MODULE 2 – INCORPORATION AND ORGANIZATION OF PRIVATE

CORPORATIONS

This module aims to teach students the incorporation and organization of private
corporations in the Philippines. This module answers the question how are corporations
organized and tackles the qualifications of incorporators as well as identifies the
contents of the articles of incorporation including the procedures of its amendment or
disapproval of the same. Also discussed are corporation by estoppel and de facto
corporations and the effect of non-use of corporate charter and continuous non-
operation.

Course Learning Outcomes

At the end of the Module, the students should be able to:
1. Understand how corporations are organized
2. Enumerate the qualifications of incorporators
3. Understand the corporate term
4. Understand the minimum capital stock required
5. Identify the contents of the articles of incorporation
6. Familiarize with the form and how the articles of incorporation are amended
7. Identify the grounds when articles of incorporation or its amendment may be
disapproved
8. Familiarize with the registration and commencement of corporate existence
9. Identify what is a corporation by estoppel and de facto corporations
10. Understand the effect on Non-use of Corporate Charter and continuous non-
operation

Lesson 1 - Number and Qualifications of Incorporators

Under Section 10 of the Code, any person, partnership, association or
corporation, singly or jointly with others but not more than fifteen (15) in number, may
organize a corporation for any lawful purpose or purposes: Provided, That natural
persons who are licensed to practice a profession, and partnerships or associations
organized for the purpose of practicing a profession, shall not be allowed to organize as
a corporation unless otherwise provided under special laws. Incorporators who are
natural persons must be of legal age.
Each incorporator of a stock corporation must own or be a subscriber to at least
one (1) share of the capital stock.
 A corporation with a single stockholder is considered a One Person Corporation
as described in Title XIII, Chapter III of this Code.
Note: The qualifications of incorporators are:
a) Natural person – only a natural person can be qualified to become an
incorporator. Thus, corporations and partnerships cannot be incorporators;
b) Legal age – an incorporator should be at 18 years of age in order to be
qualified as such;
c) Resident of the Philippines – the law provides that at least a majority of the
incorporators and local residents;
d) Owner or Subscriber – one cannot be qualified to become an incorporator is
he is neither an owner nor a subscriber to at least one share of the capital
stock. (Aquino and Cruz: The Revised Corporation Code, Annotated)
An incorporator cannot be changed after incorporation. His name will always be
carried as one of the persons who originally composed the corporation. He may cease
to be a stockholder or member but he will always be an incorporator.
Assessment:
Direction: Answer the following question/s:
1. Cite the qualifications of incorporators?
References:
Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated.
Central Books Supply, Inc., Quezon City. 2019
Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities
Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018.
Republic Act No. 11232, The Revised Corporation Code of the Philippines.

Lesson 2 - Corporate Term/Minimum Capital Stock Not Required of Stock

Corporations
A corporation shall have perpetual existence unless its articles of incorporation
provides otherwise.
Corporations with certificates of incorporation issued prior to the effectivity of this
Code, and which continue to exist, shall have perpetual existence, unless the
corporation, upon a vote of its stockholders representing a majority of its outstanding
capital stock, notifies the Commission that it elects to retain its specific corporate term
pursuant to its articles of incorporation: Provided, That any change in the corporate term
under this section is without prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code.
A corporate term for a specific period may be extended or shortened by
amending the articles of incorporation: Provided, That no extension may be made
earlier than three (3) years prior to the original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier extension as may be determined by the
Commission: Provided, further, That such extension of the corporate term shall take
effect only on the day following the original or subsequent expiry date(s).
A corporation whose term has expired may apply for a revival of its corporate
existence, together with all the rights and privileges under its certificate of incorporation
and subject to all of its duties, debts and liabilities existing prior to its revival. Upon
approval by the Commission, the corporation shall be deemed revived and a certificate
of revival of corporate existence shall be issued, giving it perpetual existence, unless its
application for revival provides otherwise.
No application for revival of certificate of incorporation of banks, banking and
quasi banking institutions, preneed, insurance and trust companies, non-stock savings
and loan associations (NSSLAs), pawnshops, corporations engaged in money service
business, and other financial intermediaries shall be approved by the Commission
unless accompanied by a favorable recommendation of the appropriate government
agency (SEC. 11).
Note that a corporation under the new statutory regime may exist ad infinitum –
that is to have a perpetual existence, unless its articles of incorporation provides a fixed
term. Sec 12 of the code provides that stock corporations shall not be required to have
a minimum capital stock, except as otherwise specifically provided by special law. In
other words, the revised version no longer requires any minimum capitalization for stock
corporations. (Aquino and Cruz: The Revised Corporation Code, Annotated)
Assessment:
Direction: Answer the following question/s:
1. What is the corporate term of corporations?
References:
Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated.
Central Books Supply, Inc., Quezon City. 2019
Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities
Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018.
Republic Act No. 11232, The Revised Corporation Code of the Philippines.
Lesson 3 - Contents of the Articles of Incorporation
All corporations shall file with the Commission articles of incorporation in any of
the official languages, duly signed and acknowledged or authenticated, in such form
and manner as may be allowed by the Commission, containing substantially the
following matters, except as otherwise prescribed by this Code or by special law:
(a) The name of the corporation;
(b) The specific purpose or purposes for which the corporation is being formed.
Where a corporation has more than one stated purpose, the articles of
incorporation shall indicate the primary purpose and the secondary purpose or
purposes: Provided, That a nonstock corporation may not include a purpose
which would change or contradict its nature as such;
(c) The place where the principal office of the corporation is to be located, which
must be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not
elected perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fifteen (15) or the
number of trustees which may be more than fifteen (15);
(g) The names, nationalities, and residence addresses of persons who shall act
as directors or trustees until the first regular directors or trustees are duly elected
and qualified in accordance with this Code;
(h) If it be a stock corporation, the amount of its authorized capital stock, number
of shares into which it is divided, the par value of each, names, nationalities, and
residence addresses of the original subscribers, amount subscribed and paid by
each on the subscription, and a statement that some or all of the shares are
without par value, if applicable;
(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
(j)Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
An arbitration agreement may be provided in the articles of incorporation
pursuant to Section 181 of this Code.
The articles of incorporation and applications for amendments thereto may be
filed with the Commission in the form of an electronic document, in accordance with the
Commission’s rules and regulations on electronic filing (Sec. 13).
 Note: The articles of incorporation refers to the document or papers drawn up by
or on behalf of the incorporators of a proposed corporation to be presented for approval
by the SEC. It basically requires the following information:
a) The Corporate Name – refers to the name or nomenclature to which the business
organization will be formally and legally known and called;
b) The Principal and Secondary Purposes – refers to the specific purpose or
purposes for which the corporation is being incorporated. Where a corporation
has more than one stated purpose, the articles of incorporation shall state which
is the primary purpose and which is/are the secondary purpose or purposes. A
non-stock corporation may not include a purpose which would change or
contradict its nature as such;
c) The Principal Office – this refers to the place where the head office of the
corporation is to be located, which must be within the Philippines;
d) The Corporate Life – this refers to the term for which the corporation is to exist. If
it doesn’t elect perpetual existence;
e) The Incorporators – this would disclose the names, nationalities and residences
of the incorporators;
f) The Directors or Trustees – this would disclose the number of directors or
trustees;
g) Interim Directors or Trustees – this would disclose the names, nationalities and
residences of persons who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in accordance with the
Revised Corporation Code;
h) The Corporate Capital – if it be a stock corporation, the amount of its authorized
capital stock in lawful money of the Philippines, the number of shares into which
it is divided, and incase the share 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 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; and
i) Other Matters – would refer to disclosure of other information that are not
inconsistent with law and which the incorporators may deem necessary and
convenient. (Aquino and Cruz: The Revised Corporation Code, Annotated)
Question: Distinguish Authorized Capital, Subscribed Capital and Paid-up
Capital:
 Answer: Authorized capital is the total amount of the capital stock of the
corporation as stated in its articles of incorporation which it can raise.
Subscribed capital is the amount of the authorized capital which has actually
been subscribed or undertaken to be paid by the subscriber while paid-up capital
is the amount of subscription that has been actually paid. (Perez: Quizzer and
Reviewer on Corporation)
Lesson 3.1- Form of Articles of Incorporation
Unless otherwise prescribed by special law, the articles of incorporation of all
domestic corporations shall comply substantially with the following form:
Articles of Incorporation of
______________________
(Name of Corporation)
The undersigned incorporators, all of legal age, have voluntarily agreed to form a
(stock) (nonstock) corporation under the laws of the Republic of the Philippines and
certify the following:
First: That the name of said corporation shall be “_______________, Inc.,
Corporation or OPC”;
Second: That the purpose or purposes for which such corporation is incorporated
are: (If there is more than one purpose, indicate primary and secondary purposes);
Third: That the principal office of the corporation is located in the City/Municipality
of ______________________, Province of _______________________, Philippines;
Fourth: That the corporation shall have perpetual existence or a term of
______________ years from the date of issuance of the certificate of incorporation;
Fifth: That the names, nationalities, and residence addresses of the incorporators
of the corporation are as follows:
Name Nationality Residence
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________
 Sixth: That the number of directors or trustees of the corporation shall be
_________________; and the names, nationalities, and residence addresses of the first
directors or trustees of the corporation are as follows:
Name Nationality Residence
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________
___________________ ________________________ _____________________

Seventh: That the authorized capital stock of the corporation is

______________ PESOS (P________), divided into _____ shares with the par value of
____________ PESOS (P_______________) per share. (In case all the shares are
without par value): That the capital stock of the corporation
is________________________ shares without par value.
(In case some shares have par value and some are without par value): That the capital
stock of said corporation consists of __________________________ shares, of which
_______________________ shares have a par value of _________________ PESOS
(P____________) each, and of which _______________________ shares are without
par value.
Eighth: That the number of shares of the authorized capital stock above-stated
has been subscribed as follows:
Name of Nationality No. of Shares Amount Amount
Subscriber Subscribed Subscribed

(Modify No. 8 if shares are with no-par value. In case the corporation is nonstock, Nos.
7 and 8 of the above articles may be modified accordingly, and it is sufficient if the
articles state the amount of capital or money contributed or donated by specified
persons, stating the names, nationalities, and residence addresses of the contributors
or donors and the respective amount given by each.)
Ninth: That _____________________ has been elected by the subscribers as
Treasurer of the Corporation to act as such until after the successor is duly elected and
qualified in accordance with the bylaws, that as Treasurer, authority has been given to
receive in the name and for the benefit of the corporation, all subscriptions,
contributions or donations paid or given by the subscribers or members, who certifies
the information set forth in the seventh and eighth clauses above, and that the paid-up
portion of the subscription in cash and/or property for the benefit and credit of the
corporation has been duly received.
Tenth: That the incorporators undertake to change the name of the corporation
immediately upon receipt of notice from the Commission that another corporation,
partnership or person has acquired a prior right to the use of such name, that the name
has been declared not distinguishable from a name already registered or reserved for
the use of another corporation, or that it is contrary to law, public morals, good customs
or public policy.
Eleventh: (Corporations which will engage in any business or activity reserved for
Filipino citizens shall provide the following):
“No transfer of stock or interest which shall reduce the ownership of Filipino citizens to
less than the required percentage of capital stock as provided by existing laws shall be
allowed or permitted to be recorded in the proper books of the corporation, and this
restriction shall be indicated in all stock certificates issued by the corporation.”
IN WITNESS WHEREOF, we have hereunto signed these Articles of
Incorporation, this _______ day of _____________, 20_____ in the City/Municipality of
______________________, Province of _______________________, Republic of the
Philippines.
_________________________ ___________________________
_________________________ ___________________________
_________________________ ___________________________
_________________________ ___________________________

(Names and signatures of the incorporators)

_______________________________________
(Name and signature of Treasurer)
Lesson 3.2 - Amendment of Articles of Incorporation
 Unless otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of incorporation may be
amended by a majority vote of the board of directors or trustees and the vote or written
assent of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, without prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code. The articles of incorporation of a nonstock
corporation may be amended by the vote or written assent of majority of the trustees
and at least two-thirds (2/3) of the members.
The original and amended articles together shall contain all provisions required
by law to be set out in the articles of incorporation. Amendments to the articles shall be
indicated by underscoring the change or changes made, and a copy thereof duly
certified under oath by the corporate secretary and a majority of the directors or
trustees, with a statement that the amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted to the Commission.
The amendments shall take effect upon their approval by the Commission or
from the date of filing with the said Commission if not acted upon within six (6) months
from the date of filing for a cause not attributable to the corporation (Sec 15).
Lesson 3.3- Grounds When Articles of Incorporation or Amendment May be
Disapproved
The Commission may disapprove the articles of incorporation or any amendment
thereto if the same is not compliant with the requirements of this Code: Provided, That
the Commission shall give the incorporators, directors, trustees, or officers a reasonable
time from receipt of the disapproval within which to modify the objectionable portions of
the articles or amendment. The following are grounds for such disapproval:
(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.
No articles of incorporation or amendment to articles of incorporation of banks,
banking and quasi-banking institutions, preneed, insurance and trust companies,
NSSLAS, pawnshops, and other financial intermediaries shall be approved by the
Commission unless accompanied by a favorable recommendation of the appropriate
government agency to the effect that such articles or amendment is in accordance with
law (Sec. 16)
According to Aquino and Cruz the grounds for disapproval of the articles of
incorporation can be summarize as follows:
1. It is not sufficient in form;
2. It is contrary to law and morals;
3. The certification is false; and
4. Constitutional requirement on ownership has not been complied with.
Note further that the certification must still be under oath.
Lesson 3.4 - Corporate Name and Registration, Incorporation and
Commencement of Corporate Existence
Section 17 of the Code explicitly provides that 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.
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.
Section 18 on the other hand sates that a person or group of persons desiring to
incorporate shall submit the intended corporate name to the Commission for verification.
If the Commission finds that the name is distinguishable from a name already reserved
or registered for the use of another corporation, not protected by law and is not contrary
to law, rules and regulations, the name shall be reserved in favor of the incorporators.
The incorporators shall then submit their articles of incorporation and bylaws to the
Commission.
If the Commission finds that the submitted documents and information are fully
compliant with the requirements of this Code, other relevant laws, rules and regulations,
the Commission shall issue the certificate of incorporation.
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.
Assessment:
Direction: Answer the following question/s:
1. What are the grounds for the disapproval of articles of incorporation?
References:
Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated.
Central Books Supply, Inc., Quezon City. 2019
Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities
Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018.
Republic Act No. 11232, The Revised Corporation Code of the Philippines.

Lesson 4- Concepts of De facto Corporations and Corporation by Estoppel

De Facto Corporations. The due incorporation of any corporation claiming in
good faith to be a corporation under this Code, and its right to exercise corporate
powers, shall not be inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding (Sec. 19).
The requirements of De Facto Corporations are:
a) The existence of a valid law under which it may be incorporated;
b) An attempt in good faith to incorporate; and
c) Assumption of corporate powers.
 Corporation by Estoppel. All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided, however,
That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use its lack
of corporate personality as a defense. Anyone who assumes an obligation to an
ostensible corporation as such cannot resist performance thereof on the ground that
there was in fact no corporation (Sec. 20).
Note: The unregistered or unincorporated corporation cannot claim lack of
juridical existence or personality so as to avoid liability. It is barred by estoppel from
denying its corporate existence. It cannot claim lack of capacity to be sued to evade
responsibility on a contract it had entered into and by virtue of which it received
advantages and benefits (Perez citing Christian Children’s Fund vs. NLRC, 174 SCRA
174).
The doctrine of corporation by estoppel cannot be invoked in the following cases:
1. It cannot be invoked by a person who misrepresented the corporation as duly
organized as against his victim. The principle of estoppel can be invoked against
the person who made the representation and not in favor of such person.
2. It cannot be used against a person who takes no part except to subscribe for
stock in the proposed corporation which was never legally formed, and hence, he
cannot be liable as a partner of those who engaged in business under the name
of the pretended corporation (Perez citing Ward v. Bingham, 127 Mass. 24)
Assessment:
Direction: Answer the following question/s:
1. Explain the concepts of de facto corporations and corporations by estoppel?
References:
Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated.
Central Books Supply, Inc., Quezon City. 2019
Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities
Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018.
Republic Act No. 11232, The Revised Corporation Code of the Philippines.

Lesson 5 - Effect on Non-use of Corporate Charter and Continuous Inoperation

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.
 However, 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.
The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation of the certificate of
incorporation of companies under their special regulatory jurisdiction (Sec. 21).
Note: The law provides that the non-use of the corporate charter or its continuous
inoperation results in the dissolution of the corporation.
Two instances:
1. When the corporation fails to formally organize and commence operation
within two (2) years from its date of incorporation. This means that the board
of directors has not made any organizational meeting for the purpose of
commencing corporate operations; and
2. When the corporation initially organizes and operates but subsequently
becomes inoperative for a period of five (5) years.
Exception to the rule: if the failure to organize, commence the transaction of its
business or the construction of its works, or to continuously operate is due to causes
beyond its control, the rule shall not apply. (Aquino and Cruz: The Revised Corporation
Code, Annotated)
Question: What is the meaning of organize or organization as applied to
corporation?
Answer: The election of officers, providing to the subscription and payment of the
capital stock, the adoption of by-laws, and such other steps as are necessary to endow
the legal entity with the capacity to transact the legitimate business for which it was
created (Perez citing Benguet Consolidated Mining Co. vs, Pineda, 98 Phil 711).
Assessment:
Direction: Answer the following question/s:
1. The law provides that the non-use of the corporate charter or its continuous
inoperation results in the dissolution of the corporation. Cite two instances?
References:
Aquino, David Robert C., Cruz, Aristeo R. The Revised Corporation Code: Annotated.
Central Books Supply, Inc., Quezon City. 2019
Perez, Hernando B. Quizzer and Reviewer on Corporation Code, The Securities
Regulation Code and Related Laws. Central Books Supply, Inc., Quezon City. 2018.
Republic Act No. 11232, The Revised Corporation Code of the Philippines.