HOW TO INCORPORATE:

ARTICLES OF INCORPORATION AND BY-LAWS

DOCUMENTS THAT SHOULD BE FILED WITH THE SEC FOR THE PURPOSE
OF SECURING A CERTIFICATE OF INCORPORATION OF A STOCK
CORPORATION:

1. Reservation of the corporate name (Sec. 18)

2. Cover sheet

3. AOl and BL. (Sec. 13-14; 45)

4. Certificate of authority or favorable recommendation from proper government agency.

Distinguishable test:
No corporate name shall be allowed by the SEC if:
● It is not DISTINGUISHABLE from that already reserved or registered for the use of
another corporation;
● It is already protected by law; or
● Its use is contrary to existing law, rules and regulations (Sec. 17)

Requisites of Distinguishable Test:

1. the complainant corporation acquired prior right over the use of such corporate name;
and
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.

Priority of Adoption Rule:

The first to adopt the name has better rights.

The corporate name is not distinguishable even if it contains one or more of the
following:
1. The word "corporation," "company" "incorporated." "limited." "limited liability," or
any abbreviation of such words; and

2. Punctuations, articles, conjunctions, contradictions, prepositions, abbreviations,

different tenses, spacing. or number of the same word or phrase.

Other PROHIBITED names

● The name or the nature of business itself is illegal, offensive, scandalous, or contrary
to propriety;
 ● Names which are identical or resemble a BN already registered
● Name composed of purely generic or geographical words
● Names which by law or regulation cannot be appropriated
● Names, words, or terms or expressions used to designate or distinguish or suggestive
of quality of any class of goods, articles, merchandise or service;
● Names or abbreviation of names used by the government
● Names or abbreviation of names of any nation, intergovernmental or international
organization
● Names which are deceptive, misleading

NOTE: There must be a separate registration of a BN for a branch or satellite office.

SEC Guidelines on the Use of Corporate or Partnership Names

● Corporate names should contain the word "Corporation" or "Incorporated" or its
abbreviation "Corp." or "Inc.";

● Partnership names should contain the word "Company" except a partnership

organized to practice a profession. A limited partnership should add the word
"limited".

● If the name or surname of a person is used as part of a corporate name, the

incorporators must have a basis for such name or surname.

● If the corporate name contains initials, an explanation must accompany the articles
stating the meaning of the same and the relevance or reason for the use thereof.

● The use of words, "State" and "Barangay" are prohibited since the same are reserved
for the exclusive use of the government.

● The word "National" cannot be used as part of the corporate or partnership name.

Power of SEC:
If a name cannot be used by a corporation, the SEC can:
1. Reject the AOI

2. Summarily order the corporation to cease and desist from using such name;

3. Summarily order the corporation to register a new name and amend its AOI bearing
the new name;

4. Cause the removal of all visible signages, marks, advertisements, labels, prints and
other effects bearing such corporate name (Sec. 17)
Section 13 - Contents of the AOI
All corporations shall file with the SEC AOI 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 non-stock
corporation may not include a purpose which would change or contradict its nature as such;
c) The place where the principal office of the corporation is to be located, which must be
within the Philippines;
d) The term for which the corporation is to exist, if the corporation has not elected perpetual
existence;
e) The names, nationalities, and residence addresses of the incorporators;
f) The number of directors, which shall not be more than 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 AOl pursuant to Sec. 181 of the RCCP.

The AOI 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.

DOMICILE OF A CORPORATION
Importance/significance of the principal place of business stated in the AOI?

It may determine the venue of court cases involving the corporations.

NATIONALITY OF THE CORPORATION

TESTS
1. Incorporation test
2. Domicile test
3. Control test
4. Grandfather rule

Grandfather Rule
Traces the nationality of the SH of investor corporations so as to ascertain the nationality of
the corporation where the investment is made.

When do we apply GF Rule?

Applicable only when the 60-40 Filipino-foreign equity is in doubt.
Eg:
Narra Nickel Mining is more than 60% owned by MBMI, a 100% Canadian Corporation.
Narra is not a Filipino.

For corporations in activity reserved for Filipinos

"No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less
than the required percentage of capital stock as provided by existing laws shall be allowed or
permitted to be recorded in the proper books of the corporation, and this restriction shall be
indicated in all stock certificates issued by the corporation."
CORPORATE TERM
Maximum term of a corporation:
A corporation shall have perpetual existence unless its AOI provides otherwise (Secs. 11,
13[d] and 14)

Corporations incorporated before RCCP and which continues to exist

shall have perpetual existence, unless upon a vote of its stockholders representing a majority
of its capital stock, notifies the SEC that it elects to retain its
corporate term

May the corporate term for a specific period be extended or shortened?

YES, by amending the AOI.

Requirements:
1. Approval of majority vote of BOD/T
2. Ratification at a meeting by SH/M representing at least 2/3 of the OCS or its members
3. No extension may be made earlier than 3 years prior to the original or subsequent
expiry date unless there are justifiable reasons for an earlier extension as may be
determined by the Commission.
4. Such extension of the corporate term shall take effect only on the day following the
original or subsequent expiry date
5. In case of extension, a dissenting SH may exercise the right of appraisal

No extension can be made after the expiration of the term.

1. Remedy: Revival. (Sec. 11)

2. Certificate of Revival of Corporate Existence

3. Additional requirement for Revival financial intermediaries: favorable

recommendation of the appropriate government agency.

For stock corporations

NO: MINIMUM CAPITAL, SUBSCRIBED AND PAID-UP. (Sec. 12,13)

Definitions
● Authorized Capital Stock - the amount fixed in the AOI to be subscribed and paid
by the stockholders of the corporation.(SEC Opinion, August 11, 1997)

● Subscribed Capital - that portion of the authorized capital stock that is covered by
subscription agreements whether fully paid or not.
 ● Paid-up capital - the portion of the authorized capital stock that has been subscribed
and actually paid (MSCI-NACUSIP Local Chapter vs. National Wage and
Productivity Commission, 260 SCRA 173 (1997))

● Outstanding Capital Stock - the total shares of stock issued to subscribers or

stockholders, under binding subscription contracts, whether fully or partially paid
except treasury shares so long as there is a binding subscription agreement (Sec. 173)

● Capital -properties and assets of the corporation that are used for its business or
operation.

SUBSCRIPTION CONTRACT (Sec 59)

● A contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription.
- Creates a debtor-creditor relationship between the corporation and the subscriber.

When to pay subscription?

● The balance of the subscription made upon incorporation shall be payable on a date/s
fixed in the contract of subscription without need of call, or in the absence of a fixed
date/s, upon call by the BOD.
- Non-resident foreign subscribers upon incorporation must pay in full their
subscriptions unless their unpaid subscriptions are guaranteed by a surety bond or by
an assumption by a resident stockholder through an affidavit of liability for the unpaid
subscription.

AMENDMENT OF AOI
Procedure (Sec. 15) - Amendment requires the majority vote of directors or trustees, and the
vote or written assent of the stockholders representing at least 2/3 of outstanding capital stock
or 2/3 of members of non-stock corporations. This includes extension and shortening of
corporate terms.

When do these amendments take effect?

1. Upon approval by the SEC or

2. From the date of filing with the SEC if not acted upon within 6 months from the date
of filing for a cause not attributable to the corporation.

Grounds for disapproval of AOI or its amendments

(Sec. 16)

● AOI is not substantially in accordance with the form prescribed herein;

 ● The purpose/s of the corporation are patently unconstitutional, illegal, immoral or
contrary to government rules and regulations;

● The certification concerning the amount of capital stock subscribed and/or paid is
false; and

● The required percentage of Filipino ownership of the capital stock under existing laws
or the Constitution has not been complied with.

> Additional requirement for financial intermediaries:

favorable recommendation of the appropriate government agency to the effect that such AOI
or amendments are in accordance with law.

BYLAWS
BY-LAWS - relatively permanent and continuing rules of action adopted by the corporation
for its own government and that of the individual composing it and those having the
direction, management and control of its affairs, in whole or in part, in the management and
control of its affairs and activities (China Banking Corporation vs. CA, 270 SCRA 503
[1997])

● Bylaws merely operate as internal rules among stockholders and therefore, they
cannot affect or prejudice third persons who deal with the corporation unless they
have knowledge of the same.

Adoption of Bylaws (Sec. 45)

● Affirmative vote of the SH representing at least a majority of the OCS, or of at least a
majority of the members of the members in case of nonstock corporations, shall be
necessary.

❖ Signed by the approving SH and kept in the principal office of the corporation,
subject to the inspection of the SH/members during office hours.

❖ Copy duly certified by majority of the D/T and countersigned by secretary shall be
filed with the SEC and attached to the original AOI.

Can bylaws be adopted before incorporation?

Yes. They can be adopted and filed before incorporation.
- Approved and signed by all incorporators and submitted to the SEC with the AOI.

When do they take effect?

Only upon issuance by the SEC of a certification that the bylaws are in accordance with the
RCCP.
 ● Additional requirement for financial intermediaries: Certificate of the appropriate
government agency to the effect that such bylaws or amendments are in accordance
with law.

Contents of the Bylaws:

(a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees;
(b) The time and manner of calling and conducting regular or special meetings and mode of
notifying the stockholders or members thereof;
(c) The required quorum in meetings of stockholders or members and the manner of voting
therein;
(d) The modes by which a stockholder, member, director or trustees may attend meetings and
cast their votes;
(e) The form for proxies of stockholders and members and the manner of voting them;
(f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for
setting the compensation of directors or trustees and officers, and the maximum number of
other board representations that an independent director or trustee may have which shall,
in no case, be more than the number prescribed by the Commission;
(g) The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
(h)The manner of election or appointment and the term of officers other than directors or
trustees;
(i) The penalties for violation of the bylaws;
() In the case of stock corporations, the manner of issuing stock certificates; and
(k) Such other matters as may be necessary for the proper or convenient transaction of its
corporate affairs for the promotion of good governance and anti-graft and corruption
measures.

An arbitration agreement maybe provided in the bylaws pursuant to Section 181 of this
Code.

Amendment to bylaws
Majority of the BOD/T, and the owners of at least a majority of the OCS, or at least a
majority of the members of a nonstock corporation, at a regular or special meeting duly called
for the purpose, may AMEND OR REPEAL the bylaws or
ADOPT NEW bylaws.

Can this power be left alone to the BOD/T?

Yes. The owners of 2/3 of the OCS or 2/3 of the members in a nonstock corporation may
delegate the power to the BOD/T

Once delegated, can this power still be retrieved by the SH?

Yes. This power may be revoked whenever SH owning or representing a majority of the OCS
or majority of the members shall so vote at a regular or special meeting.

The amendments or the new bylaws and, if applicable, the SH or members' resolution
authorizing the delegation of the power to amend and/or adopt new by laws, duly certified
under oath by the corporate secretary and a majority of the directors or trustees shall be filed
with SEC.

When do amendment/s or new bylaws take effect?

Only upon issuance by the SEC of a certification that they are in accordance with the RCCP.

Sec. 18
● If the SEC finds that the submitted documents and information are fully compliant
with the requirements of this Cde, other relevant laws, rules and regulations, the SEC
shall issue the
CERTIFICATE OF INCORPORATION.

A private corporation organized under this Code commences its corporate existence and
juridical personality from the date the SEC 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 AOI for the period of time
mentioned therein, unless said period is extended or the corporation is sooner dissolved in
accordance with
law.

What if the SH/members did not constitute a body corporate? (Sec. 21)
The certificate of incorporation shall be deemed revoked if a corporation does not formally
organize and commence its business within 5 years from the date of incorporation.
- Deemed revoked as of the day following the end of the 5 year period

To formally organize
● Hold a meeting to the SH within 1 month from notice of the issuance of the certificate
of incorporation, to adopts its bylaws and elect the members of the BOD/T; and

● Hold a meeting of the BOD/T to elect the officers of the corporation.

What if the corporation commenced its business but subsequently becomes inoperative?
(Sec. 21)
If the corporation has commenced its business but subsequently becomes inoperative for a
period of at least 5 consecutive years, the Commission may, after due notice and hearing,
place the corporation under
DELINQUENT STATUS.
What will happen if the corporation is placed under delinquent status? (Sec. 21)
● A delinquent corporation shall have a 2-year period to resume operations and comply
with all the requirements of the SEC.

● Upon compliance by the corporation, the SEC shall issue an order lifting the
delinquent status.

● Failure to comply and resume operations shall cause the revocation of the
corporation's certificate of incorporation.

The SEC shall give reasonable notice to, and coordinate with the appropriate regulatory
agency before the suspension or revocation of the certificate of incorporation of companies
under their special regulatory jurisdiction.

REITERATE:
NON-USE OF CORPORATE CHARTER:
Organization, commencement of business and continued operation are conditions subsequent
imposed on corporations.

CANCELLATION/SUSPENSION OF SEC OF CERTIFICATE OF REGISTRATION

(Sec. 6[L], PD No. 902-A:
1. Fraud in procuring registration (Sec. 164);

2. Serious misrepresentation as to objectives of corporation;

3. Refusal to comply with lawful order of SEC including the order to:
i. Cease and desist from using the corporate name (Sec. 17)
ii. Cause the removal of all visible signages, marks, advertisements, labels, prints and other
effects bearing such corporate name (Sec. 17);

● Failure to commence its business within five (5) years from the date of incorporation
(Sec. 21)

● Failure to resume operation and comply with requirements within two (2) years from
the time the corporation is placed under delinquent status for continued non-operation
(Sec. 21)
6. Failure to file by laws within required period;

7. Failure to file reports;

8. Refusal or obstruction without justifiable cause the exercise of the SEC's visitorial powers
(Sec. 178); and
9. Other similar grounds.