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Thus, Aquino (2014) defines a certificate of stock as a written acknowledgment of the

corporation of the interest, right and participation of a person in the management, profits and
assets of a corporation. It merely represents a distinct undivided share or interest in the
common property of the corporation. As a rule, a certificate of stock may not be issued unless
the subscription is fully paid.

Lesson 5. Formation, Incorporation and Organization of a

Private Corporation
De Leon (2005) emphasizes that a corporation is created by law or by operation of law. This
means that corporations cannot come into existence by mere agreement of the parties as in the
case of partnerships. For emphasis, under the Revised Corporation Code of the Philippines, a
corporation is created by operation of law and this refers to private corporations, and does not
include public corporations which are created by special laws.

Theories on Formation of a Corporation

The first one is Concession Theory which is also known as “Flat Theory”,
“Government Paternity Theory”, or Franchise Theory ”. Under the Concession Theory,
a corporation comes into existence upon the issuance of the certificate of incorporation. It is
discussed that then and only then will a corporation acquire juridical personality to sue and be
sued, enter into contracts, hold or convey property or perform any legal act in its own name
(Ladia, Corporation Code of the Philippines [Annotated], 2001 ed., p. 5). A corporation is an
artificial creature without any existence until it has received the imprimatur of the estate
acting according to law, through the SEC (Tayag v. Benguet Consolidated, Inc., GR
No. L-23145, Nov. 29, 1968).

Meanwhile, under the Contract Theory, incorporation is deemed to involve contracts:

among the members, (2) between the members and the corporation and the State (Aquino,
2014). Thus, a corporation is entitled to right against impairment of contracts (International
Express Travel & Tour Services, Inc. vs. CA, G.R No. 119002, October 19, 2000). The State
cannot likewise take the life of the corporation without due process.

Another one is the Theory of Corporate Enterprise or Economic Unit wherein the
corporation is not merely an artificial being, but more of an aggregation of persons doing
business, or an underlying business unit (Aquino, 2014).
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There are three (3) steps in the creation of a private corporation are (1) promotion; (2)
incorporation; and (3) formal organization and commencement of business operations. (De
Leon, 2005).

Promotion of Corporations
Promoters are persons who bring about or cause to bring about the formation and
organization of a corporation by bringing together the incorporators or persons interested in
the business, procuring subscriptions or capital for the corporation which leads to the
incorporation of the private corporation itself. (De Leon, 2005)

A corporation, however, may be formed and organized by the incorporators themselves

without getting the services of the promoters. (De Leon, 2005)

Incorporation and Organization of a Private Corporation

The next step according to De Leon (2005) is incorporation which includes the following
procedures:

(1) Drafting and execution of the articles of incorporation by the incorporators. In this
connection, the person chosen as temporary treasurer pending incorporation must also
execute an affidavit regarding the capital subscribed and paid up;
(2) Filing with the Securities and Exchange Commission (SEC) of the articles of
incorporation together with the other documentary requirements;
(3) Payment of fees; and
(4) The issuance by the SEC of the Certificate of Incorporation after verification and
examination.