Incorporation and

Organization of
Private Corporations
 Section 10
Number and Qualifications of Incorporators. – 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.
 SEC Memorandum Circular No. 16
Series of 2019
• For the purpose of forming a new domestic
corporation under the Revised Corporation Code,
two or more persons, but not more than fifteen, may
organize themselves and form a corporation.
• Only a One Person Corporation (OPC) may have a
single stockholder, as well as a sole director.
Accordingly, its registration must comply with the
corresponding separate guidelines on the
establishment of an OPC.
 SEC Memorandum Circular No. 16
Series of 2019
• Incorporators are those stockholders or members
mentioned in the Articles of Incorporators as
originally forming and composing the corporation,
and who are signatories thereof.
• Each incorporator must own, or be a subscriber to, at
least 1 share of the capital stock. Each incorporator
of a non-stock corporation must be a member of the
corporation.
 SEC Memorandum Circular No. 16
Series of 2019
• The incorporators may be composed of any
combination of natural persons, SEC registered
partnerships, SEC registered domestic corporations
or associations, as well as foreign corporations.
• Incorporators who are natural persons must be of
legal age, and must sign the Articles of Incorporation
and bylaws.
 SEC Memorandum Circular No. 16
Series of 2019
• Partnerships as Incorporators – the application for
registration must be accompanied by a Partner’s Affidavit,
duly executed by all partners, to the effect that they have
authorized the partnership to invest in the corporation
about to be formed and that they have designated one of
the partners to become a signatory to the incorporation
documents.
• Partnerships under “dissolved” or “expired” status with
the SEC shall not be authorized to become an
incorporator.
 SEC Memorandum Circular No. 16
Series of 2019
• Domestic Corporations or Associations as
Incorporators – the investment in the new
corporation must be approved by majority of the
board of directors or trustees and ratified by the
stockholders representing at least 2/3 of outstanding
capital stock, or 2/3 of members in case of a non-
stock corporation.
 SEC Memorandum Circular No. 16
Series of 2019
• Foreign Corporations as Incorporators – the
application for registration must be accompanied by
a copy of a document (i.e. Board Resolution,
Director’s Certificate, Secretary’s Certificate or its
equivalent), duly authenticated by a Philippine
Consulate authorizing the foreign corporation to
invest in the corporation being formed and
specifically naming the designated signatory on
behalf of the foreign corporation.
 Section 11
Corporate Term
• 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.
 Section 11
Corporate Term
• 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).
 Section 11
Corporate Term
• 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.
 Grading System
• Conception Activities – 20%
• Quiz – 30%
• Major Exam – 50%

• Passing Grade: 3.0 (50%)

• Cut Off (BSA/MA): 2.2/2.5 (67%/61%)

• Final Grade: 25% Prelim+25% Midterm + 50% Tentative Final

Grade
 Section 15
Amendment of Articles of
Incorporation
• Initiated by the Board of Directors; requires majority
vote of BOD.
• Requires the approval of shareholders or members
representing 2/3 of outstanding capital stock or
membership.
• Dissenting stockholders can exercise their appraisal
right.
 Section 17
Corporate Name
• Impermissible Names:
• Not distinguishable from a name already reserved or
registered for use of another corporation;
• Already protected by law (i.e. intellectual property);
• Contrary to law, rules and regulations (“military”, “police”,
“Red Cross”)
 Section 22
Board of Directors
• Number: shall note be more than 15 (Sec. 13)
• Term: 1 year (stock); not exceeding 3 yrs. (nonstock)
• Must own at lease one share of stock/be a member of a
non-stock corporation for the whole duration of his term.
• New provisions:
• Independent directors constituting at least 20% of the BOD
for corporations vested with public interest.
• Removal of Filipino residential requirement of majority of the
BOD.
 Section 22
Board of Directors
• Main decision-making authority, except in certain
cases requiring shareholders’ or members’ approval;
• Body that has the authority to bind the corporation;
corporate officers implement the decisions of the
board;
• Must act together as a body in a lawful meeting
(collegial body);
 Section 22
Board of Directors
• Independent Directors
• May be appointed even if he is assigned shares by
controlling stockholders or receives fees from the
corporation.
• Test of independence:
• Existence of business or other relationship;
• Relationship could, or could reasonably be perceived to
cause interference;
• Likelihood of interference is material;
 Section 22
Board of Directors
• Independent directors (under the Code of Corporate Governance per SEC Memorandum
Circular No. 19)
• Is not or has not been a senior officer or employee of a covered company;
• Is not or has not been in the 3 years preceding the election, a director of a covered
company;
• Is not the owner of more than 2% of outstanding shares of a covered company;
• Is not a relative of a director, officer, or substantial stockholder;
• Is not retained as a professional adviser, auditor, consultant, agent or counsel of a
covered company;
• Not engaged in any transaction with the covered company or any of its related
companies;
• Is not affiliated with any non-profit organization that receives significant funding
from the covered company;
• Is not employed as an executive officer of another company where any of the
covered company’s executives serve as directors.
 Section 22
Board of Directors
• Independent directors should serve a maximum
cumulative term of nine years, after which, the
independent director should be perpetually barred
from re-election as such in the same company, but
may continue to qualify for nomination and election
as a non-independent director;
• The Chairman of the Board may be an independent
director but must not hold any executive position.
 Election of Board of Directors

• Starts with the nomination made by

stockholders/members;
• Nominees are presented to the shareholders or
members;
• Prescribed quorum: majority of outstanding capital
stock or majority of members entitled to vote;
• Absence of quorum shall result in failure of elections.
 Election of Board of Directors
• Manner of casting votes: in person or through written proxy.
• Voting through remote communication or in absentia allowed if
permitted by the by-laws.
• Voting in absentia allowed in corporations vested with public interest,
notwithstanding the absence of a provision in the by-laws.
• Stock corporation: one share-one vote; Non-Stock: One
member-one vote.
• Prescribed vote – plurarity voting: nominees with the highest
number of votes shall be elected.
 Election of Board of Directors

• Straight voting – every stockholder may vote such

number of shares for as many persons as there are
directors to be elected.
• A owns 100 shares of stock. If there are 5 directors to be
chosen, A is entitled to 500 votes (100 shares x 5 directors).
He may give to the five candidates he was elected 100 votes
each.
• Under this method, the votes are distributed equally among
the five candidates without preference.
 Election of Board of Directors

• Cumulative voting for one candidate – a stockholder

is allowed to concentrate his votes and give one
candidate as many votes as the number of directors
to be elected multiplied by the numbers of his shares.
• If A owns 100 shares of stock and there are five directors
to be elected, he is entitled to 500 votes, all of which he
may cast in favor of any one candidate.
 Election of Board of Directors

• Cumulative voting by distribution – a stockholder

may cumulate his shares by multiplying the number
of his shares by the number of directors to be
elected and distribute the same among as many
candidates as he shall see fit..
• If A owns 100 shares of stock and there are five directors
to be elected, he is entitled to 500 votes, which he may
distribute to candidates W, X and Y, giving them 100, 150
and 250 votes respectively.
 Election of Board of Directors

• Voting in non-stock corporations: members may cast

as many votes as there are trustees to be elected but
may not cast more than one vote for one candidate.
• Exception: if cumulative voting is allowed by the Articles
of Incorporation or in the By-Laws.
 Corporate Officers
• President - who must be a director; primary officer tasked to implement the decisions of the
Board.
• Treasurer – who must be who must be a resident; has control over the funds and/or assets of the
corporation.
• Secretary – who must be a citizen and resident of the Philippines; tasked to maintain corporate
records, including the stock and transfer book.
• Compliance Officer – required if the corporation is vested with public interest; tasked to ensure
that members of the board and officers comply with law, the corporate charter and by-laws.
• Under the Code of Corporate Governance, the Compliance Officer should not be a
member of the Board.
• Other officers as provided by the by-laws.
Note: the same person may hold two or more positions concurrently, except that no one shall act as
president and secretary or president and treasurer at the same time.
 Corporate Officers

• How elected?
• Set by the by-laws [Sec. 46 (h)] - The manner of election or
appointment and the term of office of all officers other
than directors or trustees;
 Disqualifications of Directors,
Trustees or Officers
• If within 5 years prior to election, the person was:
• Convicted by final judgment
• Of an offense punishable by imprisonment for a period of six
years;
• For violating the Corporation Code;
• For violation of Securities Regulation Code;
• Found administratively liable for any offense involving fraud;
• Found by a foreign court or equivalent regulatory authority for
acts, violations or misconduct similar to above;
 Removal of Directors or Trustees

• Required vote: vote of at least 2/3 of OCS or

members;
• Done at a regular meeting or special meeting called
for the purpose;
• New provision:
• SEC may order the removal of a director or trustee who
was elected despite the disqualification, or whose
disqualification arose or discovered subsequent to an
election.
 Removal of Directors or Trustees

• The Board has no authority to remove a director or

trustee.
• Nonetheless, the Code, in using the words “failed to
remove such director or trustee”, is referring to board
inaction despite knowledge of the disqualification.
• The Board in such a case should have called the
stockholders or members for a meeting for the purpose
of removing such disqualified director or trustee.
 Vacancies of the Office of the
Director or Trustee
• Cause of vacancy is other than by removal or expiration
of term (ex. death, incapacity, resignation/retirement) –
vacancy is filled by a vote of at least the majority of the
remaining members of the board, if still constituting a
quorum. If no quorum, the vacancy is filled up by a vote
of the OCS or members;
• If cause of vacancy is by removal, expiration of term, and
increase in the number of directors/trustees, vacancy is
filled up by a vote of the OCS or members.
 Vacancies of the Office of
Director or Trustee
• New Provision: Emergency Board
• When vacancy prevents the remaining directors from
constituting a quorum, and emergency action is required to
prevent grave, substantial, and irreparable loss or damage to
the corporation, the vacancy may be temporarily filled up
from among the officers of the corporation by unanimous
vote of the remaining directors or trustees.
• The action by the designated director or trustee shall be
limited to the emergency action necessary, and the term shall
cease within a reasonable time from the termination of the
emergency or upon election of the replacement, whichever
comes earlier.
 Compensation of Directors or
Trustees
• Entitled only to a reasonable per diem, except if by-
laws fix their compensation;
• If fixed by the by-laws, it shall not exceed 10% of
the net income before tax of the corporation during
the preceding year;
 Liability of Directors, Trustees or
Officers
• Personal, joint and several liability for resulting
damages suffered by the corporation;
• Fiduciary liability as trustee for profits that would
have accrued to the corporation;
• Administrative and criminal liabilities.
 Dealings with DOSRI
(Directors, Officers, Spouses, Related
Interests)
• Extent: up to the 4th civil degree of consanguinity or
affinity. (ex. 1st cousin)
• Effect of contract: Voidable
• Exceptions: (a) to (e) of Sec. 31