to ask permission
from the stockholders and that is why a vote is required to be
called upon if the corporation decides to amend its articles of
incorporation. That is provided for under Section 15 of the
Revised Corporation Code.
So what does article 15 tell you? Article 15 tells you that
should the corporation would want to amend the Articles of
Incorporation, they have to call upon it for voting, to
determine whether the stockholders are amenable to change
articles of incorporation or to amend some matters in the
articles of incorporation.
It must be approved by the vote of the majority of the board
of directors and the vote or written assent of stockholders
representing at least two thirds of the capital stock
corporation.
If it is a non-stock corporation, then there must also still be a
vote, and it must be approved by the vote or written assent
of the majority of the board of trustees and the members
representing two thirds.
So as I've mentioned earlier, since your Articles of
Incorporation basically serves as a contract between the
corporation and the stockholders, then it is necessary that if
there is any change or amendment on the articles of
incorporation, then you have to get the consent of the
stockholders or the members and that was the required vote
that must be needed to amend the Articles of Incorporation.
We also said earlier on that your articles of incorporation is
also a contract between the corporation and State. For that
reason, you have to also file your application for amendment
of the articles of incorporation to your Securities and
Exchange Commission.
The corporation cannot just on its own amend the Articles of
Incorporation just because they already have the required
votes as provided for under Section 15. This has to be
approved by the Securities and Exchange Commission.
So earlier, we said that the required vote is the majority of the
board of directors for stock corporations, or the vote or
written assent of the majority of the board of trustees for
non-stock corporations.
And for the stockholders and members, it will be the vote or
written assent of stockholders representing at least 2/3 of the
capital stock of corporations and at least 2/3 of the members
for non-stock corporations. Now that is the required vote.
So it would happen that there are some stockholders or
members or board of directors that would not be amenable to
the amendment of the articles of incorporation. What will
happen to them if the required code was actually achieved, but
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they're really a minority, some stockholders or members that
are that are not amenable to the amendment of the articles of
incorporation, what will happen to them?
Section 15 also tells you that dissenting stockholders, meaning
those stockholders who voted against the amendment of the
articles of incorporation can have their appraisal right.
What is an appraisal right?
This is a right that may be exercised by the dissenting
stockholders, where they can demand for the payment, for
the full payment of the value of their shares. So they will sell
their shares to the corporation because they are no longer
amenable to the amendment of the articles of incorporation.
That is what is meant by appraisal right and that is what you
find in Section 15 of your Revised Corporation Code.
Now, we said we have to ask permission from the state
through the Securities and Exchange Commission if the
corporation would want to amend the Articles of
Incorporation. So what do you submit to the Securities and
Exchange Commission?
The corporation will have to send the original and the
amended provisions in the articles of incorporation. And they
must indicate by underscoring or underlining the amendment
so that it's easy for the Securities and Exchange Commission to
identify.
Now, the amended articles of incorporation should be duly
certified under oath by the Corporate Secretary and also
accompanied by a director’s or trustee’s certificate stating
that the vote was actually called upon and the vote required
under Section 15 was obtained.
Again, what vote is that?
That is a vote of the majority of the members of the board of
directors and the vote or written assent of the stockholders
representing at least 2/3 of the capital stock for stock
corporations, and a majority vote or written assent of the
Board of Trustees, and vote or written assent of at least 2/3 of
the members for non-stock corporations. So they must
indicate that under oath, when they submit the amended
articles of incorporation.
Once you have filed your amendment of articles of
incorporation and everything that is required, when will the
amendment take effect?
Section 15 will also tell you that the amendment will take
effect only upon approval of such amendment by the
Securities and Exchange Commission, because as we said
earlier on your articles of incorporation is also the contract of
the corporation and the state. So your amendments cannot
take effect yet if there is no approval yet by the state through
your Securities and Exchange Commission.
Now, supposing you have already filed your amendment of
articles of incorporation, and it has been six months from the
time that you have filed it, and still there was no action from
the SEC, there is still no approval…
Section 15 says that if there is still inaction from the Securities
and Exchange Commission and six months have already
passed, then your amendments will now be considered as
effective, unless of course, if the delay of such approval was
caused by the Corporation.
But if there are no grounds to attribute to the corporation for
the delay, then your Section 15 tells you that your amendment
will be effective six months from the filing of such amendment
to your Securities and Exchange Commission, and if there was
still no action yet on the part of the Securities and Exchange
Commission.
So we said then that as a general rule, you can actually make
amendments to the articles of incorporation.
Q: Are there matters that may not be subject to an
amendment? Matters that the corporation cannot amend the
Articles of Incorporation.
A: Yes, there are matters that cannot be amended.
You cannot amend the name of the incorporators. Why?
Because that's already an established fact. They were actually
the ones who incorporated. You cannot amend first directors.
You cannot amend the officers or the treasures and elected
and already written or stated in the articles of incorporation,
unless of course to correct mistakes like typographical errors.
All other matters, however, may be amended, like the capital
stock, like the corporate term or the corporate name, or the
primary purpose or secondary purpose of the corporation.
So all matters may be amended except those that I have
mentioned earlier on.
Matters that cannot be amended:
1. Name of the incorporators
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2. First Directors/Trustees
3. Officers elected
4. Names of subscribers
5. Names of witnesses
Because that's already an established fact, that they were
actually the ones who incorporated for in the matter of the
name of incorporators. They were actually the ones who
executed your articles of incorporation.
XII. GROUNDS FOR DISAPPROVAL OF
ARTICLES OR AMENDMENT (SECTION 16)
Section 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
as reasonable time from receipt of the disapproval
within which to modify the objectionable portions of
the articles or amendment. The following are
ground 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.
1. REMEDY IF DISAPPROVED
Non-compliance with the legal requirements does
not merit an outright denial of the application. The
Code gives the applicant a “reasonable time” to cure
the defect in the application or remove the ground
for disapproval by providing that, “the Commission
shall give 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.”
In Company Registration and Monitoring
Department v. Ching Bee Trading Corporation, the
Supreme Court held that while the application for
extension of corporate term was filed a day prior to
its expiration, the Commission should have given
the corporation reasonable time to comply with its
requirements. “Reasonable time” means that
amount of time for a reasonably prudent and
diligent person to comply with the requirements.
“Accordingly, for as long as the corporation opts to
extend its term while it is still alive and during the
period allowed by the Code, that is, the filing of the
necessary requirements, the burden shifts to the
SEC to review, approve or disapprove the same
before the corporation breathes its last. If no
approval is secured within the limited time, the fault
would have to be on part of the SEC.”
Before rejecting the AOI, the SEC should give the
incorporators reasonable time within which to
correct or modify the objectionable portions of the
articles or amendments.
Any decision of the Commission rejecting the AOI or
disapproving any amendment thereto is appealable
by Petition for Review to the CA in accordance with
the pertinent provisions of the Rules of Court.
MBL CLASSROOM: SECTION 16
I want us to talk about what are the grounds for when
your Securities and Exchange Commission would
disapprove the articles of incorporation that you have
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submitted to them or when the SEC would disapprove
the amended articles of incorporation.
You can actually find the grounds for disapproval by the
SEC under Section 16 of the corporation code. Section 16
would tell you that the Securities and Exchange
Commission may disapprove your registration for
incorporation if you are not compliant with the law.
And in another video I have also already discussed what
should be the contents in your Articles of Incorporation
and that you must substantially comply with the
requirements provided under your Revised Corporation
Code, such that if the SEC finds that you have not
substantially complied with all the matters mentioned
under Section 13, then the SEC can actually disapprove
your articles of incorporation.
However, section 16 will also tell you that before the SEC
can outright disapprove the articles of incorporation or
the amended articles of incorporation, they must give
ample time for the incorporators to make the changes.
Example: You have here a corporation and when they
made the articles of incorporation, they had 16
incorporators, and remember that your Revised
Corporation Code limits the incorporators only to a
maximum of 15, so you have not now followed what is
required by law. So once you submitted to the Securities
and Exchange Commission and then they find this that
the number of your incorporators is more than what is
allowed by law, then they can give you time to change
what you have failed to comply with the law, before
they can disapprove your articles of incorporation.
Now why do I say that you are being given reasonable
time to make the changes? Because that is provided for
under the first paragraph of section 16. Let's read the
first paragraph.
“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 the receipt of the disapproval
within which to modify the objectionable portions of the
articles or amendment.”
So, that is the first paragraph of your Section 16, which
tells you that the corporation or rather the
incorporators, the director, trustees, or officers are
actually given a reasonable time to modify the
objectionable portions.
So apart from the example that I gave earlier, what are
the grounds for disapproval of your articles of
incorporation or your amendment to the articles of
incorporation?
We find that under the second paragraph of section 16.
Let's read the second paragraph where there is an
enumeration now of the grounds.
It provides 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 therein
b. for 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 being paid is
false;
d. the required percentage of Filipino ownership
of the capital stock under existing laws, or the
Constitution has not been complied with.
The first example that I gave you is an example of the first
ground where there is no substantial compliance of
what is required under Section 13 and 14 of your Revised
Corporation Code.
Now, let's go to the second ground, and the second
ground is when the purpose or the purposes of the
corporation is patently illegal or unconstitutional.
Example: What is written as a primary purpose is to sell
dangerous and unregulated drugs. So clearly that is,
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patently illegal. So your Securities and Exchange
Commission will have to disapprove the registration of
the articles of incorporation because it is patently illegal.
A third ground is when your Securities and Exchange
Commission will find out that the certification of the
amount of capital stocks subscribed and are paid for is
false. Because remember that the articles of
incorporation not only is it simply signed by the
incorporators, but there is an acknowledgement there
that everything that you have written must be true and
correct. That's why it is notarized. And so if there are any
false information there and your SEC finds out about it,
that is a ground for disapproval.
Lastly, the fourth ground of disapproval of the articles of
incorporation would be when you have failed to comply
with the percentage of Filipino ownership requirement.
Example: In the articles of incorporation, you have
placed there that the purpose of the business is to
engage in mass media. And yet, when the Securities and
Exchange Commission will now look into your articles of
incorporation, they see there that there is an
incorporator who is not a Filipino citizen.
Now, remember that your Constitution requires that for
mass media, it must be wholly owned by Filipino citizens.
Meaning 100% must be Filipino citizens. So, if they see
that you have not complied with the percentage of
Filipino ownership, then they can disapprove your
articles of incorporation.
Another example: Educational corporations. The primary
purpose is education. And then again, when they look at
your incorporators, they see there that more than 40%
are not Filipino citizens. And your Constitution requires
that for educational corporations, it must be owned by
at least 60% of Filipino citizens. So having more than 40%
foreigners, that would already be violating the minimum
Filipino percentage of ownership requirement. So that
can be a ground to disapprove your articles of
incorporation.
Now, let's look into the last paragraph of Section 16. It
reads:
“No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi banking
institutions, prepaid insurance and trust companies,
NSSLAs, pawn shops, 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 for amendment is in accordance with law.”
Now, those types of corporations that are enumerated under
the last paragraph of section 16, these are corporations vested
with public interest and therefore, it needs a favorable
recommendation by the appropriate government agency,
because that appropriate government agency will have to look
into the corporation as to whether they have complied with
all the requirements of law. And that would also now be made
as basis for your Securities and Exchange Commission if they
have complied with particular laws that are applicable to these
corporations, as well as looking into whether these
corporations have also complied with the Revised Corporation
Code.
XIII. LIMITATIONS UPON USE OF CORPORATE
NAME (SECTION 17)
Section 17. Corporation Name. - No corporate
name shall be allowed by the Commission if it is not
distinguishable from that already reserved or
registered for the use if another corporation, or if
such name is already protected by 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 if 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
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name already reserved or registered for the use of
another corporation; (2) already protected by law;
or (3) contrary to law, rules and regulations, 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 also 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.
1. LIMITATIONS
1. Limitations. (1) Similarity with another trade
name. — The incorporators may choose and use any
name they may see fit, provided it is one not
identical with or prejudicially similar to a name
which was previously adopted and which is being
used by another existing corporation or
unincorporated association or a natural person as
trade name (Bender vs. Bendor Store, 178 III. App.
203.), or is contrary to existing law.
A corporation acquires its name by choice and need
not select a name identical with or similar to one
already appropriated by a senior corporation while
an individual's name is thrust upon him. It can no
more use a corporate name in violation of the rights
of others than an individual can use his name legally
acquired so as to mislead the public and injure
another. (Philips Export B.V. vs. Court of Appeals,
206 SCRA 457 [1992].)
For as long as a corporation is existing regardless of
whether or not it is in operation, its corporate name
cannot be used by any other group. (SEC Opinion,
Sept. 2,1993.)
If any corporation could adopt at pleasure the name
of another corporation, the practice would cause
confusion and unfair and fraudulent competitions,
open the door to frauds upon the public, promote
the evasion of legal obligations and duties, and
result in difficulties of administration and
supervision over corporations.
A. PHILIPS EXPORT VS. COURT OF APPEALS
(G.R. NO. 96161, FEBRUARY 21, 1992)
Facts:
Petitioner Philips Export is a foreign corporation
organized under the laws of Netherland. It is not
engaged in business in the Philippines, but it is the
registered owner of the trademarks PHILIPS and
PHILIPS SHIELD EMBLEM. Philips Electrical and
Philips Industrial are also authorized users of the
said trademarks. All these Philips companies
belong to the PHILIPS Group of Companies
Respondent Standard Philips Corporation, on the
other hand, was issued a Certificate of Registration
by respondent Commission (SEC).
PHILIPS Group of Companies filed a complaint with
the (SEC) asking for the cancellation of the word
"PHILIPS" from Private Respondent's corporate
name in view of the prior registration with the
Bureau of Patents.
Petitioners filed with the SEC a petition praying for
the issuance of a Writ of Preliminary Injunction
alleging that Private Respondent's use of the word
PHILIPS amounts to an infringement and clear
violation of Petitioners' exclusive right to use the
same considering that both parties engage in the
same business.
Private Respondent countered that Petitioner has
no legal capacity to sue; that its use of its corporate
name is not at all similar to Petitioners' trademark
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PHILIPS when considered in its entirety; and that its
products consisting of chain rollers, belts, bearings
and cutting saw are grossly different from
Petitioners' products.
ISSUE: Can petitioner PHILIPS Group of Companies
prevent respondent Standard Philips Corporation
from using the name “Philips”?
Ruling:
Yes. Section 18 of the Corporation Code provides:
No corporate name may be allowed by the
Securities and Exchange Commission if the
proposed name is identical or deceptively or
confusingly similar to that of any existing
corporation or to any other name already
protected by law or is patently deceptive,
confusing or contrary to existing law.
Where a change in a corporate name is approved,
the commission shall issue an amended certificate
of incorporation under the amended name.
To come within this scope, two requisites must be
proven, namely:
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 already protected by law; or (c)
patently deceptive, confusing or
contrary to existing law.
The right to the exclusive use of a corporate name
with freedom from infringement by similarity is
determined by priority of adoption.
In this case, the petitioner corporation was
incorporated 26 years earlier than the issuance of
the Certificate of Registration of the respondent
corporation
Moreover, since the name “Philips” is known
internationally, petitioner Philips has an exclusive
right to the use of its name, which may be protected
by injunction upon a principle similar to that upon
which persons are protected in the use of
trademarks and trade names
B. INDUSTRIAL REFRACTORIES CORPORATION
OF THE PHILIPPINES VS. COURT OF APPEALS
(G.R. NO. 122174, OCTOBER 3, 2002)
Doctrine: The right to the exclusive use of a
corporate name with freedom from infringement by
similarity is determined by priority of adoption.
In determining the existence of confusing similarity
in corporate names, the test is whether the
similarity is such as to mislead a person using
ordinary care and discrimination, and the Court
must look to the record as well as the names
themselves.
Facts: In 1977, Refractories Corporation registered
its corporate and business name with the Bureau of
Domestic Trade.
Meanwhile, Industrial Refractories Corporation was
originally under the name "Synclaire Manufacturing
Corporation" It amended its Articles of
Incorporation on August 23, 1985 to change its
corporate name to "Industrial Refractories Corp. of
the Philippines"
Both companies are the only local suppliers of
monolithic gunning mix.
Discovering that Industrial Refractories was using
such corporate name, respondent Refractories
Corporation filed with the SEC a petition to compel
Industrial Refractories to change its corporate name
on the ground that its corporate name is confusingly
similar with that of Industrial Refractories such that
the public may be confused or deceived into
believing that they are one and the same
corporation.
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Issue: Whether or not the corporate names are
confusingly similar.
Ruling:
YES. The right to the exclusive use of a corporate
name with freedom from infringement by
similarity is determined by priority of adoption.
Refractories Corporation was incorporated in 1976,
while Industrial Refractories was incorporated in
1979 under its original name. Industrial Refractories
only started using the name "Industrial Refractories
Corp. of the Philippines" when it amended its
Articles of Incorporation in 1985.
Thus, being the prior registrant, Refractories
Corporation has acquired the right to use the word
"Refractories" as part of its corporate name.
In determining the existence of confusing
similarity in corporate names, the test is whether
the similarity is such as to mislead a person using
ordinary care and discrimination, and the Court
must look to the record as well as the names
themselves.
C. DE LA SALLE MONTESSORI INTERNATIONAL
OF MALOLOS, INC. VS. DE LA SALLE BROTHERS,
INC (G.R. NO. 205548, FEBRUARY 7, 2018)
Facts:
The Petitioner reserved with the SEC its corporate
name De La Salle Montessori International Malolos,
Inc. from June until August 2007. The SEC issued a
certificate of incorporation to petitioner and DepEd
Region III granted the petitioner with government
recognition for its pre-elementary and elementary
and for its secondary courses.
The respondents, De La Salle Brothers et al. filed a
petition with the SEC seeking to compel petitioner
to change its corporate name. Respondent was
claiming that petitioner's corporate name is
confusingly similar to that which respondents have
acquired a prior right to use, and that respondents'
consent to use such name was not obtained.
Petitioner asserted that the words "Montessori
International of Malolos, Inc." are four distinctive
words that are not found in respondents' corporate
names so that their corporate name is not identical,
confusingly similar, patently deceptive or contrary
to existing laws.
The SEC-OGC issued an Order directing petitioner
to change or modify its corporate name. The SEC-
OGC held that the respondents have acquired the
right to the exclusive use of the name "La Salle"
with freedom from infringement by priority of
adoption, as they have all been incorporated using
the name ahead of petitioner
Both SEC en banc and Court of Appeals affirmed
the decision of the SEC OSG.
Issue: Whether or not there exists a confusing
similarity in the names of the petitioners and the
respondents.
Ruling:
Yes. The Supreme Court held that a corporation's
right to use its corporate and trade name is a
property right, a right in rem, which it may assert
and protect against the world in the same manner
as it may protect its tangible property, real or
personal, against trespass or conversion.
It is regarded, to a certain extent, as a property right
and one which cannot be impaired or defeated by
subsequent appropriation by another corporation in
the same field.
Petitioners assertion is of no moment, As correctly
held by the SEC OGC, all these words, when used
with the name "De La Salle," can reasonably
mislead a person using ordinary care and discretion
into thinking that petitioner is an affiliate or a branch
of, or is likewise founded by, any or all of the
respondents, thereby causing confusion.
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Generic terms are those which constitute "the
common descriptive name of an article or
substance," or comprise the "genus of which the
particular product is a species," or are "commonly
used as the name or description of a kind of goods,"
or "characters," or "refer to the basic nature of the
wares or services provided rather than to the more
idiosyncratic characteristics of a particular product,"
and are not legally protectable.
The phrase "De La Salle" is not generic in relation to
respondents. It is not descriptive of respondent's
business as institutes of learning.
2. TEST OF INFRINGEMENT
The right to the exclusive use of a corporate name
with freedom from infringement is determined by
priority of adoption. In determining the existence of
confusing similarity in corporate names, the test is
whether the similarity is such as to mislead a person
using ordinary care and discrimination and the court
must look to the record as well as the names
themselves. It is settled, however, that proof of
actual confusion need not be shown. It suffices that
confusion is probably or likely to occur. (Philips
Export B.V. vs. Court of Appeals, supra.
3. SPECIAL LAWS PROHIBITING USE OF
CERTAIN WORDS
In addition to the limitation provided by Section 17,
special laws prohibit the use of certain words as
part of the corporate name such as those which
imply that a corporation is engaged in an activity in
which it Is not allowed by law to engage in. Thus:
(a) It shall be unlawful for any person, association
or corporation to use whether directly or indirectly,
the emblem, official seal, and name of the United
Nations, both in its full or abbreviated form, for
commercial or business purpose. (Sec. 1, R.A. No.
226.)
(b) It shall be unlawful to use the word "bonded," in
part or in whole, as a trade name or business name,
or business name of those operating or maintaining
any warehouse not licensed under Act No. 3893
(General Bonded Warehouse Act.) or established
under Sections 1302 and 1304 of the Revised
Administrative Code. (Sec. 3, R.A. No. 247.)
(c) No person, association or corporation unless
duly authorized to engage in the business of a bank,
quasi-bank, trust entity, or savings or loan
association, shall advertise or hold itself out as
being engaged in the business of such bank, etc., or
use in connection with its business title the word or
words "bank," "banking," "banker," "quasi-bank,"
"quasi- banking," "quasi-banker," "savings and loan
association," "trust corporation" "trust company," or
words of similar import or transact in any manner
the business of any such bank, corporation or
association. (Sec. 64, R.A. No. 8791.)
(d) No bank, person, association, or corporation
doing the business of banking but not authorized
under the Rural Banks Act, shall use the words
"Rural Bank," as part of its name or title. (Sec. 28,
R.A. No. 7353.)
(e) It shall be unlawful for any person, association,
partnership, or corporation to use the term "savings
and loan association" unless it is organized under
the Savings and Loan Association Act (Sec. 7, R.A.
No. 3779.), or the term "development bank" unless
it is organized under the Private Development
Banks Act. (Sec. 16, R.A. No. 4093.)
(f) All banks other than the Philippine National Bank
and such other banks now licensed to do business
in the Philippines whose name already includes the
word "National" are prohibited from using the word
"National" as a portion of their name or title. (Sec.
35, Pres. Decree No. 694, The 1975 Revised
Charter of the Philippine National Bank.)
(g) The use of "UN," "Olympic," and "Bureau" in full
or abbreviated form for commercial or business
purposes is prohibited. (Sec. 1, R.A. No. 226.)
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(h) The use of "Financing Company," or "Finance
Company," or "Finance and Leasing Company"
"Investment Company" or "Investment Risk" unless
organized as a financing investment company is
prohibited. (Sec. 14, R.A. No.5980, as amended by
R.A. No. 8556.)
(i) The use of "Lending Company" and "Lending
Investor" except by lending companies. (Sec. 12[2,
c], R.A. No. 9474.), or "Pawnshop" except by
entities authorized to operate pawnshop. (Sec. 11,
Pres. Decree No. 114.)
(j) The practice of a profession regulated by special
law which among others, provides for the
permissible use of the profession name in a firm,
partnership or association shall govern the use of
the same, e.g., "Engineer" or "Engineering" (Sec. 24,
R.A. No. 544, as amended by R.A. No. 1582.),
"Architect" (Sec. 25, R.A. No. 9266.) or "Geodetic
Engineer" (Sec. 24, R.A. No. 8560.)
(k) The corporation which is a subsidiary of a foreign
firm may carry the name of the principal company
with the word "(Phil.)" or "(Philippines)" affixed to
the firm name. The written consent of the mother
company as regards the use of the firm name must
be submitted.
(1) The name of an internationally known foreign
corporation or one similar to it may not be used by
a domestic corporation unless it is a subsidiary and
the parent company has consented to such use.
(m) If the full name of a person forms part of the
corporate name, the consent of such person or his
heir(s) must be obtained.
(n) Unless otherwise authorized by the Commission,
"National," "Bureau," "Commission," "State," and
other words, acronyms, and abbreviations that have
been given acceptance in the Philippines as being
used only by entities that perform governmental
functions. (SEC Memo. Circ. No. 5, Series of 2008.)
4. USE OF GENERIC, GEOGRAPHICAL, AND
DESCRIPTIVE TERMS AND NAMES.
Certain words, terms, or names are regarded by law
as incapable of exclusive appropriation. Of this
class are generic terms and geographical names
and terms which are merely descriptive of the
goods, services, places where made, the character
of the business, or the name of the maker. (UNLESS
such words have acquired a secondary meaning)
5. USE OF TRADE NAME OF ANOTHER
CORPORATION
The SEC Guidelines, specifically requires that:
a. a corporate name shall not be identical,
misleading or confusingly similar to one
already registered by another corporation
with the Commission; and
b. if the name applied for is similar to the
name of a registered firm, the applicant
shall at least contain one or more
distinctive words to the proposed name
to remove the similarity or differentiate it
from the registered name.
This guideline does not apply where the questioned
word happens to be the valid trademark or trade
name of another corporation, in which case, the
latter shall have the exclusive right to its use as
registered owner.
6. USE OF A PERSON’S FULL NAME OR
SURNAME
It may be used in a corporate name if:
a. he/she is a stockholder of the
corporation
b. he/she has consented to such use
If already deceased, the consent shall be given by
his/her estate.
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The Commission may require a registrant to explain
to its satisfaction the reason for the use of a
person’s name. The meaning of initials used in a
name shall be stated by the registration of the
articles of incorporation or in a separate document
signed by an incorporator or director.
7. DOCTRINE OF SECONDARY MEANING
This doctrine originated in the field of trademark
law. Its application has, however, 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 trademark or trade name.
In Philippine Nut Industry, Inc. vs. Standard Brands,
Inc. (65 SCRA 575 [1975].), the doctrine of
secondary meaning was elabo- rated in the
following terms: "x x x 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."
Thus, if a corporate name, though descriptive, has
been used for so long and exclusively by one
corporation and has become associated with that
corporation alone in the mind of the public, another
corporation cannot register said name as a
corporate name.
A. PHILIPPINE NUT INDUSTRY, INC. VS.
STANDARD BRANDS INCORPORATED (G.R. NO.
L-23035, JULY 31, 1975)
Facts:
Philippine Nut is a domestic corporation that
obtained from the Patent Office, in 1961, a
Certificate of Registration covering the trademark
"PHILIPPINE PLANTERS CORDIAL PEANUTS," the
label used on its product of salted peanuts.
In 1962, Standard Brands a foreign corporation,
filed with the Director of Patents Inter Partes asking
for the cancellation of Philippine Nut's certificate of
registration.
Standard Brands relied on the ground that the
registrant was not entitled to register the mark at
the time of its application for registration thereof.
Standard brands already owned the trademark
“PLANTERS COCKTAIL PEANUTES” in 1958.
Standard Brands alleged in its petition that
Philippine Nut's trademark "PHILIPPINE
PLANTERS CORDIAL PEANUTS" closely
resembles and is confusingly similar to its
trademark "PLANTERS COCKTAIL PEANUTS"
used also on salted peanuts, and that the
registration of the former is likely to deceive the
buying public and cause damage to it.
Petitioner contends, however, that there are
differences between the two trademarks, such as,
the presence of the word "Philippine" above
PLANTERS on its label, and other phrases.
Petitioner further contends that Standard Brands'
use of the trademark PLANTERS was interrupted
during the Japanese occupation and in fact was
discontinued when the importation of peanuts was
prohibited by Central Bank regulations, hence it
cannot be presumed that it has acquired a
secondary meaning.
The Director of Patents ruled in favor of the
petitioner, Philippine Nut Industry.
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Issue: Whether or not the doctrine of secondary
meaning is applicable in the case at bar?
Ruling:
YES. The applicability of the doctrine of secondary
meaning to the situation is appropriate because
there is oral and documentary evidence showing
that the word PLANTERS has been used by and
closely associated with Standard Brands for its
canned salted peanuts since 1938 in this country.
Not only is that fact admitted by petitioner in the
amended stipulation of facts but the matter has
been established by testimonial and documentary
evidence.
There is evidence to show that the term PLANTERS
has become a distinctive mark or symbol insofar as
salted peanuts are concerned, and by priority of use
dating as far back as 1938, respondent Standard
Brands has acquired a preferential right to its
adoption as its trademark warranting protection
against its usurpation by another.
Standard Brands has shown the existence of a
property right.
Respondent Director correctly applied the rule that
non-use of a trademark on an article of merchandise
due to legal restrictions or circumstances beyond
one's control is not to be considered as an
abandonment.
8. USE OF BUSINESS NAME DIFFERENT FROM
CORPORATE NAME (SEC MEMO CIRC NO. 12,
SERIES OF 2008)
No law prohibits a company from using a different name
from its corporate name in doing business.
A company may have more than 1 business or trade
name. Provided:
1. These are indicated in the Articles of Incorporation
2. There is no fraud or deceit
3. It has complied with said circular (SEC Memo Circ. No
12. Series of 2008)
A corporation may assume a name and carry on business
in such assumed name, whether in papers, documents,
labels, and posters. A corporation using an assumed
name in executing a contract is bound just as much as if
it had used its proper (corporate) name. There are
instances when a corporation is mandated to use, issue
and/or submit papers reflecting therein not just its
business name but also its corporate name. For example,
in filing Official Papers, such as Financial Statements and
issuing Official Receipts.
9. REMEDY OF CORPORATION WHOSE NAME
HAS BEEN ADOPTED BY ANOTH ER
1. Injunction
a. Fraud upon the aggrieved
corporation
If misleading or likely to injure in the
exercise of its corporate functions.
regardless of intent, may be
prevented by the corporation having
a prior right, by a suit for injunction
against the new corporation to
prevent the use of the name.
b. Interference with its business
Broadly speaking, the general rule is
that the right of one corporation to
enjoin the use of a similar name by
another depends upon whether such
use has interfered with the former’s
business whatever it may be and
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without regard to whether it is
commercial, trading or otherwise.
Thus, not only are corporations
organized for pecuniary profit
entitled to protect their names by
injunction, but it has also been held
that an injunction may issue to
protect the name of a benevolent
fraternal society, a patriotic society, a
social club, or a charitable religious
society.
2. De – registration
To restrain the wrongful assumption
of a name by a corporation is not to
annul the corporation by depriving it
of a name. If restrained from using a
name chosen, it may choose another
name.
10. CHANGE OF CORPORATE NAME
A. HOW EFFECTED
A corporation can change the name originally
selected by it after complying with the formalities
prescribed by law:
a. Amendment of the articles of incorporation
b. Filing of the amendment with the Securities
and Exchange Commission.
Hence, the mere approval by the stockholders of
the amendment of the articles of incorporation
changing the corporate name does not
automatically change the name of the corporation
as of that date.
When a change of name is approved, it is required
that the Commission must issue an amended
certificate of incorporation under the amended
name.
The change of name is deemed effective as of the
date of the Commission’s approval of the amended
articles or from the date of filing with it if not acted
upon within six (6) months from the date of filing for
a cause not attributable to the corporation.
Said change impliedly amends the corporate name
as appearing in the by-laws; hence, the corporation
need not amend its by-laws in order to reflect its
new corporate name.
MBL CLASSROOM: SECTION 17
How do we create a corporate name? Which rules must
be remembered when we choose our corporate name?
Section 17 has actually been revised or amended. This
was supposedly Section 18 the Old Corporation Code and
now it’s Section 17. It has actually been restated. The
principles behind Section 18 before and Section 17 now
are more or less the same. But let’s look into Section 17.
Let’s read the first paragraph of Section 17 of the Revised
Corporation code. It says:
“No corporate should be allowed by the commission if it
is not distinguishable from 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.”
So what does that tell you?
It tells you that when you choose a name, you must be
sure that it is distinguishable from any other corporation
who has already used that or has reserved that name.
Remember that the corporate name is very important.
Why is it important? That it is important because the
corporate name identifies the corporation. It gives it its
identity in the same manner that your name identifies
you.
The corporate name therefore is what will be used by the
corporation when they transact business. That is also the
name that they can sue and be sued. The corporate name
therefore is one of the corporation's attributes. It is
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essential to its existence, it is essential to the identity of
the corporation. That is the reason why the first
paragraph of Section 17 requires that when you meet a
name, you must make sure that it is distinguishable from
other corporations. Your corporate name must set you
apart from other corporations so that you can be easily
identified.
If in the articles of incorporation, you will put there and
that is similar or confusingly similar with other
corporations existing then the Securities and Exchange
Commission can actually ask you to change your
corporate name.
Example: So you have McDonald's. For example, you will
make a corporation and you still name it McDonald's, but
you change the spelling to MACDONALD’S, you cannot
now say that your yours is distinguishable because of the
spelling. Because then, it might lead other people to
believe that your corporation is the same as that of the
original McDonald's.
So your guide in making a corporate name, therefore is
you have to make sure that it is distinguishable
from other corporations' names. So there is one case
that I'd like to share to you on the use of corporate
names. It is the case of Phillips Export v. Standard Phillips
Corporation.
Phillips Export v. Standard Phillips Corporation
So in this case, you now have here Standard Phillips
Corporation who tried to use the word “Philips” and
included it in its corporate name. That's why they've
called themselves Standard Phillips Corporation. Now
your Phillips Export, among other sister companies of
Phillips Export, Phillips Electrical lamp Inc., Philips
Industrial Development Inc. (complainants). So these
three corporations are now asking the court to stop
Standard Philips Corporation from using the term
“Philips” in the corporate name.
The argument of Philips Export and the two other sister
companies, they're all saying that the use of Standards
Phillips Corporation of the term “Phillips” would mislead
the public into believing that Standard Phillips
Corporation is part of their business considering that
they have similar business types sites or are engaged in
the same line of business.
On the other hand, standard Phillips Corporation is now
saying that the corporate name is not confusingly similar
with that of Phillips Export or Philips Industrial
Development Inc. or Philips Electrical Lamps Inc. It argues
that the name Standard Philips Corporation while using
the term “Philips”, it argues that there are two other
words that are not the same as that of the complainants;
That it is using the words “Standard” and “Corporation”;
and according to them that identifies their corporation;
that it is not confusingly similar with that of the
complainants’.
Now, Complainants counter-argued. They are saying
now that it was very clear that the Respondent Standard
Phillips Corporation was trying to ride on the popularity
of Phillips and riding on the goodwill that the name
Phillips has acquired after several years.
What did the Supreme Court have to say about this?
The Supreme Court said that Standard Phillips
corporations should stop using the term Phillips, that the
term Phillips in fact has already been trademarked by
those three Complainants and that they have the
exclusive right to use it.
Now, what does that tell us then?
We go back to the rule that when you designate a
corporate name for your corporation, you must make
sure that it is distinguishable and that it is not
confusingly similar with that of another corporation.
This is to protect the rights of those corporations already
using it and at the same time, it will protect the public so
that they will not be misled as to whose corporation this
is. Is this corporation the same as that of another
corporation? This leads us to what we call the test of
infringement.
TEST OF INFRINGEMENT
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What is the test of infringement? In other words, what do
we look into to determine whether one corporation has
already violated the rights of another corporation with
respect to the name or the trademark of the corporation?
The test is whether the similarities between the
corporate name that you have chosen and another
corporation’s existing name would lead another person
to believe that you are one and the same.
Differently stated, the test is whether the similarity will
mislead a person who is using ordinary care in
determination into believing that your corporation is
the same as that of another corporation, or at least
related with or has connections with that other
corporation.
Now let's look into the next paragraph of Section 17. It
says:
“A name is not distinguishable even if it contains one or
more of the following:
(a) the word “Corporation”, “Company”, “Limited”,
“limited liability” or an abbreviation of one such words;
and
(b) punctuations, articles, conjunctions, contractions,
prepositions, abbreviations, different tenses, spacing, or
number of the same word or phrase.”
In fact, very important that you recall the earlier case
that I have discussed. There may have been two more
different words in the subsequent corporation, the
Standard Phillips Corporation, but still the Supreme
Court said it is not distinguishable. It could still mislead
other people to believe that Standard Phillips
Corporation might be selling the same products as that
of the three Complainants’ products. It could still mislead
the public into believing that they may be one at the
same and have the same products that they are selling.
So it's very important that you take very careful
consideration in designating a name for your
corporation.
1. That it should not be misleading the public
2. that you must be identified as a corporation
that is not the same as that of any other
corporation who may have had the same
business as you do.
Because again, we said that your corporate
name is very important to identify you as a
corporation.
So what happens if you designate a corporate name that
is not distinguishable from another existing corporation?
What will the Securities and Exchange Commission do?
Section 17 of your Revised Corporation will also answer
that question. Let's look into that particular paragraph. It
says:
“The Commission upon determination 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 regulations, 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 also 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.”
So your Securities and Exchange Commission will ask you
to stop using the corporate name and will ask you to
change it. And once you have changed it, then your
Securities and Exchange Commission of course did not
comply with all the other requirements, then it can issue
you your certificate of incorporation. However, it is
based now on your amended name.
So the good thing about it is, for example, you
unknowingly designate a corporate name that is similar
with an existing corporate name, at least you are given a
chance to correct it, you're given a chance to designate
another corporate name. Your Securities and Exchange
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Commission will not outrightly disapprove your
application for registration.
Question: Now what if, there is a corporation who has
designated a corporate name that is similar to another
existing operation’s name, but inadvertently the
Securities and Exchange Commission failed to look into it
and inadvertently give out a Certificate of Incorporation
and now we have two corporations having the same
corporate name or having confusingly similar name.
What is the remedy of the corporation who has adopted
such a corporate name prior to this new corporation?
Answer: The remedy of such Corporation is to file an
Action for Injunction for the new corporation to stop
using the name.
This is the same remedy as when there is trademark
infringement, you know, as of course through the courts,
for this new corporation adopting a similar name without
an earlier corporation to stop using that corporate name.
And of course, there is another remedy where your
Securities and Exchange Commission will de-register the
corporation now adopting a similar or a non-
distinguishable from the older Corporation.
Now, can you still change your corporate name granting
it is actually distinguishable from all the other
corporations’ names? You just want to change the
corporate name, can you still do so?
The answer is YES, by amending the articles of
incorporation.
XIV. REGISTRATION, INCORPORATION AND
COMMENCEMENT OF CORPORATE EXISTENCE
(SECTION 18)
Section 18. Registration, Incorporation and
Commencement of Corporation 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 regulation, 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
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.
MBL CLASSROOM
For this video I want us to talk about the registration, the
incorporation and the commencement of the juridical
personality of the corporation.
In sum, we are going to talk about section 18 of the Revised
Corporation Code.
Let's read the first paragraph of section 18:
It states “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 regulation, the name shall be
reserved in favor of the incorporators. The incorporators shall
then submit their articles of incorporation and bylaws to the
Commission.”
What does the first paragraph tell you?
The first paragraph tells you that the first thing that you have
to do then would be to submit a name to the Securities and
Exchange Commission, so that the SEC can verify if your name
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is distinguishable from all the other corporations, that your
name is not confusingly similar, that your name is not contrary
to law, that your name is not contrary to existing rules and
regulations.
So once it's verified that it is distinguishable, what is
distinguishable? I have discussed that in another video. So
once the SEC verifies that no other corporation is using the
name that you are putting forward to the Securities and
Exchange Commission for your corporation, you will now then
submit your Articles of Incorporation and your by-laws.
So again:
1. Submit your name for verification.
2. Submit your Articles of Incorporation and the by-laws
to the Securities and Exchange Commission.
So once you have submitted all the documentary requirements
to the Securities and Exchange Commission, what will come
next?
What will come next would be the second paragraph of section
18.
Let's read section 18:
“ 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.”
IOW, once you have submitted all the documents required by
the revised Corporation code and by special laws for certain
corporate corporations, then all you have to do now is to wait.
Again, wait for what? Wait for the Securities and Exchange
Commission to go over all this documents to determine
whether you have substantially complied with all the
requirements provided for under the Revised Corporation
Code and other special laws.
Again, for certain corporate corporations, like your banks,
wherein you have to submit a favorable recommendation from
the appropriate government agency which would be your
Bangko Sentral ng Pilipinas.
So of course the SEC would have to go over it, and so all you
now have to do is wait. Now, once your Securities and
Exchange Commission is done going over all the documentary
requirements and if they find that you have substantially
complied with all the legal documentary requirements, then
the SEC will issue you your Certificate of Incorporation.
So what happens now if you will now get the certificate of
incorporation? The answer to that question is the third
paragraph of Sec. 18:
“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 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.”
In short, once the certificate of incorporation is issued, the
Corporation comes into being. Meaning a corporation is now
being given birth to. It now exists. There is now a separate
juridical personality of your corporation. That is the time that
the members composing the corporation or the stockholders
composing the corporation will now act as a body corporate
exercising the powers granted by the Revised Corporation
Code to a corporation.
Simply stated, the date you find in the certificate of
incorporation, where SEC is said to have issued this certificate
of incorporation, that is actually the birthday of your
corporation. Because as we said, that is when the corporation
comes into being. That is when the corporation becomes a
juridical personality that is separate and distinct from the
members or the stockholders composing it.
Question: How about those unregistered corporations or
those being formed by individuals acting as if they are a
corporation, but they did not actually go through the process
of registering it with the SEC? They did not apply before the
Securities and Exchange Commission, and therefore there was
no certificate of incorporation ever issued to them. Can they
exercise corporate powers just because they have formed
themselves as a corporation and agreed to form a corporation?
Answer: NO. They cannot exercise corporate powers.
What will they be considered as?
They will just be considered as a simple association and not a
corporation under your Revised Corporation Code.
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1. COMMENCEMENT OF CORPORATE
EXISTENCE
A corporation commences to have juridical
personality and legal existence only from the
moment the SEC issues to the incorporators a
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.
An entity without the necessary corporate legal
personality has the status of an “unregistered”
association and the members themselves shall be
held personally liable for their acts or contracts, and
not the association.
The issuance of the certificate calls the corporation
into being but it is not really ready to do business
until it is organized. The corporation must formally
organize and commence the transaction of its
business or the construction of its works within 2
years from the date of its incorporation or,
otherwise, its corporate powers shall cease and it
shall be deemed dissolved.
XV. DE FACTO CORPORATIONS (SECTION 19)
Section 19. De facto Corporations. - The due
incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be
required into collaterally in any private suit to which
such corporation may be a party. Such inquiry may
be made by the Solicitor General in a quo
warranto proceeding.
1. DE FACTO CORPORATIONS, DEFINED
It is one which actually exists for all practical
purposes as a corporation but which has no legal
right to corporate existence as against the State. It
is one which has not complied with all the
requirements necessary to be a de jure corporation
but has complied sufficiently to be accorded
corporate status as against third parties although
not against the State.
2. VS. DE JURE CORPORATIONS
a. De jure corporation
· It is created in strict or substantial
conformity with the mandatory statutory
requirements for incorporation.
· The right of which to exist as a
corporation cannot be successfully attacked
or questioned by any party even in a direct
proceeding for that purpose by the State.
b. De facto corporation
· Is one which actually exists for all
practical purposes as a corporation but
which has no legal right to corporate
existence as against the State.
· It is a corporation from the fact of its
acting as such, though not in law or right a
corporation.
· It is one which has not complied with
all the requirements necessary to be de jure
corporation but has complied sufficiently to
be accorded corporate status as against
third parties although not against the State.
IOW:
DE JURE CORPORATION: If it is a de jure
corporation, their existence cannot be attacked at
all whether it is a collateral or a direct attack. Their
existence can be upheld. Everything is in order and
there are no issues with their existence.
DE FACTO CORPORATION: If they are a de facto
corporation, meaning there is a law, they attempted
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in good faith to incorporate meaning they were
actually issued a certificate of incorporation, they
assumed corporate powers but later on it was
discovered that there was a problem in their
existence because apparently, they are not allowed
by law to incorporate, something like that. But they
already incorporated, and they were approved so
that it became a de facto corporation.
3. REQUISITES OF A DE FACTO CORPORATION
It is essential to the existence of a de facto
corporation that there be:
1. A valid law under which a corporation with
powers assumed might be incorporated;
2. A bona fide attempt to organize a
corporation under such law; and
3. Actual user or exercise in good faith of
corporate powers conferred upon it by law.
Note: Stockholders of a de facto corporation enjoy
exemption from personal liability for corporate
obligations as do stockholders of de jure
corporations.
4. DEFECTS PRECLUDING CREATION OF A DE
FACTO CORPORATION
The following are examples of defects which will
preclude the creation of even a de facto corporation:
1. Absence of articles of incorporation;
2. Failure to file articles of incorporation with
the Securities and Exchange Commission;
and
3. Lack of certificate of incorporation from the
Securities and Exchange Commission.
In all above cases, the omissions would be fatal to
de facto corporate existence for even its
stockholders may not probably claim good faith in
being a corporation. The filing of articles of
incorporation and the issuance of certificate of
incorporation may, therefore, be considered
essential for the existence of a de facto corporation.
5. DEFECTS RESULTING IN CREATION OF A DE
FACTO CORPORATION
The following are examples of defects which do not
preclude the creation of a de facto corporation.
1. The articles of incorporation fails to state
all the matters required by the Code to
be stated, or state some of them
incorrectly;
2. The name of corporation closely
resembles that of a pre-existing
corporation that it will tend to deceive the
public;
3. The incorporators or a certain number of
them are not residents of the Philippines;
4. The acknowledgment of the articles of
incorporation or certificate of
incorporation is insufficient or defective
in form, or it was acknowledged before
the wrong officer;
5. The percentage of Filipino ownership of
the capital stock required for the business
is less than that prescribed by law;
6. The minimum paid-up capital stock has
not been paid to and received by the
corporate treasurer contrary to his
affidavit; and
7. The failure to submit its by-laws on
time.
The above may be considered as inadvertent or
minor defects or errors which can be excused to
prevent injustice.
6. QUESTIONING VALIDITY OF CORPORATE
EXISTENCE
The well-settled rule is that assuming that a de
facto corporation actually exists, its existence as a
corporation cannot be collaterally attacked by
either the State or by private individuals.
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(1) The State must bring a direct proceeding incorporate, remains silent, an individual would not
(quo warranto) against the corporation to be allowed and permitted to raise the inquiry.
oust it from the exercise of corporate
powers usurped by it and to have it (b) It would produce endless confusion and
dissolved. So far as the State is concerned, hardship and probably destroy the corporation if the
the distinction between a corporation de
legality of its existence could be questioned in every
jure and a corporation de facto is that one
suit to which it is a party, for then no judgment could
can successfully resist a suit by the State,
brought directly to test the rightfulness of be rendered which would finally settle the question.
its existence, and the other cannot.
(2) As to individuals dealing with it as a
(c) Likewise, the rule is in the interest of the public
corporation, there is no essential and is essential to the validity of business
distinction. The stockholders or members transactions with corporations.
of both are alike protected from individual
liability for debts except to the extent 7. POWERS AND LIABILITIES OF A DE FACTO
provided by the charter or act of CORPORATION
incorporation.
In general. — Such a corporation is practically as
good as a de jure corporation. It is deemed to have
A. DIRECT ATTACK VS. COLLATERAL ATTACK
a substantial legal existence and ordinarily, in its
DIRECT ATTACK COLLATERAL relation with all persons except the State, has the
ATTACK same powers and is subject to the same liabilities,
Is one whereby the Is one whereby duties and responsibilities, as a corporation de jure,
State, in a proceeding corporate existence is and is bound by all such acts as it might rightfully
brought for that questioned in some perform if it were a corporation de jure.
purpose, attacks the incidental proceedings
existence of an not provided by law for In other words, so long as the State acquiesces in
association claiming to the express purpose of its existence and its exercise of corporate functions,
be a corporation. attacking the corporate it is under the protection of the same law and
existence. governed by the same legal principles as de jure
A direct attack can only corporations, and may legally do and perform every
be instituted by the act and thing which the same entity could do or
government through the perform were it a de jure corporation. As to all the
Solicitor General by quo world except the paramount authority under which
warranto proceedings.
it acts and from which it receives its charter, it
occupies the same position as though in all respects
B. RATIONALE AGAINST COLLATERAL ATTACK
valid, and even as against the State, except in direct
The general rule against collateral attack upon proceedings to arrest its usurpation of power, its
acts are to be treated as efficacious.
corporate existence is based upon the ground, not
of equitable estoppel but of public policy. Liability to taxation. — So, the property of a de
facto corporation is subject to taxation in the same
(a) Individual right is not invaded; it is the State's manner as though it were a de jure corporation and
right and authority which are invaded and usurped. under the statutes relative to the taxation of
If the State, which alone grants the authority to corporations of the latter class.

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Binding effect of contracts. — Similarly, a transfer
of propErty to or by a corporation de facto is valid
and binding against all persons except the State;
bonds, deeds, and mortgage executed by such a
corporation are valid, not only as against the
corporation itself, but also as against anyone
making a claim against its assets, whether as a
creditor directly of the corporation or as a creditor of
its creditors or stockholders.
Protection against unauthorized acts. — Whether
a corporation is de facto or de jure, it is entitled to
protect itself from unauthorized acts.
8. LIABILITIES OF OFFICERS AND MEMBERS OF
A DE FACTO CORPORATION
In general. — The officers and directors (or
trustees) of a de facto corporation are subject to all
the liabilities and penalties attending to officers
and directors duly chosen by a corporation de jure,
including liability under the criminal law, and their
acts are binding when such acts would be within
the power of such officers if the corporation were
one de jure.
Liability as partners to third persons.— The
members of a de facto corporation cannot be held
liable as partners by third persons who deal with
them in their supposed corporate capacity, merely
on account of a technical defect in the formation of
the corporation. This is especially true where the
stockholders had no knowledge of the defects and
had no intent to become partners and the ostensible
corporation is apparent to third persons. On the
other hand, where an attempt to organize a
corporation fails by omission of some substantial
step or proceeding required by the law, its members
or stockholders are liable as partners.
The decisive question is always whether what has
been done toward incorporation and organization is
sufficient to constitute a corporation de jure or de
facto.
Liability among themselves. — In actions among
the members themselves, however, for advances,
commissions, etc., the test of whether the
corporation is de jure or de facto has been
disregarded. When persons associate together and
do business as a corporation and the latter is
defectively organized, their rights, duties, and
liabilities, as between themselves, should be
determined and governed by the express or implied
terms, conditions, and limitations contemplated by
their agreement. They are not partners unless they
have agreed to be such. The result thus obtained is
the same as that reached on the theory of estoppel.
XVI. CORPORA TION BY ESTOPPEL (SECTION
20)
Section 20. Corporation by Estoppel. - All persons
who assume to act as a corporation knowing it to
be without the authority to do so shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as a result
thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction
entered by its as a corporation or on any tort
committed by it as such, it shall not be allowed to
use on any its lack of corporate personality as a
defense. Anyone who assumes an obligation to an
ostensible corporation as such cannot resist
performance thereof on the ground that there was
in fact no corporation.
Corporation by estoppel, defined
A group of persons who assume to act as a corporation
knowing it to be without authority to do so, who shall be
liable as general partners for debts, liabilities and
damages incurred or arising as a result thereof.
Requirements of a Corporation by Estoppel
1. Representation by a group to the public
2. Knowing that they do not have the authority to
act as a corporation; and
3. Third parties contracting with them are induced
to believe that they have the authority to act as a
corporation.
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Estoppel to Deny Corporate Existence
An incorporated association which represented itself to
be a corporation will be estopped from denying its
corporate capacity in a suit against it by a third person
who relied in good faith on such representation.
It cannot allege lack of personality to be sued to evade
its responsibility for a contract it entered into and by
virtue of which it received advantages and benefits. (Lim
Tong Lim v. Philippine Fishing Gear Industries, Inc. 317
SCRA 728 [1999])
1. LIM TONG LIM VS. PHILIPPINE FISHING
GEAR INDUSTRIES, INC. (G.R. NO. 136448,
NOVEMBER 3, 1999)
Doctrine: Under the law on estoppel, those acting on
behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable
as general partners.
Facts:
On February 7, 1990, Antonio Chua and Peter Yao
entered into a contract with respondent Philippine
Fishing Gear Industries, Inc. for the purchase of fishing
nets and floats on behalf of “Ocean Quest Fishing
Corporation”. According to them, they are in a business
endeavor with Petitioner Lim Tong Lim, However, Lim
was not a signatory to the agreement. Total price
amounted to nets worth P532 045 and floats worth P68
000. They were not successful in paying for the items,
which resulted in the respondent filing for a collection
suit between the three co-partners.
The suit was brought against the three in their capacities
as general partners, on the allegation that Ocean Quest
Fishing Corporation was a nonexistent corporation as
shown by a Certification from the Securities and
Exchange Commission.
On November 18, 1992, the trial court rendered its
Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua,
Yao and Lim, as general partners, were jointly liable to
pay respondent.
The trial court ruled that a partnership among Lim, Chua
and Yao existed.
The CA affirmed the trial court’s decision.
Contention of the Petitioner: Lim Tong Lim argued that
he should not be held liable for the equipment purchased
from the respondent. He opposes the CA’s claim of there
being a partnership between him, Yao and Chua, he
further asserts that the CA based its finding on the
Compromise Agreement alone. Moreover, he denies any
direct participation in the purchase of the nets, alleging
that he has no connection between the purchases of the
nets, as he was not present in the negotiations with the
respondent, and that he did not give his consent nor has
any knowledge that the two represented themselves as
a corporation. He further argues that he was just a mere
lessor and not a partner of Chua and Yao for the Contract
of Lease showed that he had merely leased the main
asset of the purported partnership -- the fishing boat F/B
Lourdes.
Issue:
WoN in a corporation by Estoppel liability can be
imputed only to Chua and Yao, and not to Lim Tong Lim.
Ruling:
Sec. 21 of the RCC of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons
who assume to act as a corporation knowing it to
be without authority to do so shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as a result thereof.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof
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on the ground that there was in fact no corporation. Thus,
even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from
denying its corporate existence.
There is no dispute that the respondent, Philippine
Fishing Gear Industries, is entitled to be paid for the nets
it sold. The only question here is whether the petitioner
should be held jointly liable with Chua and Yao.
Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation
should be held liable. Since his name does not appear on
any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he
cannot be held liable.
It is difficult to disagree with the RTC and the CA that
Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities
of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on
behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable
as general partners.
Technically, it is true that the petitioner did not directly
act on behalf of the corporation. However, having reaped
the benefits of the contract entered into by persons with
whom he previously had an existing relationship, he is
deemed to be part of said association and is covered by
the scope of the doctrine of corporation by estoppel.
2. REASON BEHIND THE DOCTRINE
The reason behind this doctrine is obvious — an
unincorporated association has no personality and
would be incompetent to act and appropriate for
itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those
who act or purport to act as its representatives or
agents do so without authority and at their own risk.
And as it is an elementary principle of law that a
person who acts as an agent without authority or
without a principal is himself regarded as the
principal, possessed of all the right and subject to
all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and
obligations and becomes personally liable for
contracts entered into or for other acts performed
as such agent. (Lim Tong Lim vs Philippine Fishing
Gear Industries, Inc., G.R. No. 136448)
XVII. EFFECT OF NON-USE OF CORPORATE
CHARTER AND CONTINUOUS INOPERATION
(SECTION 21)
Section 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) year 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 commence 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 prescribed.
Upon the 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.
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Then we have Sec. 21 of the RCC, so there are 2
things that you need to watch out for under Sec. 21.
The first one is failure to operate which is different
from failure to continue operation.
Both are covered under Sec. 21. So what's the
difference? In failure to operate, the moment the
SEC issues the certificate of incorporation, the
corporation really fails to organize. So it fails to
commence its business within 5 years within the
date of incorporation.
It did not elect new directors, it did not elect new
officers, it did not start exercising corporate powers.
If that goes on for 5 years then the certificate of
incorporation will be deemed revoked on the day
following the end of the 5-year period.
(2) Non-compliance with a condition subsequent
which is mandatory may not affect corporate
existence although it can be a ground for
proceedings by the State to forfeit its charter. An
example is the keeping of books and records
required by Section 73.
2. EFFECT OF NON-USE OF CORPORATE
CHARTER
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, in the same section, if the corporation, However, if a corporation has commenced its business
after the issuance of the certificate of incorporation, but subsequently becomes inoperative for a period of
organized and elected new officers, new directors, at least five (5) consecutive years, the Commission
and transact business - meaning it really started may, after due notice and hearing, place the
operating but then subsequently it became
corporation under delinquent status.
inoperative for five years.
Note: A delinquent corporation shall have a period of
1. CONDITIONS SUBSEQUENT TO BE two (2) years to resume operations and comply with
COMPLIED AFTER ACQUIRING CORPORATE
all requirements that the Commission shall prescribe.
EXISTENCE
Upon compliance by the corporation, the Commission
shall issue an order lifting the delinquent status.
(1) Under Section 21, the two required acts of
organization and commencement of its business Failure to comply with the requirements and resume
operations are conditions subsequent, failure to operations within the period given by the Commission
comply with which, it has been held, will result in shall cause the revocation of the corporation’s
the automatic cessation of corporate powers and certificate of incorporation.
the dissolution of the corporation. Such a
corporation is not even a de facto corporation and,
therefore, its legal existence may be collaterally
attacked. Any attempted organization and
commencement of business after the expiration of
the period fixed will not give it even a defacto
existence. The corporation may be treated as a
corporation by estoppel for the protection of those
with whom it contracted.

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