CHAPTER 5 LAW ON CORPORATIONS PART 1

Learning Objectives:
Discuss the introduction to law on corporation.
Learn the different general provisions.
Understand the similarities between a partnership and a corporation.
Discuss the other kinds of corporations.
Explain the components of a corporation.
Define the concept of par value and no-par value shares.

TITLE I - GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONS

Sec. 1. Title of the Code. – This Code shall be known as “The Corporation Coder of
the Philippines”.

Sec. 2. 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 incident to its existence.

Definition
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
incident to its existence.

Attributes
1. It is an artificial being.
2. It is created by operation of law.
3. It has the right of succession.
4. It has only the powers, attributes and properties expressly authorized by law or
incident to its existence.

Similarities between a partnership and a corporation

1. Juridical personality separates and distinct from the individuals composing it.
2. Act only through its agents.
3. Composed of an aggregate of individuals.
4. Distribute profits to those who contribute to capital.
5. May be organized only when there is a law authorizing it.
6. Subject to income tax.

Distinctions between a partnership and a corporation

Point of
Partnership Corporation
Comparison
Manner of By mere By law or
Creation agreement operation of
of the law
parties
Number of By a Requires at
Parties minimum of least five (5)
two (2) incorporators

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 persons
Commence- Generally, From the date
mint of from the of the
Juridical moment of issuance of
Personality execution of the certificate
the contract of
incorporation
of the
Securities and
Exchange
Commission
(SEC)
Powers May Can exercise
exercise only the
powers powers
authorized expressly
by partners granted by
provided the law or
same are incident to its
not contrary existence.
to law,
morals,
good
customs,
public policy
or public
order.
Management When it is It is vested in
not agreed the board of
upon, each directors or
partner is an trustees.

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 agent of the

partnership.
Right of No right of Possesses
Succession succession right of
succession
Extent of Partners Stockholders
Liability to (except are liable only
Third Persons limited to the extent
partners) of their
are liable investments
personally as
and represented
subsidiarily by the shares
for subscribed by
partnership them.
debts to
third
persons.
Transferability A partner A stockholder
of interest cannot has the right
transfer to transfer his
interest so shares
as to make a without the
partner prior consent
without the of the other
consent of stockholders.
all other
existing
partners.

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Term of May be May not be
existence established formed for a
for any term in excess
period of of 50 years
time extendible to
stipulated not more than
by the 50 years.
partners.
Firm name A limited A corporation
partnership may adopt a
is required firm name
to add the provided it is
word ‘Ltd.’ not identical
to its name. or deceptively
similar to any
registered
firm name or
contrary to
existing laws.
Dissolution May be May only be
dissolved at dissolved with
any time by the consent of
the will of the state.
any or all
partners.
Governing Civil Code Corporation
Laws Code

Advantages of a corporate form of business organizations

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 1. The capacity to hold property, to contract, to sue and be sued as a legal unit or
distinct entity.
2. Exemption of shareholders from individual liability.
3. Continuity of existence in spite of death or changes of members.
4. Transferability of shares.
5. Centralized management under a board of directors.
6. Standardized methods of organization, management and finance for the
protection of shareholders and creditors under statutory regulations.

Disadvantages of a corporate form of business organizations

1. The limited liability of the stockholders serves to limit the credit available to the
corporation.
2. The transferability of shares permits the uniting of incompatible and conflicting
interests in one enterprise.
3. The minority stockholders are usually subservient to the wishes of the majority.
4. In big corporations, the stockholders’ voting rights have become largely
theoretical because of widespread ownership, lukewarmness and disinterest in
management, inertia, and inaccessible meeting places.
5. In large corporations, management and control has been separated from
ownership.
6. By and large corporations are subject to governmental restrictions, controls, and
report requirements not imposed on other forms of business organizations.
7. Corporate sphere of activity is limited in the transaction of its business to the
state of the organization.
8. The corporate form involves “double taxation” on corporation income.

Sec. 3. Classes of corporations. – Corporations formed or organized under this Code

may be stock or non-stock corporations. Corporations which have capital stock divided
into shares and are authorized to distribute to the holders of such share’s dividends or
allotments of the surplus profits on the basis of shares held are stock corporations. All
other corporations are non-stock corporations.

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Other kinds of corporations
Quasi-corporations – from the word

“quasi”, meaning “as if”, are entities that are not absolutely corporations but are
considered as if they were. E.g. Public boards created by law

Quasi-public – are entities engaged in rendering basic services of such public

importance as to entitle them to certain privileges like eminent domain or use of public
property. E.g. Electric, gas, water and telephone companies.

Government-owned or controlled – are entities organized by the government or

corporations of which the government is a majority stockholder. E.g. Philippine Air Lines

Domestic – one incorporated under Philippine laws.

Foreign – one formed, organized, or existing under any laws other than those of the
Philippines.

Corporation aggregate – one composed of more than one member or corporator.

Corporation sole – consists of one member or corporator and his successors.

Religious corporations, sole or aggregate – organized, either as sole or aggregate,

to administer properties of the church.

Ecclesiastical – organized for religious purposes.

Lay – organized for a purpose other than religious

Eleemosynary – organized for charitable purposes.

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Civil – are those than ecclesiastical and eleemosynary, whether public or private.

Close – one wherein all the outstanding stock is owned by the persons who are active
in management and conduct of the business.

Open – one in which all the members or corporations have a vote in the election of the
directors and other officers.

Multi-national – one having been created or organized in one state conducts business
or activities across national boundaries and but subject to the legal sanctions of the
countries in which they operate.

Non-profit – organized without contemplation of gains, profits or dividends to their

members on invested capital.

De Jure – one created in strict or substantial conformity with the statutory requirements
for incorporation and whose right to exist as a corporation cannot be successfully
attacked even in a direct proceeding for that purpose by the State.

Sec. 4. Corporations created by special laws or charters. – Corporations created by

special laws or charters shall be governed primarily by the provisions of the special law
or charter creating them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable.

Sec. 5. Corporators and incorporators, stockholders, and members. – Corporators are

those who compose a corporation, whether as stockholders or members. Incorporators
are those stockholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and who are signatories thereof.

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Corporators in a stock corporation are called stock-holders or shareholders. Corporators
in a non-stock corporation are called members.

Components of a Corporation
Corporators – are those who composed a corporation, whether as stockholders of
members. The term includes incorporators, stockholders or members.

Incorporators – are those stockholders or members mentioned in the articles of

incorporation as originally forming and composing the corporation and who are
signatories thereof.

Stockholders or shareholders – are those corporators in a stock corporation.

Members – are those corporators in a non-stock corporation.

Promoters – is a self-constituted organizer who finds an enterprise or venture and

helps to attract investors, form a corporation and launch it in business, all with a view to
promotion profits.

Promotion – is the act of procuring the initial finances and the making of all
preparations necessary to launch a corporation.

Activities of a promoter
1. The discovery and investigation of a promising business opportunity.
2. The formulation of business and financial plans.
3. Assembling the enterprise by negotiations and obtaining some control over the
subject matter by option or contracts made on behalf of the proposed corporation
or on his own credit.
4. The making of arrangements for financing the enterprise and the floatation of
securities.

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Arrange tactful and painless methods for getting his own reward for the task of
promotion out of the prospective investors and for reimbursement for his expenses,
contracts, and services without frightening away those who are expected to provide the
funds.

General rule: A corporation is not bound by any agreement made by a promoter.

Exception to the rule: Unless and until the corporation approves the agreement.

Sec. 6. Classification of shares. – The shares of stock of stock corporations may be

divided into classes or series of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as “preferred” or “redeemable” shares, unless otherwise provided
in this Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of shares may have
a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares
of stock.

Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution
of dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, that such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.

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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 shares without par value may not be issued
for a consideration less than the value of five (P5.00) pesos 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.

A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate
of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed
by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation.
2. Adoption and amendment of by-laws.
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property.
4. Incurring, creating or increasing bonded indebtedness.
5. Increase or decrease of capital stock.
6. Merger or consolidation of the corporation with another corporation or other
corporations.
7. Investment of corporate funds in another corporation or business in accordance
with this Code.
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to

approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights.

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Definition
A “stock” or share of stock is one of the units into which the capital stock has been
divided. It represents the interest or right that the holder of the stock or stockholder has
in the corporation.

A stock certificate certifies that one is a holder or owner of a certain number of shares of
stock in the corporation. It is a mere documentary evidence of the holder’s ownership of
shares and a convenient instrument for the transfer of title.

Classes or series of shares of stock subject to restrictions

Shares shall not be deprived of voting rights except preferred or redeemable shares but
non-voting shares must still be entitles to vote on matters specified in the last paragraph
of Section 6 like matters relating to amendment of the articles of incorporation and
dissolution of the corporation.

Where non-voting shares are provided for there must always be a class or series of
shares with complete voting rights.

Banks, trust companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock which may be given preference in the distribution of assets in
case of liquidation and distribution of dividends or other preferences may be issued only
with stated par value.

The terms and conditions of preferred shares or series thereof may be fixed by the
board of directors only when authorized by the articles of incorporation the effectivity
thereof shall be reckoned from the filing of certificate with the SEC.

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Shares without par value may not be issued for a consideration less than the value of
five (P5.00) pesos per share.

Unless otherwise provided by law the rights, privileges or restrictions on classes or

series of shares must be stated in the articles of incorporation and in the stock
certificates.

Classes or series of shares

Voting and Non-Voting Shares;

General rule: Every member of a non-stock corporation and every legal owner of shares
in a stock corporation, has a right to be present and vote at all corporate meetings.

Exception to the rule: Unless there is a stipulation in contrary.

Par Value and No-Par Value Shares

Par value is the given fixed or definite value of a share in the articles of incorporation.

Common and Preferred Shares. Preferred shares of stock may be: (a) preferred as to
assets; (b) preferred as to dividends. Preferred as to dividends may either be
cumulative or non-cumulative, or participating or non-participating

Promotion Shares – are such stocks issued to those who may originally own the
mining ground or valuable rights connected therewith, in consideration of their deeding
the same to the mining company when the company is incorporated, or it may mean
such stock as is issued to promoters.

Shares of Escrow – are shares subject to an escrow agreement, that is, an agreement
under which the shares are deposited by the grantor or his agent with a third person, to

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be delivered by the depositary to the vendee or subscriber only upon the happening of
certain conditions.

Founder’s Shares;
1. Redeemable “Callable” Shares;
2. Treasury Shares;

Other shares classified to comply with constitutional or legal requirements.

Instances when non-voting shares may vote

1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation of business in accordance
with the Corporation Code; and
8. Dissolution of the corporation.

Sec. 7. Founders’ shares. – Founders' shares classified as such in the articles of

incorporation may be given certain rights and privileges not enjoyed by the owners of
other stocks, provided that 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 subject to the approval of the Securities and Exchange Commission. The five-
year period shall commence from the date of the aforesaid approval by the Securities
and Exchange Commission.

Definition

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Founders’ shares, generally common stock, are given to the founders or promoters of a
corporation in payment of money expended or services rendered in the promotion of it.

Sec. 8. Redeemable shares. – Redeemable shares may be issued by the corporation

when expressly so provided in the articles of incorporation. They may be purchased or
taken up by the corporation 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 as may be stated in the articles of incorporation, which
terms and conditions must also be stated in the certificate of stock representing said
shares.

Definition
Redeemable (“Callable”) shares of stock which are usually preferred are frequently
issued subject to redemption at the option of either the corporation, the stockholder, or
both, at a definite price representing premium above the amount originally paid.

Sinking fund refers to a fund set-up by the corporation where cash is gradually set aside
in order to accumulate the amount necessary to meet the redemption price of
redeemable shares of specified dates in the future.

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

Definition
Treasury shares are owned by the corporation having been reacquired by the issuing
corporation by “purchase, redemption, donation or through some other lawful means.” It
has no voting rights or rights as to dividends or distributions.

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TITLE II –INCORPORATION AND ORGANIZATION OF PRIVATE
CORPORATIONS

Definition

Incorporation is the act of creating a corporation.

Sec. 10. Number and qualifications of incorporators. – Any number of natural

persons not less than five (5) but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may form a private corporation for any
lawful purpose or purposes. Each of the incorporators of s stock corporation must own
or be a subscriber to at least one share of the capital stock of the corporation.

Qualifications of incorporators
1. Must be a natural person.
2. Must be of legal age.

Sec. 11. Corporate term. – A corporation shall exist for a period not exceeding fifty
years from the date of incorporation unless sooner dissolved or unless said period is
extended. The corporate term as originally stated in the articles of incorporation may be
extended for periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this Code; Provided,
That no extension can be made earlier than five (5) 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 Securities and Exchange Commission.

Sec. 12. Minimum capital stock required of stock corporations. – Stock

corporations incorporated under this Code shall not be required to have any minimum
authorized capital stock except as otherwise specifically provided for by special law, and
subject to the provisions of the following section.

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Sec.13. Amount of capital stock to be subscribed and paid for purpose 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 percent (25%) 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 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 (P5,0000) pesos.

Amount to be subscribed and paid

Illustration:
If X, Inc. has authorized capital stock of P100, 000 divided into 1,000 shares with par
value of P100.00 per share, it must be shown that at least P25, 000 or 250 shares of the
authorized capital stock must be subscribed. Of the total subscription of P25, 000, at
least P6, 250.00 or 25% of total subscription must be paid. It is not necessary that each
subscriber pay Twenty-five percent (25%) on his subscription. On the other hand, where
the authorized capital stock is stated at 2,000 no par value shares, it must be shown
that at least 500-no par value share have been subscribed. The basis of computation is
on the number of shares.

Securities and Exchange Commission (SEC) may conduct compliance with paid-up
capital requirements because it has come to the knowledge of the Commission that
some corporation have been organized merely as fronts for some hidden objectives with
no real intention of carrying out the purported purposes in their articles of incorporation.
If a bigger capital stock is required, the abuse of the privileges of a corporation would be
minimized.

Capital stock requirements under the special laws

In case of mining and agricultural incorporation, or corporation organized for the
purpose of the disposition , exploitation, development or utilization of natural resources
of the Philippines, as well as corporation organized for the operations of public utilities,

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the Constitution provides that at least 60 % of the capital stock of such corporation must
be owned by citizens of the Philippines.

The Insurance Code provide that “no domestic insurance company shall, if a stock
corporation, engage in business in the Philippines unless possess of a paid-up capital
stock equal to at least two million pesos”. Where the insurance company is to engage in
insurance business it must have a “paid-up capital stock of at least five million pesos” to
be invested in securities specified by law, which securities are to be deposited with the
Insurance Commissioner.

The Financing Company Act requires that “at least sixty per centum of the capital of
financing companies must be owned by citizens of the Philippines and shall have a
paid-up capital of not less than five hundred thousand pesos”.

Commercial banks are required to have a paid-up capital of 100 million pesos. When a
commercial bank having license to operate an expanded foreign currency deposit
system it must have a paid-up capital of at least 150 million pesos and when a
commercial bank is authorized to engage in universal banking it must have a paid-up
capital of at least 500 million pesos.

The New Constitution provides that:

“The ownership and management of mass media shall be limited to citizens of the
Philippines or to corporations or association wholly-owned and manage by such citizen”.

Under the Retail Trade Nationalization law “no person who is not a citizen of the
Philippines, and no association, partnership, or corporation the capital of which is not
wholly owned by citizens of the Philippines, shall engage directly or indirectly in the
retail trade business.

Only vessels of domestic ownership are authorized to engage in coastwise shipping in

the Philippines. Vessels are considered of domestic ownership when such ownership is

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vested in some one or more of the following: (1) Citizens of the Philippines; (2) any
corporation or any company composed wholly of the citizens of the Philippines;

(3) any corporation or company created under the laws of the Philippines, provided at
least 75% of the capital stock thereof or of any interested in said capital is wholly owned
by the citizens of the Philippines.

Sec.14. Contents of articles of the incorporations. – All corporation organized under

this Code shall file with the Securities and Exchange Commission articles of
incorporation in any of the official languages, duly signed and acknowledged by all of
the incorporators containing substantially the following matters, except as otherwise
prescribed by this Code or by special laws:

The name of the corporation.

The specific purpose or purposes for which the corporation is being incorporated.
Where the corporation have more than one stated purpose, the article of incorporation
shall state which the primary is and which is/are 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.
 The place where the principal office of the corporation is to be located, which
must be within the Philippines.
 The term for which the corporation is to exist.
 The names, nationalities and residences of the incorporators.
 The number of directors or trustees which shall not be less than five (5) nor more
than fifteen (15).
 The names, nationalities and residences of the person who shall act as directors
or trustees until the first regular directors or trustees are duly elected and
qualified accordance with this Code.

If it be a stock corporation, the amount of its authorized capital stock in lawful money of
the Philippines, the number of shares which it is divided, and in case the shares are par

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value shares, the par value of each, the names, nationalities and residences of the
original subscriber, and the amount subscribed and paid by each on his subscription,
and if some or all of the shares are without par value, such fact must be stated.

If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount, contributed by each.

Such other matters are not inconsistent with law and which the incorporators may deem
necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation
of any stock corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscriber showing that at least 25% of the authorized capital stock of
the corporation has been subscribed, and at least 25% of the total subscription has
been fully paid to him in actual cash and/or in property the fair valuation of which are
equal to at least 25% of the said subscription , such paid up capital being not less than
five-thousand pesos (P5,000).

Sec.15. Forms of Articles of Incorporation.

– Unless otherwise prescribed by special law, articles of incorporation of all domestic
corporations shall supply substantially the following requirements in the form as
provided for by the SEC:

The name of the corporation.

Incorporators may choose any name they see fit, however strange, uneuphonious, or
unrhetorical it may be, provided it is one not identical with or prejudicially similar to a
name which has previously been adopted by and is being use by another corporation as
its corporate name

Change of Corporate name

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The change of the corporate name doesn’t mean a new corporation, nor the successor
of the original corporation. It is the same corporation with a different name having its
character with no respect change. The corporation continues, as before, responsible in
its new name for all debts or other liabilities it had previously contracted or incurred.
Specific purpose or purposes.
The statement of the purpose has its principal function the affirmative authorization of
the management to enter into those contracts and business transactions which may be
considered as incidental to its attainment of the purposes. It also imposes implied
limitations of their authority by the exclusion of lines of activity which are not covered.

Principal office of the Corporation.

The principal office of the corporation must be within the Philippines. It is where the
books of the corporation are kept and its officers usually and ordinarily meet for the
purpose of managing the affairs and transactions of the business of the corporation.

Terms of Existence of the Corporation. The corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner dissolved or
unless said period is extended.

Names, Nationalities and residences of incorporators.

The names, nationalities and residences of the incorporators must be stated in the
articles of the corporation for the purpose of complying with legal requirement that
majority of the incorporators must be residents of the Philippines and complying with the
statutory requirement on share ownership and in other instances where Filipino Citizens
are required.

Number of directors and trustees.

The number of the director and trustees must not be less than five (5) nor more than
fifteen (15).

Names, nationalities and residences of directors.

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A majority of the directors or trustees of all corporation organized under this Code must
be a resident’s citizens of the Philippines.

Amount of authorized capital stock.

A stock corporation must state the “amount of its authorized capital stock in lawful
money of the Philippines, the number of shares into which it is divided, and in case the
shares are par value shares, the par value of each, the names, nationalities, and
residences of the original subscribers, and the amount subscribed and paid by each on
his subscription, and if some or all the shares are without par value, such fact must be
stated”.

Non-stock Corporation.
The Corporation Code requires the articles of the non-stock corporation to states: the
amount of its capital, the names, nationalities and residences of its contributors and the
amount contributed by each. A non-stock corporation may have capital but it has no
authorized capital stock.

Inclusion of other matters.

The articles of incorporation “may include other matters that is not inconsistent with law
and which the incorporators may deem necessary and convenient”.

Sworn Statement of the Treasurer

The Securities and Exchange Commission shall not accept the articles of incorporation
of any stock corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least:
1. 25% of the authorized capital stock has been subscribed.
2. 25% of the subscription has been fully paid in actual cash or property.
3. The paid-up capital being not less than P5,000.00.

SEC Policy

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Property as subscription payment – Generally, all forms of tangible properties are
acceptable for purposes of payment to subscription provided that the three test of paid-
up capital determination are complied with, i.e., ownership, existence and valuable,
subject to certain restrictions as may be imposed by law.
SEC adopted the policy that discourages the inclusion of intangible assets as goodwill,
lease-hold rights, or timber concession rights, payment of such properties Motor vehicle,
real estate properties and navigable vessels in payment of pre-incorporation
subscription, increases of capital stock or in exchange for additional issuance of shares
are allowed only by the SEC provided that:
1. There has been a proof of valid transfer;
2. All taxes due from the properties has been paid; and
3. Such properties have been reasonably valued.
4. Papers to accompany articles with SEC

The SEC requires the following papers to be submitted to it with the articles of
incorporation:
1. A verification slip executed by the Chief of the Record Section states that the
proposed name of the corporation has been verified and found to be distinct/ not
similar to the names of already existing corporation or those pending registration.
2. Written undertaking to change corporate name in case there is a person, firm or
entity with a prior right to the use of said name or one similar to it.
3. Sworn statement of assets and liabilities, duly executed under oath by the
corporate treasurer together with the amount P50.00 to defray publication
expenses.
4. Bank certificate of deposit, issued under oath by the bank manager or any
authorized bank officer, that there is a deposit of the stated amount representing
the paid-up capital of the corporation either in the name of the treasurer in trust
for the corporation or in the name of the corporation itself.

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Written authority to verify bank deposit signed by the corporate treasurer empowering
the SEC and /or the Central bank to check and inspect the existence of the bank
deposit of the corporate paid-up capital.

Taxpayer account number of the incorporators pursuant to Executive order No. 213.

Registration Data Sheet, a statement in statistical data form, signed by an authorized

representative of the corporation regarding important information about the corporate
seal, corporate name, principal office, capital structure, their subscription and TAN (SEC
Bulletin, Oct. 1982).

Sec. 16. 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
rights of dissenting stockholders in accordance with the provision of this Code, or the
vote or written assent of two-thirds (2/3) of the members if it be a non-stock corporation.

The original and amended articles altogether shall contain all provision required by law
to be set out in the articles of incorporation. Such articles, as amended shall be
indicated by underscoring the change or changes made, and the copy thereof duly
certified under oath by the corporate secretary and the majority of the directors or
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 Securities and Exchange
Commission.

The amendment shall take effect upon its approval by the Securities and Exchange
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.

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Law reserves the rights to modify the charter
The constitution and the Corporation Code reserved the right to amend the charter of a
private corporation. The constitution provides that “no franchise or right be granted
except under the condition that it shall be subject to amendment, alteration, or repeal by
the National Assembly when public interest so requires.

Amendment of Articles of Incorporation The articles of incorporation may be amended

for legitimate purposes that refer to any matter stated in the articles of incorporation. It
may refer to:
Change of corporate name;
1. Extension of term of corporation;
2. Change in classes or series of shares;
3. Change in rights, privileges or restrictions in share ownership;
4. Increase or decrease in the number of directors; and
5. Change in purpose or purposes and other necessary changes.

Vote or recent assent required in amendment of the articles of incorporation shall be as

follows:
Stock Corporation – A majority vote of the directors or trustees and the vote or written
assent of the stockholders representing at least two- thirds (2/3) of the outstanding
capital stock. Under section 81 of the Code, a dissenting stockholder may exercise his
appraisal right if he is against the amendment to be made and demand payment of the
fair value of his shares.
Non-stock Corporation – A majority vote of board of directors and the vote or written
assent of 2/3 of the members.

The amendments to the articles of incorporation shall take effect upon its approval by
the Securities and Exchange Commission or from the filing with the said Commission if
not acted upon within six months from the date of filing for a cause not attributable to
the corporation.

Page 25
REFERENCE:
Lecture Notes Compilation of Dean Rene Boy R. Bacay, CPA, CrFA, CMC, MBA, FRIAcc

For further discussion please refer to the link provided:

Law on Private Corporations Part 1 based on the Revised Corporation Code of the
Philippine (2020) -
[Link]
aG0dj9&index=1

Capital Structure of Corporations - Law on Corporations based on the Revised

Corporation Code (2020) - [Link]
jU&list=PLC4IeQi6fxgwiFCiqwTJvNh2oFTaG0dj9&index=2

Incorporation and Organization of Corporations - Law on Corporation | Revised

Corporation Code-
[Link]
aG0dj9&index=3

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