d. Articles of Incorporation

Nature and Function of Articles of Incorporation

The Articles of Incorporation is a basic contract document in Corporate Law which defines the charter of the corporation. Under Sections 13 and 18 of the Revised Corporation Code¹, the Articles of Incorporation are filed with the SEC, and corporate existence and juridical personality begin when the SEC issues the certificate of incorporation.

Note: The Articles of Incorporation defines the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders (Jesus v. Lanuza, G.R. No. 131394, 28 March 2005)².

Contents (Sec. 13)

All corporations shall file with the SEC articles of incorporation in any of the official languages, duly signed and acknowledged or authenticated, in such form and manner as may be allowed by the SEC, containing substantially the following matters, except as otherwise prescribed by this Code or by special law:

• The name of the corporation;
• The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are the secondary purpose or purposes: Provided, That a non-stock corporation may not include a purpose which would change or contradict its nature as such;
• The place where the principal office of the corporation is to be located, which must be within the Philippines;
• The term for which the corporation is to exist, IF not elected the perpetual existence;
• The names, nationalities and residences of the incorporators;
• The number of directors, which shall not be more than fifteen (15), or the number of trustees, which may be more than fifteen (15);
• 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 in accordance with the Corporation Code;
• 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;
• If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; and
• Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient.

An arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of this Code³.

Note: The articles of incorporation and applications for amendments thereto may be filed with the SEC in the form of an electronic document, in accordance with the SEC’s rules and regulations on electronic filing.

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Amendments

Requirement for Amending Articles of Incorporation (Sec. 15)⁴

• A legitimate purpose for the amendment;
• Majority vote of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders if available, or if it be a non-stock corporation, the vote or written assent of a majority of the trustees and at least two-thirds (2/3) of the members
• The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation.
• Indication in the articles, by underscoring, the change or changes made.
• A copy of amended articles duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of stockholders or members, as the case may be.

When would take effect:

• The amendments shall take effect upon their approval by the SEC or
• From the date of filing with the said Commission, if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

Grounds for Rejecting Incorporation or Amendment to Articles of Incorporation (Sec. 16)⁵

• Not in prescribed form;
• A purpose that is patently unconstitutional, illegal, immoral, or contrary to government rules and regulations;
• The certification concerning the amount of capital stock subscribed and/or paid is false; and
• Non-compliance with required Filipino stock ownership.

The SEC shall give the corporation a reasonable time to correct or modify objectionable portions.

Note: A favorable recommendation of the appropriate government agency to the effect that such article or amendment is in accordance with law is required in the following types of corporation:

• Banks, banking and quasi-banking institutions,
• Pre-need, insurance and trust companies,
• Non-stock savings and loan associations (NSSLAS),
• Pawnshops, and
• Other financial intermediaries

Non-Amendable Items:

• Names of incorporators
• Names of incorporating directors/trustees
• Names of original subscribers to capital stock and subscribed and paid-up capital
• Members who contributed to the initial capital of non-stock corporation
• Witnesses and acknowledgments

By-Laws - R.A. No. 11232, Sections 45-47⁶

Place of Principal Business Test

Residence of a corporation is the place where its principal office is located, as stated in its Articles of Incorporation.

The place where the principal office of the corporation is to be located is one of the required contents of the articles of incorporation to be filed with the SEC (Hyatt Elevators and Escalators Corporation v. Elevators, G.R. No. 161026, 24 October 2005)⁷.

The principal-office location stated in the articles of incorporation is relevant to the corporation’s residence for venue (RA 11232, Sec. 13(c)). The law of the place of incorporation generally governs the corporation’s existence, powers, and internal affairs; the location of its principal office does not, by itself, determine that law.

General Rule: The Corporation has a separate and distinct juridical personality from its directors, officers, trustees and shareholders (Doctrine of Separate Juridical Personality).

Exception: When the corporation is used as a cloak for fraud, illegality, or in other certain circumstances, the courts may disregard the separate and distinct personality of the corporation and treat the corporation as a mere collection of individuals undertaking business as a group.(Doctrine of Piercing the Veil of Corporate Fiction).