Corporation Defined

A corporation is an artificial being created by operation of law, having the right of

succession and the powers, attributes, and properties expressly authorized by law or
incidental to its existence. (SEC. 2)
 ATTRIBUTES/CHARACTERISTICS

ARTIFICIAL BEING – it has a juridical personality, separate and distinct from the
persons composing it. This is also known as the Doctrine of Separate Juridical
Personality.
 Doctrine of separate juridical personality

A corporation is a legal or juridical person with a personality separate and distinct

from its individual stockholders or members and from any other legal entity to which
it may be connected.

 The properties it possesses belongs to it exclusively as a separate juridical entity such

that the personal creditors of its stockholders or members cannot attach corporate
properties to satisfy their claims.
 The corporation is not likewise liable for the debts, obligations or liabilities of its
stockholders. Neither may it properties be made answerable to satisfy the claim of
creditors against its stockholders or member even if the stockholder concerned is its
president.
 Doctrine of piercing the corporate veil

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the
corporation as a mere collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate juridical personality of the
corporation unifying the group.  Another formulation of this doctrine is that when two
business enterprises are owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of third parties, disregard the
legal fiction that two corporations are distinct entities and treat them as identical or as
one and the same.
 GROUNDS FOR THE APPLICATION OF THE Doctrine of
piercing the corporate veil
The doctrine of piercing the corporate veil applies in three (3) instances:
a. When the corporation's separate personality is being used to defeat public
convenience, such as in evading existing obligations;
b. In fraud cases, when it is used to justify a wrong, protect fraud, or defend a crime;
and
c. In alter ego cases, where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
 TEST IN DETERMINING THE APPLICABILITY OF THE Doctrine of piercing the
corporate veil BASED ON INSTRUMENTALITY OR ALTER EGO RULE

(1) Control, not mere majority or complete stock control, but complete dominion, not
only of finances but of policy and business in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate
mind, will, or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong,
violation of a statutory or other positive duty, or dishonest and unjust act in
contravention of plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
 Doctrine of piercing the corporate veil

Does ownership of substantial portion of the outstanding capital in a corporation

sufficiently justify the application of the doctrine of piercing the corporate veil?

No, mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of the corporation does not justify the application of the doctrine. If
the subsidiary is used to perform legitimate functions, a subsidiary’s separate existence
shall be respected and the liability of the parent company as well as the subsidiary will be
confined to those arising from their respective business. (MR Holdings Ltd. V. Sheriff
Carlos Bajar, G.R. No. 138104, 11 April 2002)
 LIABILITY FOR TORTS AND CRIMES

A corporation is civilly liable in the same manner as natural persons for torts, because
“generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or
artificial person. All of the authorities agree that a principal or master is liable for every
tort which he expressly directs or authorizes, and this is just as true of a corporation as
of a natural person, A corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or authority from the
stockholders or members acting as a body, or, generally, from the directors as the
governing body.” (Philippine National Bank vs. Court of Appeals, et. al., G.R. No. L-27155,
18 May 1978)
 LIABILITY FOR TORTS AND CRIMES

Isabelo Calingasan, the employer of Alfredo Carillo, was held subsidiarily liable when
Carillo, driving the jeepney of Calingasan, ran over a child. Later on, Calingasan transferred
said jeep to Fely Transport Corporation, where the incorporators are Calingasan, his wife,
his son, Dr. Calingasan and his two daughters and the only asset thereof was the same
jeepney. In this case,
A. Fely Transport Corporation has sole liability since the jeepney was already transferred
to it.
B. Isabelo Calingasan can no longer be held liable since he no longer owns the jeepney.
C. Both Fely Transport Corporation and Isabelo Calingasan can be held liable since the
transfer was only made to escape liability.
D. All incorporators of Fely Transport Corporation can be made liable.
 LIABILITY FOR TORTS AND CRIMES

It is evident that Isabelo Calingasan's main purpose in forming the corporation was to
evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo.
This conclusion is borne out by the fact that the incorporators of the Fely Transportation
are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe
that this is one case where the defendant corporation should not be heard to say that it
has a personality separate and distinct from its members when to allow it to do so would
be to sanction the use of the fiction of corporate entity as a shield to further an end
subversive of justice. Furthermore, the failure of the defendant corporation to prove that
it has other property than the jeep strengthens the conviction that its formation was for
the purpose above indicated. (Gregorio Palacio vs. Fely Transportation Company, G.R. No. L-
15121, August 31, 1962)
 RECOVERY OF DAMAGES

A corporation is not as a rule entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The only exception to this
rule is where the corporation has a good reputation that is debased, resulting in its
social humiliation. (Chevron Philippines, Inc. vs. Leo Z. Mendoza, G.R. No. 211533, June 19,
2019)
 ATTRIBUTES/CHARACTERISTICS

CREATED BY OPERATION OF LAW – the formal requirement of the State’s consent

through compliance with the requirements imposed by law is necessary for its
creation such that the mere agreement of the persons composing it or intending to
organize it does not warrant the grant of its independent existence as a juridical
entity.

RIGHT OF SUCCESSION – unlike in a partnership, the death, incapacity or civil

interdiction of one or more of its stockholder does not result in its dissolution.
 ATTRIBUTES/CHARACTERISTICS

POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY AUTHORIZED BY LAW – it can

exercise only such powers and can hold only such properties as are granted to it by
the enabling statutes unlike natural persons who can do anything as they please. This
is also called the Doctrine of Limited Capacity.
Powers of a corporation:
1. Express Powers – those expressly authorized by the Corporation Code and other
laws, and its Articles of Incorporation.
2. Implied Powers – those that can be inferred from or necessary for the exercise of
EXPRESS powers.
3. Incidental Powers – those that are incidental to the existence of the corporation.
 NATIONALITY OF CORPORATIONS

“All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by such citizens. Such agreements may be
for a period not exceeding twenty-five years, renewable for not more than twenty-five years,
and under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.” (Section 2, Article XII of
the 1987 Philippine Constitution)
Incorporation Test

It is determined by the place of incorporation regardless of the nationality of its

stockholders.

“Under Philippine jurisdiction, the primary test is always the Place of Incorporation Test
since we adhere to the doctrine that a corporation is a creature of the State whose laws
it has been created. A corporation organized under the laws of a foreign country,
irrespective of the nationality of the persons who control it is necessarily a foreign
corporation. The control test and the principal place of business test (siege social), are
merely adjunct tests, when the place of incorporation test indicates that the subject
corporation is organized under Philippine laws.” (SEC-OGC Opinion No. 12-02, citing
Villanueva, Philippine Corporate Law, p. 58)
 CONTROL TEST

It is determined by the nationality of the controlling stockholders or members.

“Under the above-quoted SEC Rules, there are two cases in determining the nationality
of the Investee Corporation. The first case is the 'liberal rule,' later coined by the SEC as
the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph
7 of the 1967 SEC Rules which states, '(s)hares belonging to corporations or partnerships
at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.' Under the liberal Control Test, there is no need to further trace the
ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since
a corporation which is at least 60% Filipino-owned is considered as Filipino.” (SEC-OGC
Opinion No. 16-19, citing DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC
Rules)
 CONTROL TEST

“Shares belonging to corporations or partnerships at least 60% of the capital of which is

owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation
or partnership at least 60% of the capital stock or capital respectively, of which belong to
a Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But if less
than 60%, or, say, only 50% of the capital stock or capital of the corporation or
partnership, respectively belongs to Filipino citizens, only 50,000 shares shall be counted
as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to
aliens.” (SEC-OGC Opinion No. 16-19, citing DOJ Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules)
 GRANDFATHER RULE

Nationality is attributed to the percentage of equity in the corporation used in

nationalized or partly nationalized area. As further defined by Dean Cesar Villanueva,
the Grandfather Rule is “the method by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly nationalized areas of activities,
provided for under the Constitution and other nationalization laws, is computed, in
cases where corporate shareholders are present, by attributing the nationality of the
second or even subsequent tier of ownership to determine the nationality of the
corporate shareholder.”
 GRANDFATHER RULE

“The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the
portion in said Paragraph7 of the 1967 SEC Rules which states, "but if the percentage of
Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality."
Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., "grandfathered'') to
determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level
of the Investing Corporation and added to the shares directly owned in the Investee
Corporation.” (SEC-OGC Opinion No. 16-19, citing DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules)
 GRANDFATHER RULE

“In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e. in cases where the joint venture corporation with Filipino and
foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or 59% less Filipino). Stated
differently, where the 60-40 Filipino-foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.” (SEC-OGC Opinion No. 16-19, citing DOJ Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules)
 Classes of Corporations

In general, corporations are classified as:

1. Stock Corporations – are those which have capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments of
the surplus profits on the basis of the shares held. (SEC. 3)
2. Nonstock Corporations – are those where no part of their income is distributable as
dividends to its members, trustees, or officers: Provided, That any profit which a
nonstock corporation may obtain incidental to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized. (SEC. 86)
 OTHER Classes of Corporations
As to Purpose
Public Corporation Private Corporation
A corporation organized for the government of a A corporation formed for some private purpose,
portion of the State for the general good and benefit or end.
welfare.
Government-owned or controlled Corporation Quasi-Public Corporation
A corporation owned by the Government directly A private corporation which has accepted from the
or through its instrumentalities either wholly, or, State the grant of franchise or contract involving
where applicable as in the case of stock the performance of public duties but which is
corporations, to the extent of at least 51% of its organized for profit (examples: electric, water, and
capital stock. transportation companies).
 OTHER Classes of Corporations
As to legal right to corporation existence
De jure Corporation De facto Corporation
A corporation created in strict or substantial The due incorporation of any corporation claiming
conformity with the mandatory statutory in good faith to be a corporation under this Code,
requirements for incorporation and the right of and its right to exercise corporate powers, shall
which to exist as a corporation cannot be not be inquired into collaterally in any private suit
successfully attacked or questioned by any party to which such corporation may be a party. Such
even in a direct proceeding for that purpose by the inquiry may be made by the Solicitor General in a
State. quo warranto proceeding. (SEC. 19)
Corporation by Estoppel Corporation by Prescription
All persons who assume to act as a corporation One which has exercised corporate powers for an
knowing it to be without authority to do so shall indefinite period without interference on the part
be liable as general partners for all debts, liabilities of the government.
and damages incurred or arising as a result
thereof. (SEC. 20)
 OTHER Classes of Corporations
As to laws of incorporation
Domestic Corporation Foreign Corporation
A corporation incorporated under the laws of the A corporation is formed, organized or existing
Philippines. under any laws other than those of the Philippines
and whose laws allow Filipino citizens and
corporations to do business in its own country or
State.

As to relationship of management and control

Parent or Holding Corporation Subsidiary Corporation
A corporation that hold stocks in another A corporation more than 50% of the voting stock of
corporation for purposes of control. which is controlled directly or indirectly by another
corporation, which thereby becomes its parent
corporation.
 OTHER Classes of Corporations
As to whether they are open to the public or not
Open Corporation Close Corporation
A corporation which is open to any person who A close corporation is one whose articles of
may wish to become a stockholder or member incorporation provides that: (a) all the
thereto. corporation’s issued stock of all classes, exclusive
of treasury shares, shall be held of record by not
more than a specified number of persons, not
exceeding twenty (20); (b) all the issued stock of
all classes shall be subject to one or more specified
restrictions on transfer; and (c) the corporation
shall not list in any stock exchange or make any
public offering of its stocks of any class.
 OTHER Classes of Corporations
As to number of persons who compose them
Corporation Aggregate Corporation Sole
A corporation consisting of more than one A corporation consisting of only one member or
member or corporator. corporator for the purpose of administering and
managing, as trustee, the affairs, property and
temporalities of any religious denomination, sect
or church.
As to whether they are for religious purposes or not
Ecclesiastical Corporation Lay Corporation
A corporation organized for religious purposes. A corporation organized for a purpose other than
for religion.

As to whether they are for charitable purposes or not

Eleemosynary Corporation Civil Corporation
A corporation organized for charitable purposes. A corporation organized for business or profit.
 COMPONENTS OF A CORPORATION

Corporators are those who compose a corporation, whether as stockholders or

shareholders in a stock corporation or as members in a nonstock corporation. (SEC. 5)

Incorporators are those stockholders or members mentioned in the articles of

incorporation as originally forming and composing the corporation and who are
signatories thereof. (SEC. 5)
 COMPONENTS OF A CORPORATION

Stockholders or shareholders are the owners of shares of stock in a stock corporation.

Members are corporators of a non-stock corporation.

Board of Directors is the governing body in a stock corporations.

Board of Trustees is the governing body in a nonstock corporation.

 COMPONENTS OF A CORPORATION

Corporate Officers are the president, who must be a director; the treasurer, who must
be a resident; the secretary, who must be a citizen and resident of the Philippines; and
such other officers as may be provided in the bylaws. If the corporation is vested with
public interest, the board shall also elect a compliance officer.

Subscribers are those who have agreed to take and pay for original, unissued shares of
a corporation formed or to be formed.

Underwriter is a person who guarantees on a firm commitment and/or declared best

effort basis the distribution and sale of securities of any kind by another company.
 COMPONENTS OF A CORPORATION

Promoter is a person who brings about or cause to bring about the formation and
organization of a corporation by:
1. Bringing together the incorporators or the persons interested in the enterprise;
2. Procuring subscriptions or capital for the corporation; and
3. Setting in motion the machinery which leads to the incorporation of the
corporation itself.
A founder or organizer of a corporation or business venture ; one who takes the
entrepreneurial initiative in funding or organizing a business enterprise.
INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS
 STEPS IN THE CREATION OF A CORPORATION

1) PROMOTIONAL STAGE: undertaken by the organizers or promoters who bring

together persons interested in the business venture. They enter into contract
either in their own names or in the name of the proposed corporation.
A promoter, although he may assume to act for and on behalf of a projected
corporation and not for himself, will be held personally liable on contracts made by
him for the benefit of a corporation he intends to organize. The personal liability
continues even after the formation of the corporation unless there is novation or
other agreement to release him from liability.
 STEPS IN THE CREATION OF A CORPORATION

2) INCORPORATION: includes the drafting of the Articles of Incorporation,

preparation and submission of additional and supporting documents, filing with
the SEC, and the subsequent issuance of the Certificate of Incorporation.

3) FORMAL ORGANIZATION AND COMMENCEMENT OF BUSINESS TRANSACTIONS

Examples:
 Adoption of bylaws and filing of the same with the SEC.
 Election of Board of Directors or Board of Trustees, as well as the corporate
officers.
 ARTICLES OF INCORPORATION

The articles of incorporation has been described as one that defines the charter of the
corporation and the contractual relationships between the State and the corporation,
the stockholders and the State, and between the corporation and its stockholders.

There is no gainsaying that the contents of the articles of incorporation are binding,
not only on the corporation, but also on its shareholders. (Lanuza vs. CA, G.R. No.
131394, March 28, 2005)
 CONTENTS OF ARTICLES OF INCORPORATION

a) The name of the corporation

No corporate name shall be allowed by the Commission if it is not distinguishable
from that already reserved or registered for the use of another corporation, or if
such name is already protected by law, or when its use is contrary to existing law,
rules and regulations.
A name is not distinguishable even if it contains one or more of the following:
(a) The word “corporation”, “company”, “incorporated”, “limited”, “limited
liability”, or an abbreviation of one of such words; and
(b) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations,
different tenses, spacing, or number of the same word or phrase. (SEC. 17)
 CONTENTS OF ARTICLES OF INCORPORATION

Can a trade name be used independently in the conduct of the operation of the corporation,
whether in papers, labels, posters, contracts or other documents?
A corporation may assume a name other than its legal (corporate) name and carry on business in
such assumed (business or trade) name.
Item no. 4 of the SEC Memorandum Circular No. 13, Series of 2019 or the Amended Guidelines and
Procedures on the Use of Corporate and Partnership Names (“SEC MC No. 13, s. 2019”) provides:
“4. Business or trade name which is different from the corporate or partnership name shall be
indicated in the articles of incorporation or partnership. A company may have more than one
business or trade name.” (emphasis supplied)
It is settled that a corporation using an assumed (business or trade) name in executing a contract
is bound just as much as if it had used its proper name (corporate name). (SEC-OGC Opinion No.
22-04 dated March 29, 2022)
 CONTENTS OF ARTICLES OF INCORPORATION

The Commission, upon determination that the corporate name is: (1) not distinguishable
from a name already reserved or registered for the use of another corporation; (2) already
protected by law; or (3) contrary to law, rules and regulations, may summarily order the
corporation to immediately cease and desist from using such name and require the
corporation to register a new one. The Commission shall also cause the removal of all
visible signages, marks, advertisements, labels, prints and other effects bearing such
corporate name. Upon the approval of the new corporate name, the Commission shall
issue a certificate of incorporation under the amended name.
If the corporation fails to comply with the Commission’s order, the Commission may hold
the corporation and its responsible directors or officers in contempt and/or hold them
administratively, civilly and/or criminally liable under this Code and other applicable laws
and/or revoke the registration of the corporation. (SEC. 17)
 CONTENTS OF ARTICLES OF INCORPORATION

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 nonstock corporation may not include a purpose which would change or
contradict its nature as such;

This purpose clause will confer, as well as limits, the powers which a corporation
may exercise. Any act beyond its powers is known as ultra vires acts.

No corporation shall possess or exercise corporate powers other than those

conferred by this Code or by its articles of incorporation and except as necessary or
incidental to the exercise of the powers conferred. (SEC. 44)
 CONTENTS OF ARTICLES OF INCORPORATION

Consequences of ultra vires acts

1. On the Corporation itself: The proper forum may suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of the corporation
for serious misrepresentation as to what the corporation can do or is doing to the
great damage or prejudice of the general public.
2. On the rights of the Stockholders: A stockholder may bring either an individual or
derivative suit to enjoin a threatened ultra-vires act or contract. If already
performed, a derivative suit against the directors may be filed, but their liability will
depend on whether they acted in good faith and with reasonable diligence in
entering into the contract.
 CONTENTS OF ARTICLES OF INCORPORATION

3. On the immediate parties:

a. If the contract is fully executed in both sides, the contract is effective and the
courts will not interfere to deprive either party of what has been acquired under it;
b. If the contract is executory on both sides, as a rule, neither party can maintain an
action for its non-performance; and
c. Where the contract is executory on one side only, and has been fully performed on
the other, the courts differ as to whether an action will lie on the contract against
the party who has received benefits of performance under it. Majority of the
courts, however, hold that the party who has received benefits from the
performance is “estopped” to set up that the contract is ultra vires to defeat an
action on the contract.
 CONTENTS OF ARTICLES OF INCORPORATION

Toyota Financial Services Philippines Corporation (TFSPC) is a domestic corporation primarily

engaged in the business of financing by extending credit facilities to customers of Toyota vehicle
dealers in the Philippines. TFSPC intends to provide assistance to its clients who availed of its financial
services in the transfer of ownership of the vehicle and/or cancellation of mortgages upon settlement
of the latter’s loan obligations. Can TFSPC provide such service?
A corporation has only such powers as are expressly granted in its charter or in the statutes under which it
is created or such powers as are necessary for the purpose of carrying out its express power. A corporation
has both express and implied or incidental powers. Express powers are those which are enumerated in
Section 35 of the Revised Corporation Code (RCC), and those which are sanctioned by the State in the
corporation’s AOI. Implied or incidental powers, on the other hand, are the corporation’s “powers,
attributes and properties which are incidental to its existence”, which may be “essential or necessary to
carry out its purpose or purposes as stated in its AOI.”
Acts beyond those conferred by the RCC or by the TFSPC’s AOI, except those which are necessary or
incidental to the exercise of the powers conferred, are ultra vires acts.
 CONTENTS OF ARTICLES OF INCORPORATION

Xxx, the Supreme Court, in the case of Montelibano v. Bacolod-Murcia Co. Inc. provided for the test in
determining ultra vires acts, thus:
Xxx. The test to be applied is whether the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and reasonably necessary to their exercise.
If so, the corporation has the power to do it; otherwise, not. (Emphasis supplied)
Considering that TFSPC’s primary purpose, as laid down in its latest AOI, mainly involves financing of motor
vehicles, the intended service of transferring ownership of and/or the cancellation of mortgage over the
motor vehicles of its clients who have availed of its financial services, is incidental to its primary purpose
as the same is reasonably necessary for it to comply with its obligations under its financial service
contracts i.e. ensure the proper and expeditious transfer of title of the vehicle from TFSPC to its clients
once the latter’s financial obligations have been fully settled. (SEC-OGC Opinion No. 21-11 dated November 3,
2021)
 CONTENTS OF ARTICLES OF INCORPORATION

c) The place where the principal office of the corporation is to be located, which must
be within the Philippines
The AOI must not only specify the province, but also the City or Municipality where
it is located. In this regard, it is to be observed that the principal office may be in
one place, but the business operations are actually conducted in other areas. The
law does not, of course, require a statement of the place of corporate operations
and, therefore, may be dispensed with.
The principal office serves as the residence of the corporation and is thus
important in: (1) venue of actions; (2) registration of chattel mortgage of shares;
(3) validity of meetings of stockholders or members in so far as venue thereof is
concerned; (4) determining the place where the books and records of the
corporation are ordinarily kept.
 CONTENTS OF ARTICLES OF INCORPORATION

d) The term for which the corporation is to exist, if the corporation has not elected
perpetual existence.
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). (SEC. 11)
 CONTENTS OF ARTICLES OF INCORPORATION

Revival of corporate existence (SEC. 11)

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.
 CONTENTS OF ARTICLES OF INCORPORATION

The following corporations may file a Petition for Revival of Corporate Existence:
a. Generally, a corporation whose term has expired;
b. An Expired Corporation whose Certificate of Registration has been revoked for non-
filing of reports (e.g. General Information Sheet, and Audited Financial Statements),
provided that it shall file the proper Petition to Lift its Revoked Status, which may
be incorporated in its Petition to Revive, and must settle the corresponding
penalties thereof;
c. An Expired Corporation whose Certificate of Registration has been suspended,
provided that it shall file the proper Petition to Lift its Suspended Status, which may
be incorporated in its Petition to Revive, and must settle the corresponding
penalties thereof; or
 CONTENTS OF ARTICLES OF INCORPORATION

The following corporations may file a Petition for Revival of Corporate Existence:
d. An Expired Corporation whose corporate name has already been validly re-used,
and is currently being used, by another existing corporation duly registered with
the Commission, provided that the former shall change its corporate name within
thirty (30) days from the issuance of its Certificate of Revival of Corporate
Existence.
 CONTENTS OF ARTICLES OF INCORPORATION

The following are not allowed to file a Petition for Revival of Corporate Existence:
a. An Expired Corporation which has completed the liquidation of its assets;
b. A corporation whose Certificate of Registration has been revoked for reasons other
than non-filing of reports (e.g. General Information Sheet, and Audited Financial
Statements);
c. A corporation dissolved by virtue of Sections 6(c) and 6(d) of Presidential Decree
No. 902-A, as amended by Presidential Decree No. 1799; or
 CONTENTS OF ARTICLES OF INCORPORATION

The following are not allowed to file a Petition for Revival of Corporate Existence:
d. An Expired Corporation which already availed of re-registration, in accordance with
Memorandum Circular No. 13, series of 2019 (Amended Guidelines and Procedures
on the Use of Corporate and Partnership Names), or other memorandum circulars
issued by the Commission pertaining to re-registration, except when:
i. The re-registered corporation has given its consent to the Petitioner to use its
corporate name, and has undertaken to undergo voluntary dissolution immediately
after the issuance of the Petitioner’s Certificate of Revival; or
ii. The re-registered corporation has given its consent to the Petitioner to use its
corporate name, and has undertaken to change its corporate name immediately after
the issuance of the Petitioner’s Certificate of Revival.
 CONTENTS OF ARTICLES OF INCORPORATION

Required vote to initiate revival

The required number of votes for the Revival of an Expired Stock Corporation is at
least a majority vote of the board of directors, and the vote of at least majority of the
outstanding capital stock. For nonstock corporations, at least a majority vote of the
board of trustees, and the vote of at least majority of the members.
 CONTENTS OF ARTICLES OF INCORPORATION

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

CORPORATORS apply to all who compose the corporation at any given time and
need not be among those who executed the AOI at the start of its formation or
organization.
INCORPORATORS are those mentioned in the AOI as originally forming the
corporation and who are signatories in the AOI.
An incorporator may be considered as a corporator as long as he continues to be a
stockholder or a member, but not all corporators are incorporators.
 CONTENTS OF ARTICLES OF INCORPORATION

Qualifications of Incorporators (SEC. 10)

1. 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.
2. Incorporators who are natural persons must be of legal age.
3. Each incorporator of a stock corporation must own or be a subscriber to at least
one (1) share of the capital stock.
 CONTENTS OF ARTICLES OF INCORPORATION

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;
 CONTENTS OF ARTICLES OF INCORPORATION

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;
Stock corporations shall not be required to have a minimum capital stock, except
as otherwise specifically provided by special law. (SEC. 12)
 CONTENTS OF ARTICLES OF INCORPORATION

Shares of Stock designate the units into which the proprietary interest in a corporation
is divided. They represent the proportionate integers or units, the sum of which
constitutes the capital stock of the corporation. It is likewise the interest or right
which the owner, called the stockholders or shareholder, has in the management of
the corporation, and in the surplus profits and in case of distribution, in all of its assets
remaining after the payment of its debts.
Certificate of Stock is a document or instrument evidencing the interest of a
stockholder in the corporation.
Issuance of Stock Certificates. – No certificate of stock shall be issued to a subscriber
until the full amount of the subscription together with interest and expenses (in case
of delinquent shares), if any is due, has been paid. (SEC. 63)
 CONTENTS OF ARTICLES OF INCORPORATION

AUTHORIZED CAPITAL STOCK is the MAXIMUM amount fixed in the articles of incorporation that
may be subscribed and paid by the stockholders. It may also refer to the maximum number of
shares that a corporation can issue.
SUBSCRIBED CAPITAL STOCK is the total number of shares and its total value for which there are
contracts for their acquisition or subscription. It is in effect, the stockholder’s equity account
showing that part of the authorized capital stock which has been paid or promised to be paid, or
that portion of the authorized capital stock which has been subscribed by the subscribers or
stockholders.
PAID UP CAPITAL STOCK is the actual amount or value which has been actually contributed or paid
to the corporation in consideration of the subscriptions made thereon.
OUTSTANDING CAPITAL STOCK shall mean the total shares of stock issued under binding
subscription contracts to subscribers or stockholders, whether fully or partially paid, except
treasury shares. (SEC. 173)
 DOCTRINE OF EQUALITY OF SHARES

Each share shall be equal in all respects to every other share, except as otherwise
provided in the articles of incorporation and in the certificate of stock. (SEC. 6)
 WHO MAY CLASSIFY SHARES

(1) By the incorporators — The classes and number of shares which a corporation shall
issue are first determined by the incorporators as stated in the articles of
incorporation filed with the Securities and Exchange Commission.
(2) By the board of directors and the stockholders — After the corporation comes into
existence, they may be altered by the board of directors and the stockholders by
amending the articles of incorporation pursuant to Section 15 through a majority
vote of the board of directors and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock.
 KINDS OF SHARES OF STOCK – AS TO PAR VALUE

Par Value Shares are those whose values are fixed in the Articles and shown on the
certificate. The par value is the minimum subscription or original issue price of the
shares.

No Par Value Shares are those whose issued price are not stated in the certificate of
stock but may be fixed in the AOI, or by the BOD when so authorized the articles or
the by-laws, or in the absence thereof, the stockholders themselves.
 KINDS OF SHARES OF STOCK – AS TO PAR VALUE

Limitations on No-Par Value Share:

1. It shall be deemed fully paid and nonassessable and the holder of such shares shall
not be liable to the corporation or to its creditors in respect thereto;
2. It must be issued for a consideration of at least Five pesos (P5.00) per share;
3. The entire consideration received by the corporation shall be treated as capital and
shall not be available for distribution as dividends;
4. It cannot be issued as preferred shares; and
5. It cannot be issued by 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.
 KINDS OF SHARES OF STOCK – AS TO PAR VALUE

Watered Stocks are shares issued at less than its par or stated value or in any other
form other than cash valued in excess of its fair value.

Liability of Directors for Watered Stocks. – A director or officer of a corporation who:

(a) consents to the issuance of stocks for a consideration less than its par or issued
value; (b) consents to the issuance of stocks for a consideration other than cash,
valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file a written objection with the corporate secretary, shall be
liable to the corporation or its creditors, solidarily with the stockholder concerned for
the difference between the value received at the time of issuance of the stock and the
par or issued value of the same. (SEC. 64)
 KINDS OF SHARES OF STOCK – AS TO VOTING RIGHTS

Voting Shares – a corporation will always have a class or series of shares with voting
shares, and no share may be deprived of voting rights except those classified and
issued as “preferred” or “redeemable” shares, unless otherwise provided in this Code.
Non-Voting Shares – are shares without the right to vote. Typical examples would be
preferred and redeemable shares. However, non-voting shares may still vote in the
following matters:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of by-laws;
c. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
 KINDS OF SHARES OF STOCK – AS TO VOTING RIGHTS

d. Incurring, creating or increasing bonded indebtedness;

e. Increase or decrease of authorized capital stock;
f. Merger or consolidation of the corporation with another corporation or other
corporations;
g. Investment of corporate funds in another corporation or business in accordance
with this Code; and
h. Dissolution of the corporation.
 KINDS OF SHARES OF STOCK – AS TO PREFERENCE

Common Stocks are the most commonly issued shares of stock of a corporation.
Although no clear-cut definition can be found, it has been described as one which
entitles it owner to an equal or pro-rata division of profits, if there are any, but without
any preference or advantage in that respect over any other stockholder or class of
stockholders.

Preferred Stocks are those that gives the holder preference over the holder of
common stocks with respect to the payment of dividends and/or with respect to
distribution of capital upon liquidation.
 KINDS OF SHARES OF STOCK – AS TO PREFERENCE

Limitations imposed by the Code in the issuance of preferred stocks:

1. They can be issued only with a stated par value; and
2. The preference must be stated in the AOI and in the certificate of stock otherwise
each share shall be, in all respect, equal to every other share.
 KINDS OF SHARES OF STOCK – AS TO PREFERENCE

1. PREFERENCE AS TO DIVIDENDS: They have the privilege of being paid dividends

first before any other stockholders are paid theirs. The guaranty is not absolute so
as to create a relation of debtor and creditor between the corporation and the
holders of such stock. The amount of preference is stated in the contract of
subscription and is usually a fixed percentage or by specified amount indicated
therein.
Participating and Non-Participating Preferred Shares:
 If the preferred share is participating, they are entitled to participate in
dividends with the common shareholders beyond their stated preference.
 Non-participating preferred shares on the other hand are entitled to its fixed
priority or preference only.
 KINDS OF SHARES OF STOCK – AS TO PREFERENCE

Cumulative and Non-cumulative Preference Shares

 Cumulative preferred shares are those that entitle the owner thereof to
payment not only of current dividends but also back dividends not previously
paid whether or not, during the past years, dividends were declared or paid. In
light of the provision of the Code stating that all shares are equal in all respects
unless otherwise stated in the AOI, a preferred share to be considered
cumulative, the same must be provided for and specified in the certificate.
 Non-cumulative preferred shares are those which grant the holders of such
shares only to the payment of current dividends but not back dividends, when
and if dividends are paid, to the extent agreed upon before any other
stockholders are paid the same.
 KINDS OF SHARES OF STOCK – AS TO PREFERENCE

2. Preference upon liquidation: this preference must be stated in the contract to

accordingly grant such preference in the distribution of the assets ahead of the
common stockholders, including dividends in arrears in case the preferred shares
are cumulative.
 OTHER KINDS OF SHARES OF STOCK

Founders’ shares may be given certain rights and privileges not enjoyed by the owners
of other stocks. Where the exclusive right to vote and be voted for in the election of
directors is granted, it must be for a limited period not to exceed five (5) years from
the date of incorporation: Provided, That such exclusive right shall not be allowed if its
exercise will violate Commonwealth Act No. 108, otherwise known as the “Anti-
Dummy Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments
Act of 1991”; and other pertinent laws. (SEC. 7)
 OTHER KINDS OF SHARES OF STOCK

Redeemable shares may be issued by the corporation when expressly provided in the
articles of incorporation. They are shares which may be purchased by the corporation
from the holders of such shares upon the expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the books of the corporation, and upon
such other terms and conditions stated in the articles of incorporation and the
certificate of stock representing the shares, subject to rules and regulations issued by
the Commission. (SEC. 8)
 OTHER KINDS OF SHARES OF STOCK

Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption,
donation, or some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors. (SEC. 9)
 OTHER KINDS OF SHARES OF STOCK

Promotion shares are such shares as are issued to promoters, or those in some way
interested in the company, for incorporating the company, or for services rendered in
launching or promoting the welfare of the company, such as advancing the fees for
incorporating, advertising, attorney's fees, surveying, etc.

Shares in Escrow are those deposited with a third party and kept there until the
condition contained in an agreement is fulfilled.

Convertible Shares are those which may be exchanged for other types of shares.
 SUBSCRIPTION CONTRACT

Any contract for the acquisition of unissued stock in an existing corporation or a

corporation still to be formed shall be deemed a subscription within the meaning of
this Title, notwithstanding the fact that the parties refer to it as a purchase or some
other contract. (SEC. 59)
 KINDS OF SUBSCRIPTION

1. Pre-incorporation Subscription – A subscription for shares of stock of a corporation

still to be formed.
A subscription of shares in a corporation still to be formed shall be irrevocable for a
period of at least six (6) months from the date of subscription, unless all of the other
subscribers consent to the revocation, or the corporation fails to incorporate within
the same period 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. (SEC. 60)
2. Post-incorporation Subscription – A subscription entered into after the
incorporation for the acquisition of unissued stock.
 Principle of Indivisibility of Stock Subscription

Xxx. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner, his attorney-in-fact, or
any other person legally authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the books of
the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates, and the number of shares
transferred. Xxx. (SEC. 62)

No certificate of stock shall be issued to a subscriber until the full amount of the
subscription together with interest and expenses (in case of delinquent shares), if any
is due, has been paid. (SEC. 62)
 Principle of Indivisibility of Stock Subscription

Subscribed stocks cannot be divided into portions so that the stockholder shall not be
entitled to a certificate of stock until he has remitted the fully payment of his
subscription. As a result, a stockholder cannot transfer portion or part of his stock in
view of the indivisible nature of the subscription contract. It is only upon full payment
of the whole subscription that a stockholder can transfer the same to several
transferees. (SEC OGC Opinion No. 10-15 dated April 23, 2010, citing SEC Opinion dated April 11, 1994;  
SEC OGC Opinion No. 16-05 dated March 31, 2016 addressed to Rural Bank of Maaasin
(Southern Leyte) INC.’s Corporate Secretary Estelita Y. Sy; SEC OGC Opinion dated September 03, 1982
addressed to Mr. Adolfo Martinez; SEC OGC Letter dated January 6, 1983 addressed to Bay Sunset Tours and
Travel Corporation)
 Effect of the Principle of Indivisibility of Stock
Subscription to Sales of Shares of Stock
The sale or transfer of portion of the not fully-paid subscribed shares is not allowed as
it will be in violation of the doctrine of indivisibility of stock subscription or in view of
the indivisible nature of the subscription contract under the import of 
Sections 62 and 63 of the Revised Corporation Code. The reason behind the principle
is that, it would be difficult to determine whether or not the partial payments made
should be applied as full payment for the corresponding number of shares which can
only be covered by such payment or as proportional payment to each and all of the
entire number of subscribed shares, and the difficulty in determining the unpaid
balance to be assumed by each transferee. (Villanueva, Cesar Lapuz et al, Philippine
Corporate Law, 2013 Edition; Page 557, citing SEC OGC Opinion dated June 3, 1994, XXVIII)
 CONSIDERATION FOR STOCKS (SEC. 61)

Stocks shall not be issued for a consideration less than the par or issued price thereof. Consideration for
the issuance of stock may be:
(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually received by the corporation and necessary or convenient for
its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
 INTEREST ON UNPAID SUBSCRIPTION

Subscribers to stocks shall be liable to the corporation for interest on all unpaid
subscriptions from the date of subscription, if so required by and at the rate of interest
fixed in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply. (SEC. 65)
 PAYMENT OF BALANCE OF SUBSCRIPTION
1. Voluntary payment – Payment of unpaid subscription or any percentage thereof, together with any
interest accrued shall be made on the date specified in the subscription contract or on the date stated
in the call made by the board. (SEC. 66)
2. Involuntary payment
a. Extra-judicial
i. Delinquency sale
The board of directors may, by resolution, order the sale of delinquent stock. (SEC. 67)
ii. Application of dividends
The cash dividends due on delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid.
b. Judicial action (SEC. 69)
 EFFECT OF DELINQUENCY

No delinquent stock shall be voted for, be entitled to vote, or be represented at any

stockholder’s meeting, nor shall the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in accordance with the provisions of this
Code, until and unless payment is made by the holder of such delinquent stock for the
amount due on the subscription with accrued interest, and the costs and expenses of
advertisement, if any. (SEC. 70)
 CONTENTS OF ARTICLES OF INCORPORATION

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
 CONTENTS OF ARTICLES OF INCORPORATION

j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
If the corporation desires to grant such options, restrictions and/or preferences,
the same must be indicated in the AOI AND in all of the stock certificates. Failure to
provide the same in the AOI would not bind the purchasers in good faith despite
the fact that the said restriction and/or preference is indicated in the by-laws of the
corporation.
In a close corporation, however, such restrictions and preferences must not only
appear in the articles of incorporation and in the stock certificates BUT ALSO be
embodied in the by-laws of that close corporation otherwise it may not bind
purchasers in good faith.
 LIMITATIONS IN THE Amendment of Articles of
Incorporation (SEC. 15)
1. The amendment must be for legitimate purposes and must not be contrary to the
Corporation Code and special laws;
2. The amendment must be approved by a majority of the board of directors or board of
trustees;
3. The amendment requires the vote or written assent of stockholders’ representing 2/3 of
the outstanding capital stock or 2/3 members if it be a non-stock corporation;
4. The original and amended articles together shall contain all provisions required by law to
be set out in the articles of incorporation. Such articles, as amended, shall be indicated by
underscoring the changes made;
5. Certification under oath by the corporate secretary & a majority of the board of directors
or board of trustees stating the fact that said amendments have been duly approved by
the required vote of the stockholders or members, shall be submitted to the SEC;
 LIMITATIONS IN THE Amendment of Articles of
Incorporation (SEC. 15)
6. The amendment must be approved by the SEC;
7. The amendment must be accompanied by a favorable recommendation of the appropriate
government agency in cases of:
a. Banks;
b. Banking and quasi-banking institutions;
c. Preneed;
d. Insurance and trust companies;
e. Nonstock savings and loan associations (NSSLAs);
f. Pawnshops; and
g. Other financial intermediaries.
 Grounds When Articles of Incorporation or Amendment
May be Disapproved (SEC. 16)
a) The articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed herein;
b) The purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral or contrary to government rules and regulations;
c) The certification concerning the amount of capital stock subscribed and/or paid is
false; and
d) The required percentage of Filipino ownership of the capital stock under existing
laws or the Constitution has not been complied with.
 COMMENCEMENT OF CORPORATE EXISTENCE

A private corporation organized under this Code commences its corporate existence
and juridical personality from the date the Commission issues the certificate of
incorporation under its official seal and thereupon the incorporators,
stockholders/members and their successors shall constitute a body corporate under
the name stated in the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is sooner dissolved in
accordance with law.
 Effects of Non-Use of Corporate Charter and Continuous
Inoperation
Non-Use of Corporation Charter:
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.
 Effects of Non-Use of Corporate Charter and Continuous
Inoperation
Continuous Inoperation:
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.

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.