Notes on the Corporation Code

What is a Corporation?
1.

A juridical person created by operation of law and registered with the Securities and
Exchange Commission.

2. What is a stock corporation?

A corporation with authorized capital stock dividend into shares of stock either with
or without par value. A stock corporation is engaged in income generating activities
and is authorized to declare dividends.

3. What is a non-stock corporation?

A corporation with no authorized capital stock. It is organized for charitable,

religious, educational, professiona, cultural, fraternal, literary, scientific, social civil
service, or similar purposes, like trade, industry, agricultural and like chambers, or
any combinations thereof.

4. When is a corporation deemed to have a juridical personality?

A corporation is deemed imbued with juridical personality from the time the
Certificate of Incorporation is issued by the Securities and Exchange Commission.

5. What are the requirements for registration of a corporation?

A. Stock Corporation

B. Non-Stock Corporation

C. Foreign Corporation

6. Where can the proposed corporate or partnership name be verified?

The proposed corporate or partnership name can be verified online via Iregister
system of SEC; or thru Name Verification Unit at G/F Secretariat Building, PICC
Complex, Roxas Boulevard Pasay City; or thru Satellite Offices and SEC Extension
Offices.
7. If the proposed name is verified and reserved online, does this still need confirmation
from Name Verification Unit or SEC Satellite/Extension Offices?

Company names reserved online must be confirmed at the Name Reservation Unit,
G/F Secretariat Building, PICC Complex, Roxas Boulevard Pasay City or at any of the
SEC Satellite Offices within four (4) calendar days from date of online reservation.
Non-confirmation of reservation within the specified period will forfeit the online
reservation. Confirmation is required because the Corporation Code of the
Philippines, Sec. 18 provides that No corporate name may be allowed by the
Securities and Exchange Commission if the proposed name is identical or deceptively
or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing
laws. Compliance therewith compels us to personally determine if reserve names are
not deceptively or confusingly similar or patently deceptive or confusing to other
registered entities. After confirmation, applicant must secure a Reservation Payment
Confirmation. A mere Reservation Notice is not sufficient for the acceptance of any
application for registration, or change of name of a corporation or partnership. Once
the Reservation Payment Confirmation has been issued, the reservation fee must be
paid at the Cashier, SEC Main Office or at any of the designated Landbank branches.

8. If the proposed name has been allowed for use, would there be fees required to
reserve and where shall the payment be made?

Yes.To reserve a name the SEC collects P100.00 as reservation fee for thirty days. The
payment can be thru SEC Cashier or thru on collection systems of Landbank.

9. Does SEC have online fill-out form for the AI-BL?

A. Stock Corporation

B. Non-Stock Corporation

C. Foreign Corporation

10. What are the contents of the AI?

The contents of the AI are the following:

a)The name of the corporation
b)The specific purpose or purposes for which the corporation is being incorporated
c)The place where the principal office of the corporation is to be located, which must
be within the Philippines
d)The term of which the corporation is to exist
 e)The names, nationalities and residences of the incorporators
f)The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15)
g)The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified
h)If it be a stock corporation, the amount of its authorized capital stock in lawful
money of the Philippines, the number of shares into which it is divided, and in case
the share are par value shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed and paid by each
on his subscription, and if some or all of the shares are without par value, such fact
must be stated.
i)If it be a non-stock corporation, the amount of its capital, the names, nationalities
of the contributors and the amount contributed by each
j)The name of the treasurer-in-trust
k)Tranfer clause
l)Such other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient

11. Is there a rule on the approval of the corporate and partnership names?

Yes. The Corporation Code of the Philippines provides in Section 18 that no corporate
name may be allowed by the SEC if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws.

12. Does SEC have guidelines on the approval of corporate and partnership names?

Yes. In implementing Section 18 of the Corporation Code, the Commission has

adopted Guidelines in the approval of corporate and partnership names.

13. What do you mean by incorporators?

Are the individual persons originally forming the corporation and are the signatories
in the Articles of Incorporation.

14. What are the requirements on incorporators?

All incorporators must be natural persons, of legal age, their number must be at least
five (5) and not more than fifteen (15), every incorporator is subscriber of at least
one share, and majority of the incorporators are residents of the Philippines.
15. Are foreigners allowed as incorporators?

Yes provided that all requirements for incorporators are complied with and provided
further that the business activity of the corporation is not fully reserved for Filipino
ownership.

16. Can all incorporators be foreigners?

Yes. Provided that all the requirements for incorporators under the Corporation Code
are complied with and this is true for registration under the Foreign Investment Act
of 1991 as amended by RA 8179.

17. How many Directors/trustees may a corporation have?

For a stock corporation, the number of directors must be at least five (5) but not
more than fifteen (15). For a non-stock corporation, the number of trustees must be
at least five (5) and could be more than fifteen. For religious societies, the number of
trustees must be at least five (5) but not more than fifteen (15). For non-stock
educational corporation, the number of trustees must be at least five (5) but not
more than fifteen (15) and the number of trustees must be in multiples of five (5).
And, for a corporation sole, the trustee is only one (1).

18. What are the requirements on directors/trustees?

a)Natural person and is of legal age

b)Compliant with the required number required under the Corporation Code
c)Majority of the directors are residents of the Philippines
d)Holder of at least one share or a member in case of non-stock corporations
e)Not convicted by final judgement of an offense punishable by imprisonment for a
period exceeding six years, or a violation of the Code committed within five (5) years
prior to the date of his election or appointment.

19. What is the difference between directors and trustees?

For stock corporations, the appropriate term is "director". For non-stock

corporations the appropriate term is "trustees". In a non-stock corporations
however, the trustees may be called by other than trustees (i.e. directors) provided
that the term used is identified as such in the Articles of Incorporation referring to
trustees.

20. Can foreigners be elected as director?

 Yes. Except in corporations whose business activities are hundred percent reserved
for Filipinos.

21. Is there any limit on the number of seat for foreigners in the board?

Yes. If the business activity is partly nationalized, the number of seat for foreigners in
the board of directors is in proportion of their present foreign equity to the number
of directors as stated in the Articles of Incorporation. Also, the number of their seats
should not exceed the proportion of the allowable foreign equity to the number of
the directors in the AI in accordance with Anti-Dummy Law.

22. If the corporation is registered under the Foreign Investment Act, can foreigners be
all the directors?

Yes. It is subject however to compliance with the requirements of the Corporation

Code on Directors (i.e. majority are residents of the Philippines).

23. Can foreigner sit as trustee in a non-stock corporation?

Yes. If its a non-stock corporation and is engaged in partially nationalized activities,

the foreigners number of seat in the trustees should be compliant with the provision
of Anti-Dummy Law.

24. Is there any requirement of the Corporation Code on primary purpose and secondary
purposes to be indicated in the Articles of Incorporation?

Yes. Under Sec. 15 of the Code it states that if there is more than one purpose,
indicate primary and secondary purpose.

25. Is there any limit on number of secondary purposes?

None. As many secondary purposes a corporation would like to engage except if the
business activities in the primary and secondary are prohibited by existing laws to be
in the Articles of Incorporation of one and the same corporate entity.

26. What are business activities not allowed to be in the primary and secondary purposes
at the same time?

a)Business activities of overseas recruitment and travel agency cannot be in single

entity pursuant ot the implementing rules and regulations of the Labor Code of the
Philippines;
 b)A corporation sole or religious society and school as the school should be
incorporated distinct with a religious corporation.

27. Are there business activities that no foreign's ownership is allowed?

Yes. These business activities are fully reserved to Filipino citizens as follow:
a)Mass Media
b)Practice of professions
c)Retail trade enterprises with paid-up capital of less than US$2,500,000
d)Private Security Agencies
e)Small scale mining
f)Utilization of marine resources in archipelagic waters, territorial sea, and exclusive
eonomic zone as well as small-scale utilization of natural resources in rivers, lakes,
bays and lagoons
g)Ownership, operation and management of cockpits
h)Manufacture of firecrackers and other pryrotechnic devices.

28. Are there business activities wherein up to twenty five percent (25%) foreigners
ownership is allowed?

Yes. Participation of foreigners to the extent of 25% is allowed in the following:

a)Private radio communications network
b)Private recruitment whether for local of overseas recruitment
c)Contract for the construction and repair of locally funded public works
d)Contracts for the construction of defense related structures.

29. Are there business activities wherein up to thirty percent foreigner's ownership is
allowed?

Yes. It's the business activity of advertising.

30. Are there business activities wherein up to forty percent of foreigner's owenship is
allowed?

Yes. These business activities are as follows:

a)Exploration, development and utilization of natural resources
b)Ownership of private lands
c)Operation of public utilities
d)Educational institutions other than those established by religious groups and
mission boards
e)Culture, production, milling, processing, trading except retailing of rice and corn
and acquiring, by barter, purchase or otherwise, rice and corn and the by-products
 thereof
f)Contracts for the supply of materials, goods and commodities to government-
owned or controlled corporation, company, agency or municipality
g)Facility operator of an infrastructure or a development facility requiring a public
utility franchise
h)Operation of deep-sea commercial fishing vessel
i)Adjustment companies
j)Ownership of condominium units
k)Manufacture, repair, storage, and/or distribution of products and/or ingredients
requiring Philippine National Police (PNP) Clearance
l)Manufacture, repair, storage and/or distribution of products requiring Deparment
of National Defense (DND) clearance
m)Manufacture and distribution of dangerous drugs
n)Sauna and steam bathhouses, massage clinics and like other activities regulated by
law because of risks posed to public health and morals
o)Domestic market enterprises with paid-in equity capital of less than the equivalent
of US$200,000
p)Domestic market enterprises, which involved advanced technology or employ at
least fifty direct employees with paid-in equity capital or less than the equivalent of
US$100,000

31. Are there business activities wherein foreigner's ownership could be more than forty
(40) percent up to one hundred percent?

Yes.
a)Export enterprises and
b)Domestic market enterprises with paid-in equity capital of at least the equivalent
of US$200,000
c)Domestic market enterprises, which involved advanced technology or employ at
least fifty direct employees with paid-in equity capital of at least the equivalent of
US$100,000

32. Are practices of professions allowed in corporate form?

The general rule is NO. However, there are practices of professions allowed now in
corporate form as follow
a)Practice of architecture
b)Practice of interior design
c)Practice of real estate services
d)Practice of customs brokerage

33. What is authorized capital stock?

 This is the total amount of shares a corporation is allowed to issue if the shares have
a par value. If the shares do not have a par value, the corporation does not have an
authorized capital stock but it has an authorized number of shares it may issue.

34. What is subscribed capital stock?

It refers to the total number of shares issued or subscribed by the stockholders.

35. What do you mean by pre-incorporation subscription?

It refers to the required number of shares to be subscribed for purposes of

incorporation. The pre-incorporation subscription should be stated in the Articles of
Incorporation.

36. Is there a minimum amount of subscribed capital stock?

Yes. Under the Corporation Code, at least 25% of the amount subscribed must be
paid-up.

37. Is there a minimum amount of paid-up capital stock?

Yes. Under the Corporation Code, at least 25% of the amount subscribed must be
paid-up and in no case be less than Five Thousand (P5,000.00) Pesos. The foregoing
amount however shall not apply, if there is a law, rule or regulation of other
regulatory agencies requiring a higher minimum paid-up capital.

38. What is paid-in capital?

It refers to the amount paid by subcribers over and above the par value of shares or
the issue value in no-par value shares.

39. What are the considerations for issuance of shares?

Under Sec. 62 of the Corporation Code, stocks shall not be issued for a consideration
less than the par or issued price thereof. Consideration for the issuance of stock may
be any or a combination of any two or more of the following:
(1)Actual cash paid to the corporation;
(2)Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation equal to
the par or issued value of the stock issued;
(3)Labor performed for or services actually rendered to the corporation;
(4)Previously incurred indebtedness of the corporation;
 (5)Amounts transferred from unrestricted retained earnings to stated capital; and
(6)Outstanding shares exchanged for stocks in the event of reclassification or
conversion. Where the consideration is other than actual cash, or consists of
intangible property such as patents or copyrights, the valuation thereof: shall intially
be determined by the incorporators or the board of directors, subject to the approval
by the Securities and Exchange Commission.

40. What is contributed capital?

It refers to the amount contributed to non-stock corporations.

41. Is there a minimum amount for contributed capital in non-stock corporations?

Any amount will suffice as a general rule. However, in the case of registration of a
"foundation", the minimum contributed capital is P1,000,000.00. The amount is
required to be deposited in the bank in the name of the treasurer-in-trust. For
registration, a bank certificate of deposit is required for the P1,000,000.00.

42. If the payment is other than cash for shares, what are the additional requirements
for each and every consideration for the issuance of shares?

The additional requirements are as follow:

a.Land and/Building/Condominium unit

1. Detailed schedule of the property showing the registered owner, location area,
TCT/CC No., tax declaration No., and the basis of transfer value (appraised/market
value/assessed value/zonal value) certified by the treasurer

2. Copy of TCT/CCT and tax declaration sheet certified by Register of Deeds and
Assessor's Office, respectively

3. Latest zonal value certfied by BIR, if transfer value is based on zonal value

4. Appraisal report by authorized appraiser, if transfer value is bases on appraised

value (not more than 6 month old)

5. Deed of assignment

6. If property is mortgaged, submit mortgagee/credits certification on the

outstanding loan balance and written consent to the transfer of property

7. For assignment of building where assignsor is nor owner of the land, submit lease
contract on land and consent of landowner to the transfer
8. Affidavit of Undertaking by an incorporator of the corporation to submit the proof
of transfer to the corporation within the prescribed period

a.Untitled Lands

1. Certification of the Barangay Chairman where the property is located, and at least
two (2) adjoinining property owners or possessors, attesting that the subject land
had been in the possessor's open, peaceful, continuous and uninterrupted exclusive
possession in the concept of an owner for at least thirty (30) years and the possessor
had been introduced improvements thereof, if any

2. Duplicate original or certified true copies of the tax declaration sheets

3. Latest realty tax receipts

4. Affidavit by the transferor attesting continuous and open possession of the

property and that the property is not tenanted

5. Affidavit of Non-Tenancy executed by Barangay Chairman of place where the

property is located

6. Duplicate original or certified true copies of any deed, conveyance, mortgage,

lease or other voluntary instrument affecting the property recorded in the Register of
Deeds for the province or city where the land is situated

7. Affidavit executed by the transferor attesting to the:

a. Existence (or non-existence) of easements over the untitled property
b. Kind/description of the easement and its location
c. Whether the transferor is the dominant estate or the servient estate, by virtue of
such easements

8. Under oath undertaking of the tranferor/subscriber to answer for any liability that
the corporation might incur by virtue of the acceptance of said property as paid-up
capital

9. Clearance or certification from the Department of Agrarian Reform (DAR) attesting

the following:
a. There is no other claimant to the untitled land
b. It has not issued any Certificate of Land Ownership Award (CLOA) over the
property to any other party or
c. The land is exempt from the coverage of the Comprehensive Agrarian Reform
Program (CARP)

10. Blue print Survey of the Plan as approved by the Bureau of Lands

11. Detailed schedule of the property showing its registered owner, location, area,
tax declaration number and the basis of tranfers value (market value/assessed
value/zonal value or appraised value)
12. Latest zonal valuation certified by BIR, if transfer value is based on zonal value

13. Appraisal report by authorized appraiser, if transfer value is based on appraised

value (not more than 6 month old)

14. Deed of assignment

15. Affidavit of undertaking to submit certified true copy of the original certificate of
title in the name of tranferee-corporation within one (1) year from the date of
receipt of the approval of the application

c.Inventories/Furniture/Personal Properties
1. Detailed schedule of the properties showing the description and the transfer value
certified by the treasurer

2. Deed of assignment

d.Heavy Equipment and Machinery

1. Detailed schedule of the property showing the description and transfer value
certified by the treasurer

2. Appraisal report by authorized appraiser (not more than 6 month old). If the
property is imported, valuation-report with description of the property by the
Bangko Sentral ng Pilipinas.

3. Deed of assignment

e.Shares of Stock

1. Detailed schedule of the shares of stock showing the name of stockholder, stock
certificate number, number of shares and the basis of transfer value whether market
or book value certified by the treasurer

2. Audited financial statements of the investee company as of the last fiscal year
stamped received by BIR and SEC

3. Deed of Assignment

4. Certification by the Corporate Secretary of the investee company that the shares
of stock are outstanding in the name of assignor

5. Photocopy of the stock certificate (present original for verification)

6. Latest market quotation in newspaper or certification from stock exchange/broker

as to latest market price of the shares of stock (if listed in the Stock Exchange)

7. Affidavit of Undertaking by an incorporator of the corporation to submit the

required proof of the transfer within the prescribed period

f.Motor Vehicle
1. Detailed schedule of the motor vehicle showing the registered owner,
make/model, plate number, chassis number, motor number, certificate of
registration number and market value certified by the treasurer

2. Photocopy of the Certificate of Registration and latest Official Receipt of

Registration (present the original for verification)

3. Appraisal report by authorized appraiser (not more than six month old)

4. Deed of assignment

5. Affidavit of undertaking by an incorporator of the corporation to submit the

required proof of transfer within the prescribed period

g.Sea Vessel/Aircraft

1. Detailed schedule of the vessel/aircraft showing registered owner, registry

number, technical description, and appraised value certified by the treasurer

2. Certified true copy of the certificate of ownership

3. Appraisal report by authorized appraiser (not more than 6 month old)

4. Certificate of seaworthiness/airworthiness issued by appropriate government

agency

5. Deed of assignment

6. Affidavit of Undertaking by an incorporator of the corporation to submit the

required proof of transfer within the prescribed period

h.Intangible

1. Photocopy of the System Purchase Agreement or any documents as proof of

ownership (for a software)

2. Copy of certificate of Registration of Intellectual Property Rights, mining permit for

mining claims or rights

3. Appraisal report by an accredited appraisal company or licensed Filipino mining

engineer for mining rights/claims (not more than 6 month old)

4. Deed of Assignment

i.Net Assets (by way of conversion of single proprietorship/partnership into

corporation or by spin-off)

1. Audited Financial Statements (AFS) of single proprietorship/partnership/division of

a corporation for spin-off as of last fiscal year

2. Long-form audit report of item no. 1

 3. Deed of Assignment of the assets and liabilities to the corporation

4. List of creditors showing the amount due to each creditor as of date of the AFS
certified by the auditor or certified under oath by the company accountant and
written consent of creditors

5. Detailed schedule of properties with certificate of registration/title and their

respective book values certified by the company accountant

6. Photocopy of the certificate of registration of the motor vehicles (present original

for verification)

7. Copy of TCT/CCT and tax declaration sheets certified by the Register of Deeds and
Assessor's Office, respectively

8. Photocopy of stock certificate (present original for verification)

9. DTI Certificate of Registration (for single proprietorship)

10. Affidavit of Undertaking by an incorporator of the corporation to submit the

required proof of transfer within the prescribed period

43. What are the classifications of shares of stock?

The shares of stock may be classified as common, founders, preferred, par or no-par
value shares, voting or non-voting shares and redeemable shares.

44. What are the features of common shares?

Common shares must always be voting shares. Common shares can be par value
shares or no-par shares.

45. What are the features of preferred shares?

Preferred shares must always be par value shares. Preferred shares can be voting or
non-voting shares. The preferred shareholders may be given preference in the
distribution of the assets of the corporation in case of liquidation and in distribution
of dividends, or such other preferences as may be stated in the articles of
incorporation.

46. What are the features of founders'shares?

Founders'shares classified as such in the articles of incorporation may be given

certain rights and privileges not enjoyed by the owners of other stocks, provided that
where the exclusive right to vote and be voted for in the election of directors is
 granted, it must be for a limited period not to exceed five (5) years subject to the
approval of the Securities and Exchange Commission. The five-year period shall
commence from the date of the aforesaid approval by the Securities and Exchange
Commission.

47. What are the features of redeemable shares?

Redeemable shares may be issued by the corporation when expressly so provided in

the articles of incorporation. They may be purchased or taken up by the corporation
upon the expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation, and upon such other terms and
conditions as may be stated in the articles of incorporation, which terms and
conditions must also be stated in the certificate of stock representing said shares.

48. What are the features of no-par value shares?

Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto. Shares without par value may not be issued for a
consideration less than the value of Five (5.00) pesos per share. The entire
consideration received by the corporation for its no-par value shares shall not be
available for distribution as dividends.

49. Are there corporate entities not allowed to issue no-par value shares?

Yes. They are banks, trust companies, insurance companies, public utilities, and
building and loan associations.

50. Do we allow domestic corporations as hundred percent owned by foreigners?

Yes. The registration will be under the Foreign Investment Act of 1991 (FIA), as
amended by R.A. 8179. The Foreign Investment Negative List will serve as guide to
allow registration. The corporation may be registered as export or as domestic
market enterprise.

51. What is an export enterprise under FIA?

The term "export enterprise" shall mean an enterprise wherein a manufacturer,

processor or service (including tourism) enterprise exports sixty percent (60%) or
more of its output, or wherein a trader purchases products domestically and exports
sixty percent (60%) or more of such purchases.
52. What is domestic market enterprise under FIA?

The term "domestic market enterprise" shall mean an enterprise, which produces
goods for sale, or renders services to the domestic market entirely or if exporting
portion of its output fails to consistency export at least sixty percent (60%) thereof.

53. What are the requirements for treasurer?

Treasurer must be Filipino citizen in corporations with fully or partly nationalized

business activities in view of the provisions of the Anti-Dummy Law. However, in
non-nationalized business activities, the foreigner is allowed as treasurer.

54. What is a transfer clause?

It is stated as follows in the articles of incorporation: 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 indicted in all stock certificates issued by the corporation.

55. When is a transfer clause required in the articles of incorporation?

It is required to be set forth in the articles of incorporation of corporations which will

engage in any business or activity reserved for Filipino citizens.

56. Is there a need to have AI notarized?

Yes. Notarial Acknowledgement of the Articles of Incorporation is required under the

Corporation Code.

57. What are the contents of By-laws?

A private corporation may provide in its by-laws for:

(1)The time, place and manner of calling and conducting regular or special meetings
of the directors or trustees;
(2)The time and manner of calling and conducting regular or special meeting of the
stockholders or members;
(3)The required quorum in meeting of stockholders or member and the manner of
voting therein;
(4)The form for proxies of stockholders and members and the manner of voting
them;
(5)The qualifications, duties and compensation of directors or trustees, officers and
 employees;
(6)The time for holding the annual election of directors or trustees and the mode of
manner of giving notice thereof
(7)The manner of election or appointment and the term of office of all officers other
than directors or trustees;
(8)The penalties for violation of the by-laws;
(9)In the case of stock corporation, the manner of issuing stock certificates; and
(10)Such other matters as may be necessary for the proper or convenient
transactions of its corporate business and affairs.

58. What is the requirement on annual meeting?

The annual meeting date should be a specific date (i.e. January 28).

59. What is the requirement on the fiscal year?

The fiscal year could be calendar year or a twelve-month period.

61. If the BL is filed after incorporation, what are the requirements?

Three copies of By-laws signed by stockholders representing majority of the

outstanding capital stock or majority of the members in case of non-stock
corporation and the adooption was certified by majority of the board and the
corporate secretary that the by-laws was adopted by the votes required under the
Corporation Code.

60. Can BL be filled simultaneous with the Articles of Incorporation?

Yes. The By-laws must be signed by all of the incorporators.