Chapter 2
mere initial subscribers under the old
Incorporation and organization of private
corporations
The persons who seek a corporate franchise
must meet the prescribed requirements, not
only at the time of incorporation but during the
corporation's existence.
The State grants corporate franchise on the
assumption that the same will not be used for
purposes that are unconstitutional, illegal,
immoral, contrary to government rules and
regulations. The Commission is the main agency
tasked to monitor and determine compliance
with such requirements.
Title II provides the basic requirements in order
to secure a corporate or primary franchise, i.e.,
the privilege to acquire a juridical personality
and deal with third parties. The incorporators
must ensure that their corporate objectives,
articulated rules and capital structure must
comply with law. Where the law requires a
secondary franchise (or a special license to
engage in a regulated activity), proof of the
concerned regulator's approval is additionally
required.
Changes introduced by the Code:
The Code simplified the requirements in
forming a corporation. Notably:
1. As to the incorporators, the Code
removed the prescribed minimum
number of incorporators (previously no
less than five except for special
corporations), permitted juridical
entities to be incorporators (not as
Code), and removed the Philippine
residency requirement for the majority
of the incorporators.
2. As to the directors or trustees, the Code
removed the prescribed minimum
number of directors (previously no less
than five (excep) for special
corporations, and removed the
Philippine residency requirement for
majority of directors.
3. The Code removed the minimum capital
requirements, unless required by
special laws. However, the increase in
capital remains subject to the 25%
subscription and 25% payment of
subscription rule.
4. The authorized capital stock may now
be paid and expressed in any lawful
currency.
5. In lieu of a separate treasurer's affidavit
required under the old Code, the Code
incorporated the prescribed
attestations (regarding minet, tell the
receipt of initial subscription payments)
into the articles of the incorporation.
The treasurer-in-trust remains to be
primarily responsible in attesting to the
corporation's initial capital.
6. The Code introduced a more effective
criterion relative to the use of corporate
name, i.e., it must be "distinguishable
from that already reserved or registered
for the use of another corporation." It
also incorporated in the standard form
 of the articles of incorporation an
undertaking to change corporate name.
7. The treasurer must be a resident (but
need not be a citizen) of the Philippines.
The Code, however, retained the
prescribed qualifications (under the old
Code) for the president (who must be
and corporate secretary (who must be a
Filipino citizen).
8. Corporations may now file their
application for registration through
electronic means.
February 23, 2019 is effectivity of the revised
SEC. 10. Number and Qualifications of
Incorporators. – Any person, partnership,
association or corporation, singly or jointly with
others but not more than fifteen (15) in
number, may organize a corporation for any
lawful purpose or purposes: Provided, That
natural persons who are licensed to practice a
profession, and partnerships or associations
organized for the purpose of practicing a
profession, shall not be allowed to organize as a
corporation unless otherwise provided under
special laws. Incorporators who are natural
persons must be of legal age. Each incorporator
of a stock corporation must own or be a
subscriber to at least one (1) share of the capital
stock. A corporation with a single stockholder is
considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.
The revised code introduced changes on the
prescribed number of incorporators, their
residency and qualifications.
Prescribed number
The law limits the number of incorporators. It
should not be more than 15. The Code removed
the prescribed minimum number of
incorporators.
A single person may form a corporation sole or
on person corporation, the requirement for
limited of incorporators is demanded by
practicality and convenience.
Incorporators are typically the nominated
directors or members, who will initially manage
the corporation. The law generally requires the
same number of members of the Board.
However, the number of trustees may be more
than 15.
Role of incorporators
Incorporators form the corporation. They attest
to the truthfulness of their proposed corporate
charter. They may be held civilly and/or
criminally liable should their representations
turn out to be inaccurate. They do not lose their
status as incorporators even when they
subsequently disassociate themselves from the
corporation.
In Care Best International, Inc. v. SEC," the
Supreme Court pointed out that the
incorporators must state their legal names, not
fictitious names or aliases that they are-not
authorized to use. "Incorporation is a mere
grant of privilege from the State and, in order to
be entitled to such privilege, the requirements
and the procedures for the grant thereof must
be complied with."
Incorporators, not the same as initial subscriber,
contributors
While the law limits the number of
incorporators, it does not limit the number of
original subscribers or contributors. The latter
are not required to verify the corporate charter.
It is sufficient the articles of incorporation
indicate their names, nationalities, residence,
and their capital contribution.
Prescribed qualifications
Unlike in the old Code, incorporators need not
be natural persons. Juridical entities in
whatever form (such as partnerships,
associations, or corporations) may qualify as
incorporators. Natural persons, partnerships or
associations may only form a corporation for
the exercise of a profession if so authorized by
special law.
Natural persons who form a corporation must
be of legal age and have legal capacity to enter
into a contract. The Code does not prescribe a
residency requirement. Unlike in the old Code,
majority of incorporators need not be residents
of the Philippines.
In all cases, the incorporators must be
subscribers. They must have financial interest in
the corporation.
Issues for clarification
These changes introduced by the Code give rise
to several issues such as: (a) whether a juridical
entity may be the lone incorporator and its duly
authorized representative (a natural person) as
signatory; and (b) whether a natural person may
be the lone incorporator/signatory, with a
juridical entity or entities as subscriber(s).
SEC. 11. Corporate Term. – A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise. Corporations
with certificates of incorporation issued prior to
the effectivity of this Code, and which continue
to exist, shall have perpetual existence, unless
the corporation, upon a vote of its stockholders
representing a majority of its outstanding
capital stock, notifies the Commission that it
elects to retain its specific corporate term
pursuant to its articles of incorporation:
Provided, That any change in the corporate
term under this section is without prejudice to
the appraisal right of dissenting stockholders in
accordance with the provisions of this Code. A
corporate term for a specific period may be
extended or shortened by amending the articles
of incorporation: Provided, That no extension
may be made earlier than three (3) years prior
to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier
extension as may be determined by the
Commission: Provided, further, That such
extension of the corporate term shall take
effect only on the day following the original or
subsequent expiry date(s). A corporation whose
term has expired may apply for a revival of its
corporate existence, together with all the rights
and privileges under its certificate of
incorporation and subject to all of its duties,
debts and liabilities existing prior to 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. Page 5 of 73 SEC. 12.
Minimum Capital Stock Not Required of Stock
Corporations. –
Change in legislative policy
The old Code operated on the premise that the
parties in the corporate relations, like in any
contract, intended a fixed date when their
contract will end and they receive back their
investments. On the part of the State, corporate
franchise being a mere privilege should likewise
come to an end. Where the corporation does
not seek an extension, it is deemed dissolved on
the day following the last day of its fixed term.
Where the corporation seeks an extension, the
Commission is given the opportunity to
determine whether it has complied with the
terms of its franchise in which case it is entitled
to another term.
The Code does not follow this premise
anymore. It is presumed that shareholders
when they incorporated assented to the
perpetual character of their contract. Their
corporate relations will only end upon
agreement between or among the prescribed
number of shareholders or involuntarily upon
the court's or Commission's determination.
However, despite a perpetual term, the
Commission is not ousted from its regulatory
authority to periodically or as the need arises,
monitor compliance and impose sanctions.
Amendments introduced by Code-
The code removed the term limit of a
corporation. An existing corporation may opt
out from the current rule by notifying the
commission, following the approval of its
shareholder and without prejudice to the
appraisal right of dissenting shareholder.
Board action is only necessary when exigencies
of business demand the change, and business
owners may not have anticipated the same.
They must confirm whether they agree to the
board's proposed change. For this purpose, the
law requires the approval of shareholders who
contributed substantial amount of capital,
including holders of non-voting shares. This is
the only instance where the corporation
permits dissenting corporate act is only majority
of the capital stock.
Corporations with expired terms
The law extends the benefit to a corporation
with expired term, It does not extend such
benefit to a corporation whose dissolution was
decreed by the Commission or the courts.
Further, its dissolution is presumably
unintended, and not upon the determination of
its board and concurred in by the prescribed
number of its shareholders or members. As
such, its assets have not yet been liquidated
and distributed to its stakeholders. Finally,
there should be no intra-corporate dispute.
Otherwise, courts should first resolve any
serious disagreement among its stakeholders. A
corporation with expired term as described
above may apply for revival of its corporate
existence. Interestingly, the law does not
specify who may file the application on behalf
of the corporation.
SEC. 12. Minimum Capital Stock Not Required of
Stock Corporations. – Stock corporations shall
not be required to have a minimum capital
stock, except as otherwise specifically provided
by special law
Authorized capital stock.
The "authorized capital stock" refers to the
minimum amount of capital which the
corporation will receive when it issues all its
shares. This is the product of the par value of
each share, and the total number of shares that
the corporation is authorized to issue under its
charter. The corporation may raise a higher
amount of capital when it issues shares at a
premium.
This information is particularly relevant to the
government regulators issuing a secondary
license, and to major corporate creditors. This
permits them to assess the ability of the
corporation to raise their prescribed capital
without further approval from the Commission
and its shareholders. Thus, "banks, trust,
insurance, and preneed companies, public
utilities, building and loan associations, and
other corporations authorized to obtain or
access funds from the public, whether publicly
listed or not, shall not be permitted to issue no-
par value shares of stock.
A corporation that will solely issue no par shares
has no authorized capital stock. However, it
shall have an authorized number of shares that
it may issue.
The "subscribed capital stock"
refers to the committed amount of capital
which the corporation will receive from its
existing subscribers, more specifically when it
does not require upfront full payment from its
subscribers, Its paid portion forms part of the
"paid-up capital," while its unpaid portion is
invariably described as the "subscription
receivable." This is ordinarily the product of the
par value of the subscribed share, and the total
subscribed shares. This may reflect a higher
amount when the corporation issues shares at a
premium.
A corporation that solely issues no par shares
has no subscribed capital stock. It should be
recalled: "(shares) of capital stock issued
without par value shall be deemed fully paid
and non-assessable and the holder of such
shares shall not be liable to the corporation or
to its creditors in respect thereto: Provided,
That no-par value shares must be issued for a
consideration of at least Five pesos (P5.00) per
share: Provided, further, That the entire
consideration received by the corporation for its
no-par value shares shall be treated as capital
and shall not be available for distribution as
dividends”.
The amount of subscribed capital stock
represents the value of assets that are
considered as a corporate trust fund. The
prospective creditors may rely on this amount
as their buffer fund against corporate losses. In
case the remaining assets of the corporation are
insufficient to pay off their claims, they may
collect the subscription receivables from the
concerned subscribers. These subscribers, even
though they have not yet fully paid their
subscribed amount, generally have all the rights
and liabilities of a shareholder, The pre-
incorporation subscription (as basis of the pre-
incorporation subscribed capital stock reflected
in the articles of incorporation) is generally
irrevocable, "unless all of the other subscribers
consent to the revocation, or the corporation
fails to incorporate within (six months from the
date of subscription) or within a longer period
stipulated in the contract of subscription." "No
pre- incorporation subscription may be revoked
after the articles of incorporation is submitted
to the Commission. The Commission generally
has six months to act on the application for
registration.
-Minimum capital, not required -
The Code deleted, Section, 3 of the old Code,
specifically:
fleeted the twin:
"Sec. 13. Amount of capital stock to be
subscribed and paid for the purposes of
incorporation. -
- At least twenty-five percent (25%) of the
authorized capital stock as stated in the articles
of
incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%)
per cent of the total subscription must be paid
upon subscription, the balance to be payable on
a date or dates fixed in the contract of
subscription without need of call, or in the
absence of a fixed date or dates, upon call for
payment by the board of directors: Provided,
however, That in no case shall the paid-up
capital be less than five Thousand (P5,000.00)
pesos."
The law has removed the capital constraint in
forming a corporation. This makes the use of
corporation attractive to small businesses. It has
left to the sound discretion of the incorporators
in determining the capital that the corporation
needs to operate its business. This leaves
creditors to be on their own and compels them
to evaluate whether they will extend credit to
the corporation, given their stated capital stock.
It should be recalled the capital of the
corporation represents the amount of trust
fund creditors may rely on as cushion against
losses. Pursuant to the "shareholders' last"
principle, creditors have priority over the
shareholders in the satisfaction of their claims
from the remaining assets of the corporation.
In economic terms, the adequacy of capital
varies. It depends on the riskiness of the
corporation's business. The prescribed capital
may give the illusion of lack of protection if it is
too low, or constitutes a barrier to entry if it is
too high. In the case of especially regulated
financial institutions, such as banks, banking
and quasi-banking institutions, preneed,
insurance and trust companies, NSSLAs,
pawnshops, and other financial intermediaries,
capital requirements are related to risks and are
enforced by their respective regulators.
SEC. 13. Contents of the Articles of
Incorporation. – All corporations shall file with
the Commission articles of incorporation in any
of the official languages, duly signed and
acknowledged or authenticated, in such form
and manner as may be allowed by the
Commission, containing substantially the
following matters, except as otherwise
prescribed by this Code or by special law:
(a)The name of the corporation;
(b)The specific purpose or purposes for which
the corporation is being formed. Where a
corporation has more than one stated purpose,
the articles of incorporation shall indicate the
primary purpose and the secondary purpose or
purposes: Provided, That a non-stock
corporation may not include a purpose which
would change or contradict its nature as such;
(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 residence addresses of
the original subscribers, amount subscribed and
paid by each on the subscription, and a
statement that
The importance of real name in corporation:
occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and
the reduction of difficulties of administration
and supervision over corporations.
SEC. 14. Form of Articles of Incorporation. –
Unless otherwise prescribed by special law, the
articles of incorporation of all domestic
corporations shall comply substantially with the
following form:

Philips Export BV. vs. CA, 206 SCRA 457

TCourt declared 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 (Red
Line Transportation Co. vs. Rural Transit Co.,
September 8, 1934, 20 Phil 549).

Identical names: cannot be considered under

corporation law

In Lyceum of the Phils. vs. CA, 219 SCRA 610,

the court said “Under the corporation code, no
corporate name may be allowed by the SEC 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 laws. The
policy behind this provision is to avoid fraud
upon the public, which would have the occasion
to deal with the entity concerned, the evasion
of legal obligations and duties, and the
reduction of difficulties of administration and
supervision over corporations. “

"identical or deceptively or confusingly similar"

to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or
"contrary to existing laws," is the avoidance of
fraud upon the public which would have
SEC. 15. Amendment of Articles of
Incorporation. – Unless otherwise prescribed by
this Code or by special law, and for legitimate
purposes, any provision or matter stated in the
articles of incorporation may be amended by a
majority vote of the board of directors or
trustees and the vote or written assent of the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions
of this Code.

The articles of incorporation of a nonstock

corporation may be amended by the vote or
written assent of majority of the trustees and at
least two-thirds (2/3) of the members.

The original and amended articles together shall

contain all provisions required by law to be set
out in the articles of incorporation.
Amendments to the articles shall be indicated
by underscoring the change or changes made,
and a copy thereof duly certified under oath by
the corporate secretary and a majority of the
directors or trustees, with a statement that the
amendments have been duly approved by the
required vote of the stockholders or members,
shall be submitted to the Commission.
The amendments shall take effect upon their
approval by the Commission or from the date of
filing with the said Commission if not acted
upon within six (6) months from the date of
filing for a cause not attributable to the
corporation.
approve through a "vote or written
assent," i.e., voting by mail or proxy.
Except in close corporations, the law
does not explicitly permit a higher
voting requirement.
C. The amendment, if approved by the
Commission, is binding to all parties,
i.e., all shareholders or members
(including those who didnot approve
the same), the corporation and the
State. However, the law permits
dissenting shareholders to exercise
their appraisal right, in accordance with
the Corporation Code

The law imposes special requirements for the

adoption and implementation of certain
corporate actions. The same must be complied
When parties subscribe to the capital of the with in addition to the general requirements of
corporation, there is an assumption they agree an amendment to the articles of incorporation
to the terms set by the incorporators, as where the action entails an amendment.
supplemented by law. Unlike ordinary contract
where subsequent changes may be initiated and
upon consent of all parties, the law permits
changes in the relationship between the
corporation and its owners but only in the
following manner:

A. Only the board through the majority

vote of its members may initiate the
amendment of the articles of
incorporation. The shareholders or
members may not directly do so. The
board invested with authority to
evaluate and assess the propriety of the
proposed amendment. This
requirement is not affected by the new
rule empowering a shareholder or
member to requisition a special
meeting and propose its agenda.
B. 2/3 of the outstanding capital stock or
membership, respectively, is sufficient.
Not all shareholders or members need
to approve the proposed amendment.
The shareholders or members may