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Incorporation and Organization of

Private Corporation

Steps in Incorporation:
1. Verification with the SEC of the name to be used.

2. Drafting and execution of the articles of incorporation signed by the incorporators.

3. Filing of the articles of incorporation with SEC together with the following documents.
a. Verification certificate authorizing the use by the proposed corporation of the name stated therein.
b. Treasurer’s affidavit
c. Certificate of bank deposit
d. Undertaking to change name if it is similar to the name of another corporation or the use of such name is prohibited.
e. Other documents that may be required such as the endorsement of government agencies in special corporation
(such as insurance companies and banks).

4. Payment of the filing, publication and other fees.

5. Issuance of the certificate of incorporation by the SEC. - operative act that will
grant juridical personality to the corporation. (Sec 18)

Content of the Articles of Incorporation

(a) The name of the corporation

(b) The specific purpose or purposes for which the corporation is being formed.

(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 - shall not be more than fifteen (15) or the number of trustees which may be
more than fifteen (15);

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(g) The names, nationalities, and residence addresses of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this Code;

(h) If it be a stock corporation, the amount of its authorized capital stock, number of shares into which it is
divided, the par value of each, names, nationalities, and residence addresses of the original subscribers,
amount subscribed and paid by each on the subscription, and a statement that some or all of the shares are
without par value, if applicable;

(i) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and residence
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.

1. Corporate Name (Sec. 17)

No corporate name shall be allowed if the proposed name is:
a. Identical or deceptively or confusingly similar to that of any existing corporation or to
any other name protected by law.
b. Patently deceptive, confusing or contrary to existing laws.

Corporate Name shall not be be registered if:

(1) NOT distinguishable from a name already reserved or registered for the use of another
corporation;
A name is not distinguishable even if it contains one or more of the following:
➢ The word “corporation”, “company”, “incorporated”, “limited”, “limited liability”,
or an abbreviation of one of such words; and
➢ Punctuations, articles, conjunctions, contractions, prepositions, abbreviations,
different tenses, spacing, or number of the same word or phrase.

(2) already protected by law; or

(3) contrary to law, rules and regulations,

2. The specific purpose or purposes for which the corporation is being formed.
Requisites:
➢ The purpose or purposes must be lawful.
➢ Must be definitely stated.
➢ If the corporation has more than one purpose, the primary purpose must be
stated separately from the secondary purpose or purposes.
➢ If there are several purpose, each must be capable of being lawfully
combined.

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Corporate Term:
A corporation shall have perpetual existence unless its articles of incorporation provides
otherwise.(Sec.11)

➢ Previous to the amendment: Corporate term should not exceed 50 years.

➢ What happens to the existing corporations after the effectivity of the Amended Corporation Code?
○ Shall have perpetual existence, unless the corporation, upon the 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.
○ Any change in the corporate term under this section is without prejudice to the appraisal right of
dissenting stockholders in accordance with the provision of this code.
Shortening of Corporate Term: May be extended or shortened by amending the articles of incorporation:
Requisites:
1. 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
2. That such extension of the corporate term shall take effect only on the day following the original or
subsequent expiry date(s).

Remedy if Corporate Term expired: Revival (Upon approval of the Commission and recommendation of appropriate
government agencies, for specific companies)

(e) The names, nationalities, and residence addresses of the incorporators

Components of a Corporation:
1. Corporators - those who composed the corporation whether as stockholders or members
2. Incorporators - those stockholders or members mentioned in the articles of incorporation
3. Stockholders - corporators of a stock corporation
4. Members - corporators of a non-stock corporation.

Promoters - a person (natural or juridical) who usually discovers a prospective business and brings persons
interested to invest in it through the formation of the corporation. (facilitate the formation of a corporation)

Liability of a promoter - liable for contracts made for the benefit of the proposed corporation.
- If the incorporation of the corporation does not materialize, the promoter remains personally
liable.
- If the corporation if formed, he remains liable until the corporation ratifies or adopts such
contracts, or releases him from liability. The third person must also agree to absolve him from
liability.
Corporation’s liability on contracts entered into by a promoter
A newly-formed corporation is not automatically liable for
pre-incorporation contracts entered into by a promoter in its behalf.
(only if adopted, ratified, or novated of the corporation of such contracts)

(e) The names, nationalities, and residence addresses of the incorporators

SEC. 10. Number and Qualifications of Incorporators.

1. Any person, partnership, association or corporation, singly or jointly

2. Incorporators who are natural persons must be of legal age.
3. The incorporators should not be more than fifteen (15) in number
4. Natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession- not be allowed
to organize as a corporation unless otherwise provided under special laws.
5. Must own or be a subscriber to at least one (1) share of the capital stock.
6. At least majority of the incorporators are residents of the PH*.

-The Nationalities of the Incorporators must be indicated to determine if the number of alien directors does
not exceed the number allowed based on the ratio of the foreign stock ownership to the total number of
shares.

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Authorized, subscribed, paid-up, issued, unissued outstanding capital stock

1. Capital Stock - amount specified in the articles of incorporation paid in, or procured to be paid in for
carrying on of the business of the corporation.

a. Authorized Capital Stock - total amount of shares which a corporation is allowed to issue if the
shares have par value.
- If the shares have no par value, the corporation does not have an
authorized capital stock but it has an authorized number of shares which
it may issue. Once issued, the corporation shall have a capital stock but
not an authorized capital stock.

a. Subscribed Capital Stock - the part of the capital stock which is subscribed (whether paid or
not)
b. Outstanding Capital Stock - refers to the total shares of stock issued to subscriber or SHs
(whether fully paid or not).
c. Paid-up capital stock - part of the subscribed capital stock paid to the corporation.
d. Unissued capital stock - that part of the capital stock which is not issued or
subscribed.

2. Legal Capital - it refers to the total par value of all issued par value shares,
or the total cash or consideration received for all issued no par value shares.

3. Stated Capital - refers to the capital with which a corporation whose shares
are without par value commences its business and increased or diminished by
subsequent capital transactions.

4. Capital- refers to actual property of the corporation in money or property.

ILLUSTRATE:

The articles of incorporations of ABC Corp provides for an authorized capital stock of P1M divided
into 10,000 shares each having a par value of P100. At the time of incorporation, 25% of the
authorized capital stock was subscribed of which 25% was paid. In its first year of operation, the
corporation obtained a loan of P300,000 which is used to buy equipment of the same amount.
During the same period the corporation posted a net profit of P100,000.
Authorized Capital Stock: P 1,000,000.00
Subscribed Capital Stock: P 250,000.00
Outstanding Capital Stock: P 250,000.00
Unissued Capital Stock: P 750,000.00

Paid-up Capital Stock: P 62,500.00

Capital: P 650,000.00
Legal Capital: P 250,000.00

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Amendment of Articles of Incorporation Sec. 15

1. Purpose: must be for legitimate purpose or purposes.

2. Vote Required:
a. Majority vote of the Directors AND
b. The vote or written assent of ⅔ of the outstanding capital stock (stock corp.); ⅔ of the member (non-stock)
3. Requirements of amendments
a. The original and the amended articles shall contain all provisions required by law to be set out in the articles of
incorporation.
b. The amendment shall be indicated by underscoring the change or changes made.
c. A copy should be duly certified under oath by the Corporate Secretary and majority of the directors or trustees
with a statement “the amendments have been duly approved by the required vote of the stockholders or
members”
4. Effectivity
Upon approval by the SEC or from the date of filing with the Commission if not
acted upon within 6 months from date of filing for a cause not attributable to
the corporation.

Grounds When Articles of Incorporation or

Amendment May be Disapproved Sec. 16

1. No substantial compliance with the form required.

2. The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary
to government rules and regulations;
3. The certification concerning the amount of capital stock subscribed and/or paid is false; and
4. The required percentage of Filipino ownership of the capital stock under existing laws or the
Constitution has not been complied with.
5. Not accompanied by a favorable recommendation of the appropriate government agency to the
effect that such articles or amendment is in accordance with law (for banks, banking and quasi-
banking institutions, preneed, insurance and trust companies, NSSLAS, pawnshops, and other
financial intermediaries)

Effects of Non-Use of Corporate Charter and

Continuous Inoperation Sec 21
➔ 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.
➔ if a corporation has commenced its business but subsequently becomes inoperative for a period of at
least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation
under delinquent status.
Remedy of a delinquent corporation:

◆ A delinquent corporation shall have a period of two (2) years to resume operations and comply with all
requirements that the Commission shall prescribe.
● Upon compliance by the corporation, the Commission shall issue an order lifting the delinquent
status.
● Failure to comply with the requirements and resume operations within the
period given by the Commission shall cause the revocation of the corporation’s
certificate of incorporation.

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The End….