Paglikha ng Mga Pribadong Korporasyon

Hi guys! Welcome to another episode of Attorney Job Vlogger, Law for the Everyday Layman. Today we'll talk about incorporation or the process of how to make a private corporation. So if you like my videos and you want to see more, please hit like on this video and my other videos. And also please subscribe to my channel. Also please remember that this is only for educational purposes and is not a substitute for proper legal advice. or for studying and understanding the law, okay? Now, what is incorporation? Simply put, incorporation is creating a private corporation, no? And it is the performance of conditions, acts, deeds, and writings by the incorporators and the official acts, certification, or records which give the corporation its existence. Take note, as early as now, I will say, That it is only through incorporation, specifically through the issuance by the SEC of the Certificate of Incorporation, that a private corporation may acquire juridical personality. Okay? Now, take note that I will only be talking about the basic requirements for creating a normal private corporation here. Okay? Because some other private corporations have special requirements. Like, Okay. In case of banks or if there are different foreign equity requirements, those of course are subject to the special rules. I'll just be talking about regular private corporations according to the corporation code. Also, when it comes to public corporations, please remember as I discussed in my previous videos that they can only be created by Congress through a special law or charter. And when it comes to one-person corporations, the incorporation thereof, and the rules, I'll talk about that in a separate episode dedicated to one-person corporations, okay? Now, before we begin with the process of actually creating a corporation, let's talk first about the components of a corporation, no? So, sometimes we have what is known as a promoter, no? And who is a person who undertakes... To form a corporation and to produce for it the rights, instrumentalities, and capacity by which it is to carry out the purposes as set forth in the charter of the corporation, as well as to establish the corporation as fully able to do its business. Take note that while a promoter is an agent of the incorporators, he is not an agent of the corporation itself. Okay? Another component of a corporation would be the corporators. Saan? No, in na. Just corporators or those who normally compose a corporation, whether as stockholders for a stock corporation or as members in a non-stock corporation. And also we have the incorporators, the ones who create the corporation. They are mentioned in the articles of incorporation. As originally forming and composing the corporation, having signed the Articles of Incorporation, and acknowledged the same before a notary public. Now, these incorporators have no powers beyond those which are vested in them by the Articles of Incorporation. And there can be only one set of incorporators. Who? Those that appear in the Articles of Incorporation. As long as they appear in the articles, they will remain as incorporators until the corporation is terminated. Even if the incorporator leaves the corporation or dies, okay? He will always be an incorporator until the corporation is terminated. Why? Because the articles of incorporation cannot even be amended to change the name of the incorporators, okay? Because this is an accomplished fact. which can no longer be undone. Okay? Now, the current law under Section 10 allows any person, partnership, association, or corporation either singly or jointly with others but not more than 15 in number. They may organize a corporation for any lawful purpose or purposes. Okay? Take note, ha? In the old law, It had to be a natural person but now even partnerships, even corporations, they can form corporations as well. Okay? Take note that natural persons who are licensed to practice a profession Like lawyers or accountants and partnerships or associations organized for the purpose of practicing a profession, they will not be allowed to organize as a corporation unless otherwise provided under special laws. So the only time that they can form a corporation is if there is a special law which allows them to create a corporation. Now, qualifications of natural persons. First, of course, the natural person who wants to be part of a corporation as an incorporator, they must be of legal age, they must own or be a subscriber to at least one share of the capital stock. Because the presumption is that if an incorporator has pecuniary interest in the corporation, because he gave money, then he will be concerned with the management of the affairs of the corporation. Okay? Take note that the current law removed the minimum requirement that there must be at least 5 incorporators. Before it had to be not less than 5 and not more than 15. That was before. Now, even one person can make a corporation but that is the one person corporation which we'll talk about next time. So for regular corporations, presumably it's 2 or more but not more than 15. can be incorporators to create a corporation. Okay? So, if it's two or more, just follow the requirements that I will be discussing now. Okay? So, as a general rule, a corporation composed entirely of aliens may be incorporated, okay, as a general rule as long as the majority of the incorporators are residents of the Philippines. Now, that's a general rule. The exception, no? The corp cannot be incorporated by aliens, no? If it is a nationalized corporation or a corporation subject to the requirements of the Constitution or the Foreign Investment Acts on the foreign equity participation, no? The restrictions, so like no foreign equity or only 40%, 30%, 20%. Now, I've discussed this already, okay? Now, the other components of a corporation, and... will be those that become such during or after the creation of the corporation. Such as the stockholders, who in general are the owners of shares of stock in a stock corporation with interest over management, income, and assets. We also have members in case of a non-stock corporation. We have the board of directors who exercise the corporate powers, conduct all the business, and control all the properties of the corporation. and the officers. The current law requires the president, treasurer, and secretary, and a new officer in case of corporations vested with public interest. A compliance officer. We'll talk about the stockholders, members, board of directors, officers, in the respective episodes. For now, let me just mention them. Now, another component of the corporation may be a subscriber. He's simply a person who has agreed to take and pay for original and unissued shares of a corporation formed or to be formed. And we also have an underwriter under the securities regulation code who is a person who guarantees on a firm commitment and or declared best effort basis the distribution and sale of securities of any kind by another company. So those are the components of a corporation. Now let's go to the steps in the creation of a corporation. So a corporation may begin its life through what is known as promotion which is done by a promoter which I discussed earlier. But promotion is not a formal part of the organization of a corporation because it occurs outside the corporate form and therefore independent of the corporation. So, a corporation can be formed by incorporators themselves even without the services of a promoter. It's not necessary. It can be used but you don't have to use a promoter. Now, to create a corporation unless it's a one-person corporation where only one person wants to create a corporation which we'll talk about in a different episode. Here, two or more persons but not more than 15 agree to form a corporation and what should they do? They should first pick a name. Okay? Pick a name for their proposed corporation. Okay? So, the right to use a Incorporate name is a property right which the corporation may assert and protect against the whole world in the same way as it would protect its physical property against trespass or even conversion. So the incorporator, take note, can choose any name as long as it complies with Section 17 of the law. Okay? Section 17 requires that the name must... be distinguishable from names that are already reserved or registered for the use by another corporation. No? Or names that are already protected by law, rules, and regulations. Okay? Why? This is to protect the public from fraud, no? Or evasion of obligations, etc. No? Or confusion. So that the incorporator should not choose a name. which is identical, misleading, or confusingly similar to a name that is already registered or reserved. Or at the very least, it must contain at least one distinctive word which is different from the name of another company. Now, if the name is not distinguishable, or is protected already by law, or is contrary to law, then the SEC, the Securities and Exchange Commission, is not a legal entity. The SEC may order the corporation to cease and desist from using the name. It can also order the corporation to remove signages, marks, advertisements, etc. bearing the name of the corporation. And it may require that corporation to register a new name. Now, failure to comply with the SEC's order on that matter may result in contempt or civil administrative or criminal liability. or even a revocation of the registration of the corporation. Okay? Now, after the incorporators have picked a name, Section 18 requires that they should submit the intended name to SEC for verification. Okay? This can be done online. It's usually done online. Just submit it to the SEC website and they'll check it. I'll tell you the process in practice later on. Just wait. Now, once the name is submitted on the SEC website, and the SEC verifies it and finds that the name is distinguishable or not protected by law or not contrary to law, then the name will be reserved. And in the meantime, or even while thinking of a name, the incorporators should have begun drafting or asking an expert to draft the Articles of Incorporation. For short, I'll just say Articles. So, these Articles, they must be acknowledged or authenticated before being filed with the SEC. Now, what are these? What's this document called the Articles of Incorporation? The Articles, it's a document drawn up by or on behalf of the Incorporators of a proposed corporation containing the matters required by law to be filed with the SEC for its approval. Okay? It defines the charter of the corporation and the contractual relations between the state and the corporation, between the corporation and the stockholders, and amongst themselves. No? Now, section 13 of the current law gives us a list of matters that must be substantially discussed. contained in the articles, okay? Like the name of the proposed corporation, the primary and if any, the secondary purposes, the names, addresses, age, nationality, equity participation of the incorporators, the principal office of the corporation, the term of the corporation if they have not chosen a perpetual existence, ha? The number. of directors and trustees, the name, nationalities, addresses of the interim, the interim directors or trustees. And finally, in case of a stock corporation, the amount of authorized capital stock, the number of shares into which it is divided, the par value of each, the names, nationalities, and residents of original subscribers, amount subscribed and paid by each, and a statement that some or all of the shares are without par value if applicable. Okay? And if it's a non-stock corporation, amount of capital, name, address, nationality, and amount contributed by contributors. Okay, now don't worry that Just check the law. If you think I mentioned all those too fast, it's in the law. Come on, just read it. Now, the articles, they do not have to be confined to only those. They may contain other matters. as long as those other matters are not contrary to law. Okay? Section 14 gives the prescribed form, no? Which must be substantially followed, no? You just follow the form. And actually on the SEC website, you can download that form. Okay? Just fill it up. Okay? And the significance of the Articles of Incorporation is that it is the best proof of the purpose of a corporation. Okay? Now, the articles will be submitted after the law says, no? The articles should be submitted after the SEC has verified and reserved the intended corporate name previously submitted by the incorporators. Now let's talk about the matters required to be contained in the article. First, we already talked about the corporate name earlier. So we're done with that. So let's talk about the purpose clause. The purpose clause confers, it gives, as well as limits, the powers which a corporation may exercise. There may be several secondary purposes but But take note that there should be only one primary purpose. And this primary purpose determines the classification of the corporation. There should only be one primary purpose. Why? For several reasons. First, to determine which investment of the corporate funds requires the authority of both the board of directors and the stockholders under Section 41. Also, to enable future investments. investors in the corporation to know what kind of business they are investing in. Okay? Third, to enable the directors to know the scope of business which they are authorized to act. And finally, to enable third persons to know whether the corporation they are dealing with is acting within its authority. How? By examining the articles, no? The third person, just by looking at the articles, will know if the corporation can enter into the transaction that it wants to enter into with the third person. Okay? Take note also, no, that not all of the powers of a corporation need to be specified in the articles. Okay? Because why? Remember, a corporation may exercise implied and incidental powers. Okay? Now, let's move on. Another matter that must be in the articles would be the principal office, no? And it must be... be stated in the articles and the office must be located within the Philippines. Remember that the corporation has a legal personality, so the principal office is effectively its residence. Okay? Especially for tax purpose, tax purposes or venue in cases, service of summons, like where the books of the corporation are kept or where the meetings are held, etc. Let's move on. Okay? The articles must also state the term of existence of the corporation, which under the current law, specifically section 11, the default term for a corporation is perpetual existence. So may forever, okay? So the default is perpetual existence unless otherwise provided. In other words, the incorporators can agree that the corporation will only exist for a specific term, like 15 years. years, whatever, no? Okay? So, if they want that specific term, 30 years, 40 years, then they have to state it. Otherwise, what will apply is the default of perpetual existence. Now, what about existing corporations before this law came into effect, no? The existing corporations automatically have the status of perpetual existence, and they no longer have to renew their term. unless the stockholders representing majority of the capital stock vote and notify the SEC that they choose to retain a limited term for the corporation. Okay? And now when it comes to what if the corporation has a specific term, can the term be shortened? Can it be extended? Yes. Okay? How? Just by amending the articles. No? But take note that in case of an amendment to the... to extend the corporate. Life, it cannot be done earlier than three years before the expiry date. Okay? Cannot be done earlier than three years prior to the expiry date. Unless, of course, there are justifiable reasons for an earlier extension. Also, if the term has expired without being renewed, a corporation may apply for revival of its existence subject to approval by the SEC. Now, we already talked earlier about incorporators and their qualifications. Just note that the articles require a statement on their names, nationalities, and residential addresses. And the statement on nationality is to enable the SEC to determine on the face of the application whether there is compliance with the requirements of the Constitution or the Foreign Investment Acts on foreign equity. participation in case of nationalized or partly nationalized corporations. And all of the incorporators must sign and subscribe or acknowledge the Articles of Incorporation. Otherwise, it may be defective and may be cause for denial of the grant of the Certificate of Incorporation. Now, let's talk about directors. Just remember that the Articles of Incorporation It has to state the number of directors or trustees, in case of a non-stock corporation, that it intends to have, which must not be more than 15, even after incorporation. They cannot raise it past 15, but this is only for a stock corporation because a non-stock corporation can have more than 15 trustees. Take note that there are special rules on educational and closed corporations. But we'll talk about that next time. Okay? Now, the articles should also provide for the names, nationalities, and residences of the interim directors or those who will be acting as directors until the first regular directors are selected, elected rather, elected and qualified. Okay? Now, let's talk about the capitalization requirements in a stock corporation. Okay? Because if what is being incorporated is a non-stock corporation, it's easy. Just state the amount of capital or money contributed or donated by the contributors, the names, nationalities, and the residences of the contributors, and the amount contributed by each. But it's different in a stock corporation. There's more that we need to know. And let's begin by defining a few concepts. First, we have capital. This includes properties and assets of the corporation that are used for its business or operation, including surplus and undivided profits. We also have par-value shares, or those where the subscription or issue value of the share is fixed by the articles, at which amount all such shares are issued by the corporation. May value na kasulat sa articles, yun lang yung value niya. Okay? What about no par value shares? Okay? No par value shares, no? Gives to the corp leeway. Okay? To fix different issue values. Pwede nilalagyan ng presyo. Okay? Every time that shares are allowed to be issued. And the issue value for the shares of the corporation may vary at every time they are issued. Now, when it comes to no par value shares, they shall be deemed fully paid. and the non-accessible when first issued. They must be issued for a consideration of at least 5 pesos. And 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. Okay? I'll talk more about par value and no par value shares on my episode on the different kinds of shares, okay? Now, we have authorized capital stock, no? When we talk about authorized capital stock, it applies to the capital stock of a par-value stock corporation. On the other hand, we have stated capital. And stated capital applies to a no-par-value stock corporation, okay? So, what's authorized capital stock? That is the amount fixed in the articles. divided into shares of stock and made available for subscription or to be subscribed and paid by the stockholders. Stated capital, on the other hand, is the sum of the par value of all issued par value shares, the entire amount received for no par value shares, and any amount transferred by a stock dividend or other corporate action from surplus to stated capital. Even treasury shares are considered part of the stated capital because stated capital includes all issued shares. Now we have subscribed capital, no? And this is the portion of the authorized capital stock that is covered by subscription agreements, whether fully paid or not. It is the capital stock or portion of it which has been issued or subscribed and paid for whether in part or in whole. Okay? Now this subscribed capital stock is important. Why? Because of the trust fund doctrine. which considers the subscribed capital stock as a trust fund for the payment of the debts of the corporation and to which creditors have the right to look to for the satisfaction of their credits. And as such, the corporation cannot dissipate or distribute that subscribed capital to the prejudice of its creditors. Under the trust fund doctrine, the capital stock... property and assets of a corporation are regarded as equity in trust for the payment of corporate creditors who will be preferred over stockholders in case of distribution of corporate assets. So a creditor can even maintain an action or a case against a stockholder for unpaid stock subscription in order to realize funds for the payment of a corporate debt. Okay? So, as such, the corporate capital can only be distributed in three cases. First, amendment of the articles to reduce authorized capital stock. Second, purchase of redeemable shares by the corporation regardless of the existence of unrestricted retained earnings. And third, dissolution and liquidation of the corporation. Now, we go to paid up capital. And this is the amount of outstanding capital stock and additional paid in capital or premium paid over the par value of shares. Under the old law, there was a minimum paid up capital stock. But the new law effectively left out the old section 13. And now the 25% of 25 requirement is no longer necessary. Okay? So there is no minimum authorized capital stock. There is no minimum subscribed capital and no paid up capital, no? Unless, of course, required by special laws, no? Because that's what the SEC still says, okay? Of course, you have to comply with the provisions of special laws that require paid up capital, no? Okay? So, it's a case-to-case basis. But in general, the corporation code current law doesn't require it anymore. The 25% of 25%... na magiging magiging kapital stock na magiging magiging kapital stock na magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging mag Capital is different from capital stock. Capital is the actual property of the corporation and may vary according to the business results of the corporation. While capital stock is the amount of money stated in the articles to be subscribed and paid in and it remains fixed unless it is changed by amendment of the articles of incorporation. Okay? So what must now be stated in the articles in the case of a stock corporation are just one, the amount of its authorized capital stock, the number of shares into which it is divided, the par value of each, the names, nationalities, and subscribers, the 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. Now, the law also gives us the grounds for disapproval of the Articles of Incorporation by the SEC. Okay? And the SEC may deny the Articles if, for one, For the following grounds, one, the articles are not substantially in accordance with the prescribed form. And again, that form is downloadable on the website of the SEC. Second, if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations. Third, the certification concerning the amount of capital stock subscribed and or paid is false. And fourth, the required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with. Now, if the article is disapproved by the SEC, the SEC shall give the incorporators, directors, trustees, or officers a reasonable time to modify the objectionable portions. Also, take note that when what is being incorporated is a bank, quasi-bank, pre-need, insurance, trust company, or pawn shop, or other financial intermediary, the articles must be accompanied by a favorable recommendation of the appropriate government agency that the articles of incorporation is in accordance with law. Now, in case the articles will be amended, This can be done by a majority vote of the board and the vote or written assent of two-thirds of the stockholders representing the outstanding capital stock. Of course, the articles if amended must still contain the matters required by law and the amendments must be indicated by underlining the changes made with a copy duly certified under oath by the corporate secretary. and majority of directors with a statement that the amendments duly approved by required vote of the stockholders. That the amendments were duly approved by the required vote of the stockholders. Then they submit that to the SEC. Now the amendments, they take effect upon the approval of the SEC. Or if the SEC does not act on that application within six months from filing, Then, the amendments take effect as of the date of filing. Okay? So, that's it for the Articles of Incorporation, no? Which must be filed with the SEC along with any other documents that they may ask for, no? Take note that in the prescribed form in Section 14, there is no longer a need for the treasurer's affidavit like in the old law. Or, uh... an undertaking for a change of name because these are already incorporated as clauses in the form, the prescribed form. So you just insert the treasurer's name. Now, with regard to bylaws, while we'll talk about bylaws per se in a separate episode, I'll just define bylaws for you quickly. Bylaws are simply the rules of the corporation for its internal governance. They contain the rights and duties of the stockholders to the corporation and vice versa, as well as the rules that will govern them amongst themselves. Now, these bylaws may be adopted and filed with the SEC after incorporation, but the law also allows the incorporators to file the bylaws together with the articles during the application for it. incorporation. And this is a wiser move. Sabay mo na. Sabit mo na lahat. And actually, in practice, the SEC asks for both the articles and bylaws to be submitted when you're applying. In case the bylaws are filed together with the articles, of course, the bylaws must also be approved and acknowledged and signed by the incorporators. The bylaws will become effective only upon issuance of the SEC of a certification that the bylaws are in accordance with the revised corporation code. Okay? Now, the old law, no? The old law required the bylaws to be filed within a certain time, no? I won't say it na so you won't be confused. Okay? But it seems that in the current law, that period within which to file is no longer present, no? So it may have been deleted. Okay? But in actual practice, as I said earlier, the SEC usually requires that the bylaws be filed together with the Articles of Incorporation, which again, it's a wiser. So you won't have any more problems. Okay? Especially in the case of online applications. Just upload both at the same time. Again, if you want, the SEC website gives you a... downloadable forms for both the articles and the bylaws. Just download them, fill them up, and you're good to go to apply. And also, in actual practice, you can apply with the SEC for incorporation on... line. Consistent with the law, first, you submit the proposed corporate name, and then you have it verified, and if there is a problem, you can appeal. Okay? But if there is no problem, then there will just be a series of correspondence between the applicant and the SEC on certain matters, like the nature of the industry, etc. Okay? And after the correspondence, the SEC will ask you to upload the articles and the bylaws. Yes. If the articles and bylaws are approved, the SEC will send a payment assessment form. And you just have to pay that. And usually the amount you pay is based on the authorized capital stock. And as of the time of this video and as far as I'm aware, the SEC website has a function where you can calculate how much you will pay. Then after 10 days, 7 to 10 days from payment, if there's no problem. problem, the SEC will now issue a certificate of registration. Okay? After that, since you're in the SEC building, go up to the second floor and get a stock and transfer book and then have it stamped received. Okay? And then you can start fixing the requirements now for the LGU because you have to get your business permits from the LGU as well within the area of the principal office of the corporation. You also apply for the requirements of the law for BIR, SSS, Pag-ibig, and PhilHealth. The SEC process, the incorporation process per se, can take a minimum of around one month, especially after they transferred from EDSA to Manila, PICC. And unless there are problems, will usually just take one month or not that long. Of course, if there are a lot of requirements, it can take longer. And of course, when it comes to the LGU and other requirements like BIR, SSS, of course, that entails additional time. And just take note, and this is very important, that under Section 18, a private corporation organized under the Revised Corporation Code commences its corporate existence and juridical personality from the date that the SEC issues the... Certificate of Incorporation. Okay? And thereafter, the incorporators, stockholders or members, and their successors shall constitute a body corporate under the name stated in the articles for the period of time mentioned therein unless said period is extended or the corporation is sooner dissolved in accordance with law. In short, the corporation only begins to exist from the moment of issuance of the Certificate of Incorporation by the SEC. Okay? Now, just to review the first episode, if there has been substantial compliance in good faith with the requirements of the law on incorporation, but not complete compliance, and the corporation has exercised corporate powers, then it is a de facto corporation. To be a de facto corporation, the articles must have been filed and there must have been a certificate of incorporation. of incorporation which has been issued by the SEC. The usual defect is that the bylaws have not been filed. And the effect of a de facto corporation is that its existence as a corporation cannot be inquired into collaterally in any private suit to which the corporation may be a party. It can only be inquired into through a co-warantor proceeding by the solicitor general. Now if a corporation has not been incorporated at all, then it is a corporation by estopel, no? And for the protection of third persons who have relied in good faith that it is a corporation, not only the corporation but also its members may be held liable as general partners for corporate debts. Meaning that the members can be held liable subsidiarily with all their personal property. If a corporation by estopel... Apple is sued, it cannot sue. say that it has no legal personality in order for it to avoid liability. Cannot say, oh hindi, I don't exist. Okay? Can't do that. And a third person who has an obligation to a corporation by estoppel cannot evade performance by simply claiming na I don't have to pay him. He doesn't have legal personality. Okay? That's not allowed. Okay? For the sake of protecting the interests of injured parties. the law will treat it as if there is a corporation. Okay? Finally, section 21 of the Corporation Code. Okay? If a corporation does not formally organize and commence its business within five years from the date of its incorporation, then its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period. However, take note, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least 5 consecutive years, then the SEC may, after due notice and hearing, it may place the corporation under delinquent status. When we say delinquent status, it doesn't mean the corporation is dead yet. It's just delinquent. And the delinquent corporation will have a period of 2 years. to resume operations and comply with all the requirements that the SEC may prescribe. If it complies, then the SEC will issue an order to lift the delinquent status. But if the corporation fails to comply and to resume operations within the period given by the SEC, then the SEC can now revoke the certificate of incorporation of the corporation. The corporation will cease to exist as a legal entity. Okay? Now, in this case, the SEC should also give reasonable notice to and coordinate with the appropriate regulatory agency before it suspends or revokes the certificate of incorporation of companies which are under their special regulatory jurisdiction. Okay? So, that's it for... incorporation of private corporations. I gave you the process in reality or practice as well. Okay? So I hope you may have picked up a thing or two and I hope to see you next time guys. Okay? See you soon. Bye.

Hi guys! Welcome to another episode of Attorney Job Vlogger, Law for the Everyday Layman. Today we'll talk about incorporation or the process of how to make a private corporation.

So if you like my videos and you want to see more, please hit like on this video and my other videos. And also please subscribe to my channel. Also please remember that this is only for educational purposes and is not a substitute for proper legal advice. or for studying and understanding the law, okay? Now, what is incorporation?

Simply put, incorporation is creating a private corporation, no? And it is the performance of conditions, acts, deeds, and writings by the incorporators and the official acts, certification, or records which give the corporation its existence. Take note, as early as now, I will say, That it is only through incorporation, specifically through the issuance by the SEC of the Certificate of Incorporation, that a private corporation may acquire juridical personality.

Okay? Now, take note that I will only be talking about the basic requirements for creating a normal private corporation here. Okay?

Because some other private corporations have special requirements. Like, Okay. In case of banks or if there are different foreign equity requirements, those of course are subject to the special rules.

I'll just be talking about regular private corporations according to the corporation code. Also, when it comes to public corporations, please remember as I discussed in my previous videos that they can only be created by Congress through a special law or charter. And when it comes to one-person corporations, the incorporation thereof, and the rules, I'll talk about that in a separate episode dedicated to one-person corporations, okay? Now, before we begin with the process of actually creating a corporation, let's talk first about the components of a corporation, no?

So, sometimes we have what is known as a promoter, no? And who is a person who undertakes... To form a corporation and to produce for it the rights, instrumentalities, and capacity by which it is to carry out the purposes as set forth in the charter of the corporation, as well as to establish the corporation as fully able to do its business. Take note that while a promoter is an agent of the incorporators, he is not an agent of the corporation itself.

Okay? Another component of a corporation would be the corporators. Saan?

No, in na. Just corporators or those who normally compose a corporation, whether as stockholders for a stock corporation or as members in a non-stock corporation. And also we have the incorporators, the ones who create the corporation. They are mentioned in the articles of incorporation. As originally forming and composing the corporation, having signed the Articles of Incorporation, and acknowledged the same before a notary public.

Now, these incorporators have no powers beyond those which are vested in them by the Articles of Incorporation. And there can be only one set of incorporators. Who?

Those that appear in the Articles of Incorporation. As long as they appear in the articles, they will remain as incorporators until the corporation is terminated. Even if the incorporator leaves the corporation or dies, okay? He will always be an incorporator until the corporation is terminated.

Why? Because the articles of incorporation cannot even be amended to change the name of the incorporators, okay? Because this is an accomplished fact.

which can no longer be undone. Okay? Now, the current law under Section 10 allows any person, partnership, association, or corporation either singly or jointly with others but not more than 15 in number. They may organize a corporation for any lawful purpose or purposes. Okay?

Take note, ha? In the old law, It had to be a natural person but now even partnerships, even corporations, they can form corporations as well. Okay?

Take note that natural persons who are licensed to practice a profession Like lawyers or accountants and partnerships or associations organized for the purpose of practicing a profession, they will not be allowed to organize as a corporation unless otherwise provided under special laws. So the only time that they can form a corporation is if there is a special law which allows them to create a corporation. Now, qualifications of natural persons. First, of course, the natural person who wants to be part of a corporation as an incorporator, they must be of legal age, they must own or be a subscriber to at least one share of the capital stock.

Because the presumption is that if an incorporator has pecuniary interest in the corporation, because he gave money, then he will be concerned with the management of the affairs of the corporation. Okay? Take note that the current law removed the minimum requirement that there must be at least 5 incorporators. Before it had to be not less than 5 and not more than 15. That was before.

Now, even one person can make a corporation but that is the one person corporation which we'll talk about next time. So for regular corporations, presumably it's 2 or more but not more than 15. can be incorporators to create a corporation. Okay?

So, if it's two or more, just follow the requirements that I will be discussing now. Okay? So, as a general rule, a corporation composed entirely of aliens may be incorporated, okay, as a general rule as long as the majority of the incorporators are residents of the Philippines. Now, that's a general rule. The exception, no?

The corp cannot be incorporated by aliens, no? If it is a nationalized corporation or a corporation subject to the requirements of the Constitution or the Foreign Investment Acts on the foreign equity participation, no? The restrictions, so like no foreign equity or only 40%, 30%, 20%. Now, I've discussed this already, okay?

Now, the other components of a corporation, and... will be those that become such during or after the creation of the corporation. Such as the stockholders, who in general are the owners of shares of stock in a stock corporation with interest over management, income, and assets. We also have members in case of a non-stock corporation. We have the board of directors who exercise the corporate powers, conduct all the business, and control all the properties of the corporation.

and the officers. The current law requires the president, treasurer, and secretary, and a new officer in case of corporations vested with public interest. A compliance officer.

We'll talk about the stockholders, members, board of directors, officers, in the respective episodes. For now, let me just mention them. Now, another component of the corporation may be a subscriber. He's simply a person who has agreed to take and pay for original and unissued shares of a corporation formed or to be formed. And we also have an underwriter under the securities regulation code who is a person who guarantees on a firm commitment and or declared best effort basis the distribution and sale of securities of any kind by another company.

So those are the components of a corporation. Now let's go to the steps in the creation of a corporation. So a corporation may begin its life through what is known as promotion which is done by a promoter which I discussed earlier.

But promotion is not a formal part of the organization of a corporation because it occurs outside the corporate form and therefore independent of the corporation. So, a corporation can be formed by incorporators themselves even without the services of a promoter. It's not necessary. It can be used but you don't have to use a promoter.

Now, to create a corporation unless it's a one-person corporation where only one person wants to create a corporation which we'll talk about in a different episode. Here, two or more persons but not more than 15 agree to form a corporation and what should they do? They should first pick a name.

Okay? Pick a name for their proposed corporation. Okay? So, the right to use a Incorporate name is a property right which the corporation may assert and protect against the whole world in the same way as it would protect its physical property against trespass or even conversion.

So the incorporator, take note, can choose any name as long as it complies with Section 17 of the law. Okay? Section 17 requires that the name must...

be distinguishable from names that are already reserved or registered for the use by another corporation. No? Or names that are already protected by law, rules, and regulations.

Okay? Why? This is to protect the public from fraud, no?

Or evasion of obligations, etc. No? Or confusion.

So that the incorporator should not choose a name. which is identical, misleading, or confusingly similar to a name that is already registered or reserved. Or at the very least, it must contain at least one distinctive word which is different from the name of another company.

Now, if the name is not distinguishable, or is protected already by law, or is contrary to law, then the SEC, the Securities and Exchange Commission, is not a legal entity. The SEC may order the corporation to cease and desist from using the name. It can also order the corporation to remove signages, marks, advertisements, etc. bearing the name of the corporation.

And it may require that corporation to register a new name. Now, failure to comply with the SEC's order on that matter may result in contempt or civil administrative or criminal liability. or even a revocation of the registration of the corporation.

Okay? Now, after the incorporators have picked a name, Section 18 requires that they should submit the intended name to SEC for verification. Okay?

This can be done online. It's usually done online. Just submit it to the SEC website and they'll check it.

I'll tell you the process in practice later on. Just wait. Now, once the name is submitted on the SEC website, and the SEC verifies it and finds that the name is distinguishable or not protected by law or not contrary to law, then the name will be reserved.

And in the meantime, or even while thinking of a name, the incorporators should have begun drafting or asking an expert to draft the Articles of Incorporation. For short, I'll just say Articles. So, these Articles, they must be acknowledged or authenticated before being filed with the SEC. Now, what are these?

What's this document called the Articles of Incorporation? The Articles, it's a document drawn up by or on behalf of the Incorporators of a proposed corporation containing the matters required by law to be filed with the SEC for its approval. Okay?

It defines the charter of the corporation and the contractual relations between the state and the corporation, between the corporation and the stockholders, and amongst themselves. No? Now, section 13 of the current law gives us a list of matters that must be substantially discussed. contained in the articles, okay? Like the name of the proposed corporation, the primary and if any, the secondary purposes, the names, addresses, age, nationality, equity participation of the incorporators, the principal office of the corporation, the term of the corporation if they have not chosen a perpetual existence, ha?

The number. of directors and trustees, the name, nationalities, addresses of the interim, the interim directors or trustees. And finally, in case of a stock corporation, the amount of authorized capital stock, the number of shares into which it is divided, the par value of each, the names, nationalities, and residents of original subscribers, amount subscribed and paid by each, and a statement that some or all of the shares are without par value if applicable. Okay? And if it's a non-stock corporation, amount of capital, name, address, nationality, and amount contributed by contributors.

Okay, now don't worry that Just check the law. If you think I mentioned all those too fast, it's in the law. Come on, just read it.

Now, the articles, they do not have to be confined to only those. They may contain other matters. as long as those other matters are not contrary to law. Okay? Section 14 gives the prescribed form, no?

Which must be substantially followed, no? You just follow the form. And actually on the SEC website, you can download that form. Okay? Just fill it up.

Okay? And the significance of the Articles of Incorporation is that it is the best proof of the purpose of a corporation. Okay?

Now, the articles will be submitted after the law says, no? The articles should be submitted after the SEC has verified and reserved the intended corporate name previously submitted by the incorporators. Now let's talk about the matters required to be contained in the article. First, we already talked about the corporate name earlier.

So we're done with that. So let's talk about the purpose clause. The purpose clause confers, it gives, as well as limits, the powers which a corporation may exercise.

There may be several secondary purposes but But take note that there should be only one primary purpose. And this primary purpose determines the classification of the corporation. There should only be one primary purpose.

Why? For several reasons. First, to determine which investment of the corporate funds requires the authority of both the board of directors and the stockholders under Section 41. Also, to enable future investments. investors in the corporation to know what kind of business they are investing in. Okay?

Third, to enable the directors to know the scope of business which they are authorized to act. And finally, to enable third persons to know whether the corporation they are dealing with is acting within its authority. How?

By examining the articles, no? The third person, just by looking at the articles, will know if the corporation can enter into the transaction that it wants to enter into with the third person. Okay?

Take note also, no, that not all of the powers of a corporation need to be specified in the articles. Okay? Because why? Remember, a corporation may exercise implied and incidental powers. Okay?

Now, let's move on. Another matter that must be in the articles would be the principal office, no? And it must be... be stated in the articles and the office must be located within the Philippines.

Remember that the corporation has a legal personality, so the principal office is effectively its residence. Okay? Especially for tax purpose, tax purposes or venue in cases, service of summons, like where the books of the corporation are kept or where the meetings are held, etc.

Let's move on. Okay? The articles must also state the term of existence of the corporation, which under the current law, specifically section 11, the default term for a corporation is perpetual existence. So may forever, okay?

So the default is perpetual existence unless otherwise provided. In other words, the incorporators can agree that the corporation will only exist for a specific term, like 15 years. years, whatever, no?

Okay? So, if they want that specific term, 30 years, 40 years, then they have to state it. Otherwise, what will apply is the default of perpetual existence. Now, what about existing corporations before this law came into effect, no? The existing corporations automatically have the status of perpetual existence, and they no longer have to renew their term.

unless the stockholders representing majority of the capital stock vote and notify the SEC that they choose to retain a limited term for the corporation. Okay? And now when it comes to what if the corporation has a specific term, can the term be shortened?

Can it be extended? Yes. Okay?

How? Just by amending the articles. No? But take note that in case of an amendment to the... to extend the corporate.

Life, it cannot be done earlier than three years before the expiry date. Okay? Cannot be done earlier than three years prior to the expiry date.

Unless, of course, there are justifiable reasons for an earlier extension. Also, if the term has expired without being renewed, a corporation may apply for revival of its existence subject to approval by the SEC. Now, we already talked earlier about incorporators and their qualifications. Just note that the articles require a statement on their names, nationalities, and residential addresses.

And the statement on nationality is to enable the SEC to determine on the face of the application whether there is compliance with the requirements of the Constitution or the Foreign Investment Acts on foreign equity. participation in case of nationalized or partly nationalized corporations. And all of the incorporators must sign and subscribe or acknowledge the Articles of Incorporation. Otherwise, it may be defective and may be cause for denial of the grant of the Certificate of Incorporation. Now, let's talk about directors.

Just remember that the Articles of Incorporation It has to state the number of directors or trustees, in case of a non-stock corporation, that it intends to have, which must not be more than 15, even after incorporation. They cannot raise it past 15, but this is only for a stock corporation because a non-stock corporation can have more than 15 trustees. Take note that there are special rules on educational and closed corporations.

But we'll talk about that next time. Okay? Now, the articles should also provide for the names, nationalities, and residences of the interim directors or those who will be acting as directors until the first regular directors are selected, elected rather, elected and qualified. Okay?

Now, let's talk about the capitalization requirements in a stock corporation. Okay? Because if what is being incorporated is a non-stock corporation, it's easy.

Just state the amount of capital or money contributed or donated by the contributors, the names, nationalities, and the residences of the contributors, and the amount contributed by each. But it's different in a stock corporation. There's more that we need to know.

And let's begin by defining a few concepts. First, we have capital. This includes properties and assets of the corporation that are used for its business or operation, including surplus and undivided profits.

We also have par-value shares, or those where the subscription or issue value of the share is fixed by the articles, at which amount all such shares are issued by the corporation. May value na kasulat sa articles, yun lang yung value niya. Okay?

What about no par value shares? Okay? No par value shares, no?

Gives to the corp leeway. Okay? To fix different issue values.

Pwede nilalagyan ng presyo. Okay? Every time that shares are allowed to be issued.

And the issue value for the shares of the corporation may vary at every time they are issued. Now, when it comes to no par value shares, they shall be deemed fully paid. and the non-accessible when first issued.

They must be issued for a consideration of at least 5 pesos. And 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. Okay?

I'll talk more about par value and no par value shares on my episode on the different kinds of shares, okay? Now, we have authorized capital stock, no? When we talk about authorized capital stock, it applies to the capital stock of a par-value stock corporation. On the other hand, we have stated capital. And stated capital applies to a no-par-value stock corporation, okay?

So, what's authorized capital stock? That is the amount fixed in the articles. divided into shares of stock and made available for subscription or to be subscribed and paid by the stockholders.

Stated capital, on the other hand, is the sum of the par value of all issued par value shares, the entire amount received for no par value shares, and any amount transferred by a stock dividend or other corporate action from surplus to stated capital. Even treasury shares are considered part of the stated capital because stated capital includes all issued shares. Now we have subscribed capital, no?

And this is the portion of the authorized capital stock that is covered by subscription agreements, whether fully paid or not. It is the capital stock or portion of it which has been issued or subscribed and paid for whether in part or in whole. Okay? Now this subscribed capital stock is important. Why?

Because of the trust fund doctrine. which considers the subscribed capital stock as a trust fund for the payment of the debts of the corporation and to which creditors have the right to look to for the satisfaction of their credits. And as such, the corporation cannot dissipate or distribute that subscribed capital to the prejudice of its creditors.

Under the trust fund doctrine, the capital stock... property and assets of a corporation are regarded as equity in trust for the payment of corporate creditors who will be preferred over stockholders in case of distribution of corporate assets. So a creditor can even maintain an action or a case against a stockholder for unpaid stock subscription in order to realize funds for the payment of a corporate debt.

Okay? So, as such, the corporate capital can only be distributed in three cases. First, amendment of the articles to reduce authorized capital stock.

Second, purchase of redeemable shares by the corporation regardless of the existence of unrestricted retained earnings. And third, dissolution and liquidation of the corporation. Now, we go to paid up capital.

And this is the amount of outstanding capital stock and additional paid in capital or premium paid over the par value of shares. Under the old law, there was a minimum paid up capital stock. But the new law effectively left out the old section 13. And now the 25% of 25 requirement is no longer necessary. Okay? So there is no minimum authorized capital stock.

There is no minimum subscribed capital and no paid up capital, no? Unless, of course, required by special laws, no? Because that's what the SEC still says, okay? Of course, you have to comply with the provisions of special laws that require paid up capital, no?

Okay? So, it's a case-to-case basis. But in general, the corporation code current law doesn't require it anymore.

The 25% of 25%... na magiging magiging kapital stock na magiging magiging kapital stock na magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging magiging mag Capital is different from capital stock. Capital is the actual property of the corporation and may vary according to the business results of the corporation. While capital stock is the amount of money stated in the articles to be subscribed and paid in and it remains fixed unless it is changed by amendment of the articles of incorporation. Okay?

So what must now be stated in the articles in the case of a stock corporation are just one, the amount of its authorized capital stock, the number of shares into which it is divided, the par value of each, the names, nationalities, and subscribers, the 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. Now, the law also gives us the grounds for disapproval of the Articles of Incorporation by the SEC. Okay?

And the SEC may deny the Articles if, for one, For the following grounds, one, the articles are not substantially in accordance with the prescribed form. And again, that form is downloadable on the website of the SEC. Second, if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations.

Third, the certification concerning the amount of capital stock subscribed and or paid is false. And fourth, the required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with. Now, if the article is disapproved by the SEC, the SEC shall give the incorporators, directors, trustees, or officers a reasonable time to modify the objectionable portions. Also, take note that when what is being incorporated is a bank, quasi-bank, pre-need, insurance, trust company, or pawn shop, or other financial intermediary, the articles must be accompanied by a favorable recommendation of the appropriate government agency that the articles of incorporation is in accordance with law.

Now, in case the articles will be amended, This can be done by a majority vote of the board and the vote or written assent of two-thirds of the stockholders representing the outstanding capital stock. Of course, the articles if amended must still contain the matters required by law and the amendments must be indicated by underlining the changes made with a copy duly certified under oath by the corporate secretary. and majority of directors with a statement that the amendments duly approved by required vote of the stockholders.

That the amendments were duly approved by the required vote of the stockholders. Then they submit that to the SEC. Now the amendments, they take effect upon the approval of the SEC.

Or if the SEC does not act on that application within six months from filing, Then, the amendments take effect as of the date of filing. Okay? So, that's it for the Articles of Incorporation, no?

Which must be filed with the SEC along with any other documents that they may ask for, no? Take note that in the prescribed form in Section 14, there is no longer a need for the treasurer's affidavit like in the old law. Or, uh... an undertaking for a change of name because these are already incorporated as clauses in the form, the prescribed form.

So you just insert the treasurer's name. Now, with regard to bylaws, while we'll talk about bylaws per se in a separate episode, I'll just define bylaws for you quickly. Bylaws are simply the rules of the corporation for its internal governance. They contain the rights and duties of the stockholders to the corporation and vice versa, as well as the rules that will govern them amongst themselves.

Now, these bylaws may be adopted and filed with the SEC after incorporation, but the law also allows the incorporators to file the bylaws together with the articles during the application for it. incorporation. And this is a wiser move.

Sabay mo na. Sabit mo na lahat. And actually, in practice, the SEC asks for both the articles and bylaws to be submitted when you're applying. In case the bylaws are filed together with the articles, of course, the bylaws must also be approved and acknowledged and signed by the incorporators. The bylaws will become effective only upon issuance of the SEC of a certification that the bylaws are in accordance with the revised corporation code.

Okay? Now, the old law, no? The old law required the bylaws to be filed within a certain time, no? I won't say it na so you won't be confused. Okay?

But it seems that in the current law, that period within which to file is no longer present, no? So it may have been deleted. Okay? But in actual practice, as I said earlier, the SEC usually requires that the bylaws be filed together with the Articles of Incorporation, which again, it's a wiser. So you won't have any more problems.

Okay? Especially in the case of online applications. Just upload both at the same time.

Again, if you want, the SEC website gives you a... downloadable forms for both the articles and the bylaws. Just download them, fill them up, and you're good to go to apply.

And also, in actual practice, you can apply with the SEC for incorporation on... line. Consistent with the law, first, you submit the proposed corporate name, and then you have it verified, and if there is a problem, you can appeal. Okay? But if there is no problem, then there will just be a series of correspondence between the applicant and the SEC on certain matters, like the nature of the industry, etc.

Okay? And after the correspondence, the SEC will ask you to upload the articles and the bylaws. Yes.

If the articles and bylaws are approved, the SEC will send a payment assessment form. And you just have to pay that. And usually the amount you pay is based on the authorized capital stock. And as of the time of this video and as far as I'm aware, the SEC website has a function where you can calculate how much you will pay.

Then after 10 days, 7 to 10 days from payment, if there's no problem. problem, the SEC will now issue a certificate of registration. Okay? After that, since you're in the SEC building, go up to the second floor and get a stock and transfer book and then have it stamped received.

Okay? And then you can start fixing the requirements now for the LGU because you have to get your business permits from the LGU as well within the area of the principal office of the corporation. You also apply for the requirements of the law for BIR, SSS, Pag-ibig, and PhilHealth. The SEC process, the incorporation process per se, can take a minimum of around one month, especially after they transferred from EDSA to Manila, PICC. And unless there are problems, will usually just take one month or not that long.

Of course, if there are a lot of requirements, it can take longer. And of course, when it comes to the LGU and other requirements like BIR, SSS, of course, that entails additional time. And just take note, and this is very important, that under Section 18, a private corporation organized under the Revised Corporation Code commences its corporate existence and juridical personality from the date that the SEC issues the...

Certificate of Incorporation. Okay? And thereafter, the incorporators, stockholders or members, and their successors shall constitute a body corporate under the name stated in the articles for the period of time mentioned therein unless said period is extended or the corporation is sooner dissolved in accordance with law. In short, the corporation only begins to exist from the moment of issuance of the Certificate of Incorporation by the SEC. Okay?

Now, just to review the first episode, if there has been substantial compliance in good faith with the requirements of the law on incorporation, but not complete compliance, and the corporation has exercised corporate powers, then it is a de facto corporation. To be a de facto corporation, the articles must have been filed and there must have been a certificate of incorporation. of incorporation which has been issued by the SEC.

The usual defect is that the bylaws have not been filed. And the effect of a de facto corporation is that its existence as a corporation cannot be inquired into collaterally in any private suit to which the corporation may be a party. It can only be inquired into through a co-warantor proceeding by the solicitor general.

Now if a corporation has not been incorporated at all, then it is a corporation by estopel, no? And for the protection of third persons who have relied in good faith that it is a corporation, not only the corporation but also its members may be held liable as general partners for corporate debts. Meaning that the members can be held liable subsidiarily with all their personal property. If a corporation by estopel... Apple is sued, it cannot sue.

say that it has no legal personality in order for it to avoid liability. Cannot say, oh hindi, I don't exist. Okay?

Can't do that. And a third person who has an obligation to a corporation by estoppel cannot evade performance by simply claiming na I don't have to pay him. He doesn't have legal personality.

Okay? That's not allowed. Okay?

For the sake of protecting the interests of injured parties. the law will treat it as if there is a corporation. Okay? Finally, section 21 of the Corporation Code.

Okay? If a corporation does not formally organize and commence its business within five years from the date of its incorporation, then its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period. However, take note, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least 5 consecutive years, then the SEC may, after due notice and hearing, it may place the corporation under delinquent status.

When we say delinquent status, it doesn't mean the corporation is dead yet. It's just delinquent. And the delinquent corporation will have a period of 2 years.

to resume operations and comply with all the requirements that the SEC may prescribe. If it complies, then the SEC will issue an order to lift the delinquent status. But if the corporation fails to comply and to resume operations within the period given by the SEC, then the SEC can now revoke the certificate of incorporation of the corporation.

The corporation will cease to exist as a legal entity. Okay? Now, in this case, the SEC should also give reasonable notice to and coordinate with the appropriate regulatory agency before it suspends or revokes the certificate of incorporation of companies which are under their special regulatory jurisdiction. Okay? So, that's it for...

incorporation of private corporations. I gave you the process in reality or practice as well. Okay? So I hope you may have picked up a thing or two and I hope to see you next time guys.

Okay? See you soon. Bye.

Transcript for:Paglikha ng Mga Pribadong Korporasyon

Transcript for:
Paglikha ng Mga Pribadong Korporasyon