Notes On The Corporation Code.docx

Notes on the Corporation Code

1.

What is a Corporation? 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 governmentowned 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 nonassessable 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.