Attributes of Corporation

(A) ARTIFICIAL BEING

Legal/ Corporate Entity Theory, consequences: in connection to PIERCING THE CORPORATE VEIL.

1. Corporation has a separate and distinct juridical personality.

2. Property of the corporation is not owned by the stockholders or members composing it.
3. A corporation is a separate taxable being.
4. Corporation can sue and be sued.

(B)Franchise/Concession/fiat theory – special privilege conferred by the government authority.

2 kinds of franchise:

1. General or Corporate franchise – Granted by government authority upon the corporation; basically it
is the right to exist as a corporation; corporate existence commences upon the issuance of certificate of
incorporation by the SEC.

2. Special or Secondary franchise – Granted to the individual forming the corporation. Going beyond and
above the basic and foundation of which it is published. Ex. The corporation wants to list to stock
exchange it will be granted now by second or special franchise which is to issue shares to the public.

(C) RIGHT OF SUCCESSION – PERPETUAL SUCCESSION STILL EXISTS if under the Articles of Incorporation
the corporation provides its own corporate term or provided by special laws.

(D) POWERS, ATTRIBUTES AND PROPERTIES expressly authorized by law or incidental to its existence

Kinds of Powers

1. EXPRESS
2. IMPLIED
3. INCIDENTAL

3 steps in the creation or existence of Corporation

1. Promotion
2. Incorporation
3. Commencement and organization of the corporate business

Definition of Promoters - can be incorporator, member of the board of directors.

(DOCTRINE OF RATIFICIATION) IF the Corporation after the incorporation ratifies the acts of the
PROMOTERS

2 kinds of Incorporation papers

1. Document or papers that where entered into by individuals forming the corporation prior to its
application or incorporation. (these are the contracts entered into by the promoters)
2. Actual articles of incorporation, documents or memoranda that are submitted to SEC in support
of its application for incorporation.

In what instance would you consider the application for incorporation officially filed with the
SEC? What would you consider filing? (a) Payment of the filing fee (b) Payment of the filing fee
on the consideration that there are no other act that the SEC requiring the corporation to do as
part of its application. (FLETCHER)

Minimum number of incorporator: NONE

MAXIMUM number of incorporator: 15

ARTICLES OF INCORPORATION
Prefatory paragraph
(Whether or not it is Stock or Non- Stock Corporation)

I. CORPORATE NAME
Where to register the Corporate Name? IN SEC located at PICC. For purposes of corporate
name, business name and trade name are the same and registered them in SEC.

Purpose of Business or trade name – for brand name

What else are required to be register with the SEC? Corporation, partnership, joint venture
if required by the third party or another government body under the form of partnership,
and One- Person Corporation

Where do you register Sole proprietorship? In DTI

II. PURPOSE

2 kinds of purpose:

a. primary purpose; (1) (has direct connection in the corporate name)

b. Secondary purposes; (2 or more) (implied or incidental purposes to the primary
purpose)

III. PRINCIPAL OFFICE ADDRESS - must be specific (SEC MEMO) substantial compliance is not
allowed because the filing for purposes of incorporation is computerized with SEC and
manual filing is not allowed. In province, it is lenient in the rule of principal office address.
IV. CORPORATE TERM - 3 years prior to the end of corporate term. Without term, perpetuate
existence is recognized.
V. INCORPORATORS
 Partnership and Corporation is allowed to be an incorporator.
In what way a juridical person be allowed or represented to be an incorporator? A
corporation can authorize any person to act in their behalf as their nominee.
Practice of profession is allowed to form a corporation – if the special creating such allows
its incorporation as a corporation. Ex. (1) Architectural law – provided 75% of its shares of
stock is owned by licensed architects; (2) Interior design law – interior designers.

Requirements to be Incorporator
1. Must hold at least 1 share
In what way foreign incorporator affect the corporation? It may affect the share
distribution or the purpose especially if the purpose is to limit foreign participation to
elect 1 share.
2. Legal age – capacity to act; capacity to do acts with legal effect.
Although citizenship is not required it has effect in corporate structure; in relation to
11th negative Investment List- retail trade.

Difference of incorporator and corporator

Doctrine of Relations and relating back doctrine – still applies when corporation in its AOI
has corporate term.

VI. BOARD OF DIRECTORS

Requirements
1. Residency
2. Legal Age

In what way citizenship will be significant? It may affect the share distribution depending on
the number or percentage of shares that the foreign member of the board will have.

Independent directors - 20% of the board; corporation vested with public interest.

Residential address of incorporators and members of the board – must be specific.

VII. AUTHORIZED CAPITAL STOCK

What is authorized capital stock?

What is subscribed capital stock?
What is paid- up capital stock?

Not applicable in Revised Corporation Code – only provides for flexibility

Applicable; increase of authorized capital stock
 Legal Capital – amount equal to the aggregate par or issued value of the subscribed capital
stock.
Stated Capital – sum of the par value of all issued par value shares; it includes treasury
share.
Outstanding Capital Stock – total share issued by the subscribers; it does not include
treasury share.
Working Capital – excess of current assets over current liabilities.
Circulating Capital - total amount of current assets

Shares Classifications:

a. Common shares
b. Preferred shares – preference with dividends and assets upon liquidation
i. Cumulative and Non- cumulative
ii. Participating and Non-participating
c. Par Value shares
d. Non Par Value share; provides for flexibility
e. Voting and Non- voting shares
f. Treasury shares
g. Redeemable shares
h. Conversion vs. Reclassification shares
Conversion – preferred to common; it requires of amendment of AOI and exercise of appraisal
rights of dissenting stockholders because it dilutes the right of the stockholders.
Reclassification – common to preferred

If the articles of Incorporation does not provide or mentioned shares classification it is deemed common
shares.

How to divide 1 million pesos authorized capital stock to common shares and preferred shares; 10
pesos preferred; 50,000 shares = 500, 000 preferred shares and 1 peso common; 500,000 shares = 500,
000 common shares?

Answer: 1 million Authorized Capital stock pesos divided into 500, 000 common shares with a par
value of 1 peso each and 50, 000 preferred shares with a par value of 10 pesos each.

i. Retired Shares- treasury shares which have been retired and are no longer part of the capital
stocks.
i. Watered shares – shares that are either; a) issued less than the consideration; b) issued as fully
paid but the corporation did not receive anything in return ; and c) issued for property but less
than the fair market value.
j. Bonus stocks - shares of stocks given to the employees for services rendered.
k. Over-issued shares- issued over and above the authorized capital stock.
l. Convertible shares – converting preferred shares to common shares.
m. Guaranteed shares – preferred shares where dividends are guaranteed.
n. Interest- bearing shares – preferred shares on payment of interest before dividends.
o. Debenture – certificate of indebtedness that is guaranteed by specific property of the
corporation.
p. Deferred shares- shares that are issued after dividends have been paid to shareholders of
common stock.
q. Vetoing shares – shares that are issued with right to vote for specific corporate matter.
r. Promotion shares – shares that are given to promoters.
s. Street certificates – transferred shares that are transferred in endorsement in blank.
t. Fractional shares- numerically representing one or more part of a unit or one-half.
u. Sequestered shares – shares sequestered by the PCCG.
v. ESCROW shares – shares that are held by the third person (especially the SEC) that will be
released after the happening of specific event (Ex. Transfer of ownership of real property to the
corporation).

VIII. SUBSCRIPTIONS (Share Distribution)

Doctrine of Equality of shares

Difference of Stockholders and Subscribers - Subscribers are those stockholders whose share
subscriptions have not yet been accepted by the Corporation. While stockholders are
subscribers whose shares of subscriptions have already accepted by the Corporation (Fletcher)

How do you acquire shares? Purchase from corporation and stockholders/shareholders.

What is the proof of subscription of shares? Subscription contract

What is the proof of ownership of shares? Stock Certificate (Will be issued if shares have been
paid)

Difference of Subscription contract and shareholders agreement- shareholders agreement will

involve the relationship of the shareholders with the corporation and between the
shareholders. It is the constitution of the rights and responsibilities of the shareholders in the
corporation.

IX. TREASURER
Requisites:
Citizenship
Residency
Legal age

X. UNDERTAKING TO CHANGE NAME

Mandatory
 XI. NO TRANSFER CLAUSE
"No transfer of stock or interest which shall reduce the ownership of Filipino citizens
to less than the required percentage of the capital stock as provided by existing laws
shall be allowed or permitted to be recorded in the proper books of the corporation
and this restriction shall be indicated in all stock certificates issued by the
corporation."

Signing details: Indicate the date and place of signing; Requires Notarization; in case the
incorporator is in abroad, that incorporator should sign a document authenticated in the Philippine
embassy and attached to the Article of Incorporation.

Fait Accompli (Accomplished Fact); in relation to Amendment - Article V- XI (cannot be amended);

general information sheets

Salient features of One Person Corporation

Corporate name- indicate OPC

Officers – the owner or the president may appoint corporate secretary; If the president will be
the corporate secretary also he must give a bond to the SEC and renewable every 2 years.

There is no minimum capitalization requirement.

Submission of Articles of Incorporation is required the bylaws is not required or mandatory.

Corporation vested in public interest cannot organize one person corporation.

Can be converted to Regular Corporation

Difference of sole proprietorship and one Person Corporation – corporate entity theory

What is a one-man corporation? A one- man corporation is a corporation where all the outstanding
shares belong to one person. Although there are other incorporators or directors, the same persons
hold shares only as a nominee of the person who actually owns the shares.