1. INCORPORATORS
2. CORPORATORS 3. FOREIGN
INCORPORATORS/CORPORATORS
B. STEPS IN THE FORMATION OF A
CORPORATION 1. PROMOTION
a. LIABILITY OF CORPORATION ON PROMOTERS’ CONTRACTS
b. PERSONAL LIABILITY OF
PROMOTERS
c. COMPENSATION OF PROMOTERS
2. DRAFTING THE ARTICLES OF
INCORPORATION
a. DEFINITION OF TERMS
b. CONTENTS OF ARTICLES OF INCORPORATION
3. FILING WITH SEC AND PAYMENT OF FEES
4. ISSUANCE OF CERTIFICATE OF INCORPORATION
5. INTERNAL ORGANIZATION AND
COMMENCEMENT OF BUSINESS C. DE FACTO CORPORATION
1. REQUISITES OF DE FACTO
CORPORATION
2. DE JURE VS. DE FACTO CORPORATION D. CORPORATION BY ESTOPPEL
A. Components of a Corporation
1.
Incorporators - are those stockholders or members mentioned in the articles as originally forming and composing the corporation and who are signatories thereof.Requirements:
a. Natural persons b. Of legal age
c. Must own or subscribe to at least one share of stock of the corporation (Genuine interest)
d. 5-15 incorporators who must sign the articles of incorporation
e. Majority of the incorporators must be residents of the Philippines
Original subscribers
Persons whose names are mentioned in the Articles, but not as incorporators; they do not sign the Articles.
2.
Corporators - are stockholders or members who join the corporation after its incorporation.3.
Foreign Incorporators/Corporators (Asked in 05)General Rule: All incorporators/
corporators may be foreigners.
Exceptions: Fully or partly nationalized corporations.
a. Where NO foreign stockholder is allowed.
Mass media except recording (Art.
XVI, Sec. 11 of the Constitution;
Presidential Memorandum dated 04 May 1994)
Retail trade enterprises with paid-up capital of less than US$2.5 Million (Sec. 5 of RA 8762)
Private security agencies (Sec. 4 of RA 5487)
Small-scale mining (Sec. 3 of RA 7076)
Utilization of natural resources (Art.
XII, Sec. 2 of the Constitution)
Ownership, operation and management of cockpits (Sec. 5 of PD 449)
Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II, Sec. 8 of the Constitution)
Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines)
Manufacture of firecrackers and other pyrotechnic services (Sec. 5 of RA 7183)
b. Up to 20% foreign equity.
Private radio communications network (RA 3846)
c. Up to 25% foreign equity.
Private recruitment, whether for local or overseas, employment (Art.
27 of PD 442)
Construction and repair of locally funded works (Sec. 1 of CA 541, LOI 630)
Construction of defense-related structures (Sec. 1 of CA 541) d. Up to 40% foreign equity.
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Exploration, development and utilization of natural resources (Art.
XII, Sec. 2 of the Constitution).
Realty companies and other corporations that own private lands (Art. XII, Sec. 7 of the Constitution;
Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182).
Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
Culture, production, milling, processing, trading except retail of rice and corn and by-products (Sec.
5 of PD 194; Sec. 15 of RA 8762).
Adjustment companies (Sec. 323 of PD 612 as amended by PD 1814).
Sauna and steam bath bathhouses, massage clinics and similar activities.
e. Up to 60% foreign equity.
Financing companies regulated by SEC (Sec. 6 of RA 5980 as amended by RA 8556)
Investment houses (Sec. 5 of PD 129 as amended by RA 8366)
B. Steps in the Formation of a
Corporation
1. Promotion
Promoters – are persons who, acting alone or with others, take initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor (RA 8799, The Securities Regulation Code).
a. Liability of corporation on promoters’
contracts
General Rule: A corporation is NOT bound by the contract. Since the corporation did not yet exist at the time of the contract, it could not have had an agent who could legally bind it.
Exceptions: A corporation may be bound by the contract if it makes the contract its own by:
1. Adoption or ratification of the ENTIRE contract.
2. Acceptance of benefits under the contract with knowledge of the terms thereof.
b. Personal liability of promoters
General Rule: The promoter binds himself PERSONALLY & assumes the responsibility of looking to the proposed corp. for reimbursement.
Exceptions: Any express or implied agreement to the contrary, or novation of the contract
c. Compensation of Promoters
General Rule: The corporation is NOT liable to pay compensation because this would be an imposition on innocent investors. (Ballantine)
Exceptions:
1. If after it is formed, corporation expressly promises to do so
2. Services done partly before and partly after incorporation and the corporation takes the benefits thereof
Note: The Securities Act authorizes a promotion fee IF it is provided for in the registration statement of the securities involved.
* Promotion
Drafting the Articles of Incorporation
corporate name
purpose clause
principal office
term of existence
incorporators & directors
capital stock; subscription
treasurer-in-trust
treasurer’s affidavit
Filing with SEC;
Payment of the filing and publication fees
Issuance of the Certificate of Incorporation by the SEC (if, after examination, all the papers
filed are in order)
Internal Organization (by-laws, election of officers)
& Commencement of business operations
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2. Drafting the Articles of Incorporation (AOI)
a. Definition of Terms
1. Articles of Incorporation - constitutes the charter of the corporation and defines the contractual relationships between the State and the corporation, the stockholders and the State, and the corporation and the stockholders.
2. Capital - It is used broadly to indicate the entire property or assets of the corporation. In the strict sense, it refers to that portion of the net assets paid by the stockholders as consideration for the shares issued to them, which is utilized for the prosecution of the business of
the corporation (DE LEON,
Corporation Code of the Philippines) 3. Capital Stock is an amount fixed in the
AOI (where shares are with par value) and is unaffected by profits and losses.
It limits the maximum amount or number of shares that may be issued without formal amendment of the articles of incorporation (See Sec. 38).
4. Authorized Capital Stock - is synonymous with capital stock where the shares of the corporation have par value. If the shares of stock have no par value, the corporation has no ACS, but it has capital stock the amount of which is not specified in the AOI as it cannot be determined until all the shares have been issued. In this case, the two terms are not synonymous (DE LEON).
5. Subscribed Capital Stock - It is the amount of the capital stock subscribed whether fully paid or not. It connotes an original subscription contract for the acquisition by a subscriber of unissued shares in a corporation (Secs. 60 and 61)
6. Outstanding Capital Stock - it is the total shares of stock issued under the binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares (Sec. 137). It is broader than
“subscribed” capital stock.
7. Paid-up Capital - Portion of the authorized capital stock which has been subscribed and paid (See Sec. 13).
8. Unissued Capital Stock - It is that portion of the capital stock that is not issued or subscribed. It does not vote and draws no dividends.
9. Legal Capital - It is the amount equal to the aggregate par value and/or issued value of the outstanding capital stock (DE LEON).
b. Contents of Articles of Incorporation 1. Corporate name
Must not be identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws (Sec. 18).
Must include the word “Corporation”
or “Inc”
Change of corporate name requires the amendment of the AOI:
majority vote of the board and the vote or written assent of stockholders holding 2/3 of the outstanding capital stock (Sec. 16).
Republic Planters Bank vs. CA (1992):
Amendment of a corporation’s AOI changing its corporate name does not extinguish the personality of the original corporation. It is the same corporation with a different name, and its character is not changed. Consequently, the
“new” corporation is still liable for the debts and obligations of the “old”
corporation.
2. Purpose clause
Must indicate the PRIMARY and SECONDARY purposes if there are more than one purpose, which should not contradict or change the nature of the corporation (Sec.
14(2))
Must not be patently
unconstitutional, illegal, immoral, and contrary to government rules and regulations (Sec. 17 (2)).
Must not be for the purpose of practicing a profession
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3. Principal office
Must be within the Philippines (Sec.
14 (3))
AOI must specify both province or city or town where it is located
Important in (1) determining venue in an action by or against the corporation (2) determining the province where a chattel mortgage of shares should be registered
(Chua Gan vs. Samahang
Magsasaka, 1935).
4. Term of existence
Maximum life of 50 years.
Extendible for a period not exceeding 50 years at any one instance. No extension, however, can be made earlier than 5 years before the end of the term. (Sec.
11)
Extension requires an
amendment of the AOI. Any dissenting stockholder may exercise his appraisal right (Sec. 37).
5. Names, citizenship and residences of incorporators
6. Number, names, citizenship and residences of directors/trustees. (Asked in 05 and 08)
“Directors” is used for stock corporations, “trustees” for non-stock corporations.
General Rule: not less than 5 but not more than 15 directors/trustees Exception: In non-stock corporations, the articles or by-laws may provide for more than 15 trustees (Sec. 92).
In educational non-stock corporations, trustees may NOT exceed 15. Number of trustees shall be in multiples of 5 (Sec. 108).
In nationalized industries, aliens may be directors of a corporation only in such number as may be proportional to their allowable ownership of shares.
7. If stock corporation, amount of authorized capital stock, number of shares
AOI must state the authorized capital stock in lawful money of the Philippines, the number of shares into which the ACS is divided, and the par value of each par value shares (Sec. 14(8), Sec. 15(7)).
8. In par value stock corporations, the par value of each share.
9. Number of shares and amounts of subscription of subscribers which shall not be less than 25% of authorized capital stock.
10. Amount paid by each subscriber on their subscription, which shall not be less than 25% of subscribed capital and shall not be less than P5,000.
11. Name of treasurer elected by the subscribers.
12. Other matters.
Classes of shares, as well as the preferences or restrictions on any such class (Sec. 6).
Denial or restriction of pre-emptive right (Sec.39).
Prohibition against transfer of stock which would reduce stock ownership to less than the required minimum in the case of a nationalized business or activity (Sec. 15(11)).
3. Filing with SEC and payment of fees Documents to be filed with SEC
(Asked in 02):
a. Articles of Incorporation
b. Treasurer’s Affidavit certifying that 25%
of the total authorized capital stock has been subscribed and at least 25% of such has been fully paid in cash or property.
c. Bank certificate covering the paid-up capital.
d. Letter authority authorizing the SEC to examine the bank deposit and other corporate books and records to determine the existence of paid-up capital.
e. Undertaking to change the corporate name in case there is another person or entity with same or similar name that was previously registered.
f. Certificate of authority from proper government agency whenever appropriate like BSP for banks and Insurance Commission for insurance corporations. (SUNDIANG AND AQUINO, Reviewer on Commercial Law)
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4. Issuance of Certificate of Incorporation by SEC
The SEC shall give the incorporators reasonable time to correct or modify the objectionable portions of the articles or amendment (Sec. 17).
Grounds for disapproving AOI: (Sec. 17)
AOI does not SUBSTANTIALLY comply with the form prescribed
Purpose is patently unconstitutional, illegal, immoral, contrary to government rules and regulations
Treasurer’s Affidavit concerning the amount of capital subscribed and or paid is false
Required percentage of ownership of Filipino citizens has not been complied with.
REMEDY in case of rejection of AOI -petition for review in accordance with the Rules of Court (Sec. 6, last par., PD 902-A)
Commencement of corporate
existence and juridical personality – upon issuance of certificate of Incorporation (Sec. 19)
REVOCATION of certificate of incorporation – if incorporators are found guilty of fraud in procuring the same after due notice and hearing (Sec.
6(i), PD 902-A)
5. Internal Organization and
Commencement of Business
Operations
– includes the adoption of by-laws and election officers