MERCANTILE LAW CORPORATION
F. ARTICLES OF INCORPORATION 1 NATURE AND FUNCTION OF ARTICLES
• Constitutes the charter of the corporation and sets forth the rules and conditions upon which the association or corporation is founded
• Defines the contractual relationships between the State and the corporation, the stockholders and the State, and the corporation and the stockholders
The Articles must be filed with the SEC for the issuance of the Certificate of Incorporation.
F.2. CONTENTS
I. CORPORATE NAME
(1) Must not be identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law
(2) Not patently deceptive, confusing or contrary to existing laws [Sec. 18]
The policy underlying the prohibition against the registration of a corporate name which is
PAGE 149 OF 320 “identical or deceptively or confusingly
similar” to that of any existing corporation or which is “patently deceptive or patently confusing” or “contrary to existing laws” is: (1) The avoidance of fraud upon the public
which would have occasion to deal with the entity concerned;
(2) The prevention of evasion of legal obligations and duties, and
(3) The reduction of difficulties of administration and supervision over corporations. [Lyceum of the Philippines v.
CA (1993)]
To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, one must evaluate corporate names in their entirety.
The corporate name shall contain the word “Corporation” or “Incorporated”, or the abbreviations “Corp.” or “Inc.” respectively. [SEC Memo Circ. No.5, s.2008]
Business or trade name which is different from the corporate name shall be indicated in the articles of incorporation. A company may have more than one business or trade name. [SEC Memo Circ. No. 12, s. 2008]
Change of corporate name requires the amendment of the Articles of Incorporation: majority vote of the board and the vote or written assent of stockholders holding 2/3 of the outstanding capital stock, or the vote of or written assent of at least 2/3 of the members if non-stock [Sec. 16].
Amendment of a corporation’s Articles of Incorporation to change 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. [Republic Planters Bank v. CA (1992)]
II. PURPOSE CLAUSE
• Must indicate the specific 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. [People v. United Medical Service,
200 N.E. 157, cited in Campos]
• Under the present state of our law and jurisprudence, a corporation cannot be organized for or engage in the practice of law in this country. This interdiction, just like the rule against unethical advertising, cannot be subverted by employing some so-called paralegals supposedly rendering the alleged support services. The remedy for the apparent breach of this prohibition is the concern and province of the Solicitor General who can institute the corresponding quo warranto action, after due ascertainment of the factual background and basis for the grant of the corporate charter, in light of the putative misuse thereof. [Ulep v. The Legal Clinic (1993)]
III. PRINCIPAL OFFICE
• Must be within the Philippines [Sec. 14 (3)] • Articles of Incorporation must specify both
province or city or town where it is located • SEC Circular No. 3-2006: A specific
address is now required; merely indicating Metro Manila is no longer allowed.
Important for [1] determining venue in an action by or against the corporation, and [2] determining the province where a chattel mortgage of shares should be registered. [Chua Guan vs. Samahang Magsasaka (1935)] The residence of a corporation is the place where its principal office is located, as stated in its Articles of Incorporation. To insist that the proper venue is the actual principal office and not that stated in its Articles of Incorporation would indeed create confusion and work untold inconvenience. Enterprising litigants may, out of some ulterior motives, easily circumvent the rules on venue by the
PAGE 150 OF 320 simple expedient of closing old offices and
opening new ones in another place that they may find well to suit their needs. [Hyatt
Elevators v. Goldstar Elevators (2005)]
IV. CORPORATE TERM • 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 Articles of Incorporation subject to the exercise of appraisal right by the dissenting stockholder [Sec. 37].
V. NAMES, CITIZENSHIP AND RESIDENCES OF INCORPORATORS VI. NUMBER, NAMES, CITIZENSHIP
AND RESIDENCES OF
DIRECTORS/TRUSTEES. • Stock corporations: directors • Non-stock corporations: trustees
General rule: Not less than 5 but not more than 15 directors/trustees
Exceptions: Non-stock corporations whose articles or by-laws may provide for more than 15 trustees [Sec. 92]
Banks may have up to 21 directors for cases of mergers and consolidation. [Sec. 17, General
Banking Act]
Educational non-stock corporations: • trustees may not be less than 5 nor exceed
15
• number of trustees shall be in multiples of 5 [Sec. 108]
Nationalized or partly-nationalzed industries
• Aliens may be directors but only in such number as may be proportional to their allowable ownership of shares
If STOCK corporation:
• authorized capital stock in lawful money of the Philippines
• the number of shares into which the ACS is divided
• If with par value shares, the par value of each share [Sec. 14[8], Sec. 15[7]].
• names, citizenship, residences of original subscribers
• amount subscribed and paid on each subscription
• fact that some or all shares are w/o par value
If NON-STOCK: • amount of capital
• names, nationalities and residences of contributors
• amount contributed by each
VII. 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 [Sec 15 (8,9)]
VIII. NAME OF TREASURER ELECTED BY THE SUBSCRIBERS [Sec 15(10)] IX. OTHER MATTERS
(1) Classes of shares, as well as preferences or restrictions on any such class [Sec. 6]. (2) Denial or restriction of pre-emptive right
[Sec.39].
(3) 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)].
PAGE 151 OF 320 No transfer clause
If the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the corporation to own land – that is, the corporation becomes disqualified to own
land. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land. [J.G. Summit Holdings, Inc. v. CA (2005)]
Contents of AOI Comments
Corporate
Name • Essential to its existence since it is through it that the corporation can sue and be sued and perform all legal acts • A corporate name shall be disallowed by the SEC if the proposed name is
either:
(1) identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (2) patently deceptive, confusing or contrary to existing laws. (Sec. 18) LYCEUM OF THE PHILS. VS. CA (219 SCRA 610)
The policy underlying the prohibition against the registration of a corporate name which is “identical or deceptively or confusingly similar” to that of any existing corporation or which is “patently deceptive or patently confusing” or “contrary to existing laws is:
(1) the avoidance of fraud upon the public which would have occasion to deal with the entity concerned;
(2) the prevention of evasion of legal obligations and duties, and (3) the reduction of difficulties of administration and supervision over
corporations. Purpose
Clause • A corporation can only have one (1) primary purpose. However, it can have several secondary purposes. • A corporation has only such powers as are expressly granted to it by law & by
its articles of incorporation, those which may be incidental to such conferred powers , those reasonably necessary to accomplish its purposes & those which may be incident to its existence.
• Corporation may not be formed for the purpose of practicing a profession like law, medicine or accountancy
Principal
Office • Must be within the Philippines • Must specify city or province • Street/number not necessary
• important in determining venue in an action by or against the corp., or on determining the province where a chattel mortgage of shares should be registered
Term of
Existence • Cannot specify term which is longer than 50 years at a time
PAGE 152 OF 320
Contents of AOI Comments
original or subsequent expiry date UNLESS there are justifiable reasons for an earlier extension.
Incorporators
and Directors • Names, nationalities & residences of the incorporators;
• Names, nationalities & residences of the directors or trustees who will act as such until the first regular directors or trustees are elected;
• Treasurer who has been chosen by the pre-incorporation
subscribers/members to receive on behalf of the corporation, all subscriptions /contributions paid by them.
Capital Stock • Amount of its authorized capital stock in lawful money of the Philippines • Number of shares into which it is divided
• In case the shares are par value shares, the par value of each,
• 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
• For a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each
• 25% of 25% rule to be certified by Treasurer • Paid up capital should not be less than P5,000 Other
matters • Classes of shares into w/c the shares of stock have been divided, preferences of, and restrictions on any such class; and any denial or restriction of the pre- emptive right of stockholders should also be expressly stated in said articles. • If the corporation is engaged in a wholly or partially nationalized business or activity, the AOI must contain a prohibition against a transfer of stock which would reduce the Filipino ownership of its stock to less than the required minimum.
F.3. AMENDMENT
Amendment of the Articles of Incorporation
(1) By a majority vote of the BOD or trustees (2) And the vote or written assent of
• 2/3 of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code,
• 2/3 of the members if it be a non-stock corporation. [Sec. 16]
I. LIMITATIONS
(1) Requirements imposed by the Code or by special laws
(2) Must be for a legitimate purpose
(3) Must be approved by the directors/trustees and the stockholders/members through the vote requirement
(4) Appraisal Right
(5) Both the original and the amended articles together must contain all the provisions required by law to be set out in the articles
PAGE 153 OF 320 (6) If the corporation is governed by a special
law, the amended articles must be accompanied by a favorable recommendation of the appropriate government agency to the effect that such amendment is in accordance with law [Lopez]
(7) Will take effect only
• Upon their approval by the SEC by the issuance of a certificate of amended articles
• Or from the date of filing with the SEC if not acted upon within 6 months from the date of filing for a cause not attributable to the corporation
II. PROCEDURE
(1) The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation
(2) The articles, as amended shall be indicated by underscoring the change or changes made
(3) A copy shall be submitted to the SEC • Duly certified under oath by the
corporate secretary and a majority of the directors or trustees
• Stating the fact that the amendment or amendments have been duly approved by the required vote of the stockholders or members
The following items are amendable under Sec. 16:
(1) Change of name of the Corporation (2) Adding to or changing the purpose/s (3) Change of principal office
(4) Change in the number of directors or trustees
(5) Increase or decrease in authorized capital stock [subject to Sec. 38]
F.4. NON-AMENDABLE ITEMS
The following items state accomplished facts, therefore, cannot be amended:
(1) The names, nationalities and residences of the incorporators.
Otherwise, an amendment would go against the definition of “incorporators” in Sec. 5
(2) Treasurer-in-trust
(3) First set of directors or trustees
(4) Original stock subscriptions and paid-in capital
(5) Place and date of execution (6) Witnesses [De Leon]
Note: Articles of Incorporation must be accompanied by Treasurer’s sworn statement of compliance with Sec. 13 on amount of capital to be subscribed and paid for the purposes of incorporation; otherwise, SEC shall not accept the Articles of Incorporation
[Sec. 14].