Incorporation and

Organization of
Private
Corporation

Christopher de Guzman, CPA, CAT

(Soon to be a CPA Lawyer)
 Sec. 10 – Number and Qualification
of Incorporators
– Corporation may be organized by:
– Any person (for natural person, must be of legal age and
capacitated);
– One (1) to fifteen (15) persons (be a BOD);
– For lawful and legal purposes;
– Except to practice profession unless provided by special laws;
– Each incorporator must own at least one share of stock.
Sec. 11 – Corporate term

– It has perpetual term unless otherwise provided in the articles of

incorporation;

– Extending or shortening corporate term

– amend the articles of incorporation;
– No extension earlier than 3 years prior to its expiry date of term
unless with justifiable reason;
 Sec. 11 – Corporate term

– Revival of corporate existence for expired term

– Subject to approval of the Commission.
– Not allowed to corporation engaged in money business
and other financial intermediaries unless with
recommendation from appropriate government
agency.
– Change in corporate term, with right of appraisal.
 Sec. 12 – Minimum Capital Stock
(not required)
– No minimum capital stock except specifically provided by special law.
– Authorized capital stock
– Minimum amount of capital from all the issuance of it shares.
– Subscribed capital stock
– Committed amount of capital from subscribers;
– Paid up capital (paid portion) and subscription receivable (unpaid);
– Trust fund doctrine
 Sec. 12 – Minimum Capital Stock

– Subscribed capital stock

– Pre – incorporation subscription is irrevocable except
– All other subscribers consent to the revocation; or
– Fails to incorporate within six month from the date of
subscription or within a period stipulated in the contract of
subscription, whichever is longer.
– No revocation after the articles of incorporation is submitted to
the SEC.
 Sec. 12 – Minimum Capital Stock

– Paid up capital
– Paid portion of the capital subscribed
– APIC
– Received or paid in excess of the par;
– Donation
– Gains from other share capital transactions.
– Status of paid up; part of the trust fund, not available unless for
restructuring;
 Sec. 13 – Contents of Articles of
Incorporation
– Articles of incorporation serves as a contract;

– May stipulate terms and conditions subject to minimum requirement of the

Code; consistent with the objective of the law;

– Minimum contents:
– Corporate name
– “OPC” must written after or below the corporate name.
– Trade name (may be more than one)
 Sec. 13 – Contents of Articles of
Incorporation
– Purpose/s (primary and secondary)
– May adopt as many secondary purposes except if the business
activities in the primary and secondary are prohibited.
– Proposed action in relation to secondary purposes requires
approval of the shareholders or members.
– For non – stock, it cannot include secondary purpose that would
change its character.
 Sec. 13 – Contents of Articles of
Incorporation
– Place of principal office
– Basic records are kept; stockholder’s meeting is held;
– Local tax purposes;
– Insolvency proceedings, proper place is the RTC.

– Corporate term
– Perpetual, except otherwise provided.
 Sec. 13 – Contents of Articles of
Incorporation
– Incorporators, directors, or trustees;
– Must not exceed 15 except trustees which may be more than
15.
– Directors or trustees must be a natural persons; incorporators
may not be a natural person;
– Majority of the incorporators, directors or trustees may not
be residents of the Philippines.
 Sec. 13 – Contents of Articles of
Incorporation
– Capital (Authorized capital, subscribed and paid in capital)
– Paid in any lawful currency
– Pre-incorporation subscription is irrevocable for at least six
months from the date of subscription, unless
– All consent to the revocation;
– Failure to incorporate within the stipulated period;
– No revocation after submission of the articles of
incorporation.
 Sec. 13 – Contents of Articles of
Incorporation
– Shareholder’s agreement;
– Stipulations is not binding to the corporation and third parties; only
between the parties unless in the form of close corporation.
– Arbitration agreement;
– Intra corporate controversies
– Electronic form in accordance with the rules;
– Attestation as to the receipt of initial subscription is
incorporated in the articles of incorporation.
Sec. 14 – Form of Articles of
Incorporation
 Sec. 15 – Amendment of Articles of
Incorporation
– Majority vote of the BOD and at least 2/3 vote of the outstanding
capital stock of stockholders, without prejudicial to the appraisal
right of the dissenting stockholder;
– For non-stock, majority vote of the trustees and at least 2/3 vote
of the members;
– Amendment shall take effect upon approval of the SEC; or not
acted within six months from the date of filing of the amended
articles.
Sec. 16 – Grounds for Disapproval of
Amendments
– Not substantially in accordance with the Code;
– The purpose/s 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;
– The required percentage of Filipino ownership of the capital stock under
existing laws or Constitution has not been complied with;
– For financial intermediaries, it will not be approved unless accompanied
by favorable recommendation of appropriate government agencies.
 Sec. 16 – Grounds for Disapproval

– The Commission shall give the incorporators,

directors, trustees or officers a reasonable time to
modify the objectionable portions of the articles
or amendment.
 Sec. 17 – Corporate Name

– No corporate name is allowed under the ff:

– Not distinguishable;
– Protected by law;
– Contrary to existing law, rules, and regulations.
– Penalized unauthorized used of corporate name;
revoke the registration, remove materials attached to
the name.
 Sec. 18 – Registration, Incorporation, and
Commencement of Corporate Existence

– Verification and reservation; submit articles of

incorporation and by laws;
– The issuance of certificate of incorporation signals the
grant of corporate charter.
– It acquires juridical personality and corporate existence.
 Sec. 19 – De facto Corporations

– The due incorporation of any corporation claiming in good faith

to be a corporation under this Code;
– Its right to exercise corporate powers, shall not be inquired
collaterally in any private suit;
– Such inquiry may be made by the Solicitor General in “quo
warranto” proceedings.
– Principle of estoppel applies to a person who dealt with de facto
corporations.
 Sec. 20 – Corporations by Estoppel
(Ostensible)
– Persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general
partners (solidary);
– It cannot use the defense of lack of corporate
personality.
– De facto corporation.
 Sec. 21 – Effect of Non-Use of Corporate
Charter and Continuous Inoperation

– Within 5 years from the date of incorporation –

certificate of incorporation is deemed revoked;
– Commence but become inoperative for at least 5
consecutive years, corporation be placed under
delinquent status; the operation can be resumed within 2
years, otherwise, certificate will be revoked.
– Reasonable notice is required.