How to draft articles of incorporation

Posted on February 12, 2010 by Hector M. de Leon Jr. • Posted in Commercial Law • Tagged corporation
In order to form a corporation, the incorporators must submit the articles of incorporation to the Securities and
Exchange Commission (SEC).

While sample form articles of incorporation are available from the SEC, it is advisable that the incorporators
request their legal counsel to draft (or review) the articles of incorporation prior to submission to the SEC,
especially if the incorporators wish to add special provisions not found in the sample SEC form. Review by
the incorporators’ legal counsel is also important because the filling up of the sample SEC form requires
knowledge of certain provisions of the Corporation Code.

What information will the lawyer need from his client to draft the articles of incorporation? Read the sample
articles of incorporation below (taken from Section 15 of the Corporation Code) and find out. I inserted my
annotation after each provision.

ARTICLES OF INCORPORATION OF ___________(Name of Corporation)

KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and a majority of whom are residents of the Philippines,
have this day voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the
Republic of the Philippines;
Note: A corporation may be a stock corporation or a non-stock corporation. Corporations that issue shares
and are authorized to distribute dividends to shareholders are stock corporations. All other corporations are
non-stock corporation (Corporation Code, sec. 3). Many organizations that are not created for the purpose of
gaining profit (such as charitable and religious organizations) are non-stock corporations.
As indicated above, the incorporators must all be of legal age and majority of whom are Philippine residents
(not necessarily Philippines citizens). However, for corporations that will engage in nationalized or partly-
nationalized activities, Filipino citizenship requirements must be complied with.

AND WE HEREBY CERTIFY:

FIRST: That the name of said corporation shall be
“………………………………………., INC. or CORPORATION”;
Note: See posting of January 27, 2010 on how to choose a corporate name.
SECOND: That the purpose or purposes for which such corporation is incorporated are: (If there is
more than one purpose, indicate primary and secondary purposes);
Note: This is called the purpose clause. The primary purpose clause states the principal business activities that
the corporation will engage in. The statement of the purpose or purposes of the corporation operates as an
authorization to the corporation to enter into transactions that may be considered as included or incidental to
the attainment of said purposes. It also imposes implied limitations on the powers of the corporation by the
exclusion of lines of activity which are not covered. (Corporation Code Annotated, p. 152-153 [2005]). Where
a corporation has more than one stated purpose, the articles of incorporation must state which is the primary
purpose and which is/are the secondary purpose(s). A non-stock corporation may not include a purpose which
would change or contradict its nature as such. (Corporation Code, sec. 15)
While the corporate purpose may be stated in broad and general terms, they should be stated with sufficient
clarity to define with certainty the scope of business of the corporation. (Id.) The purpose of the corporation
must be “lawful”. (Corporation Code, sec. 10).

THIRD: That the principal office of the corporation is located in the City/Municipality of
………………………………………, Province of ………………………………………….., Philippines;
Note: The articles must state the “place where the principal office of the corporation is to be established or
located.” The principal office must be located in the Philippines.
Under SEC Circ. No. 3, series of 2006, the SEC required that the articles must state the “(1) specific address of
their principal office which shall include, if feasible, the street number, street name, barangay, city or
municipality.” “Metro Manila” is no longer allowed as address of the principal office.

FOURTH: That the term for which said corporation is to exist is ……………. years from and after the
date of issuance of the certificate of incorporation;
Note: The usual period stated for the corporate term is 50 years. Under the Corporation Code, a corporation
will exist for a period not exceeding 50 years from the date of incorporation unless sooner dissolved or unless
the 50 year period is extended. The corporate term as originally stated in the articles of incorporation may be
extended for periods not exceeding 50 years in any single instance by an amendment to the articles of
incorporation. The application for extension cannot be made earlier than 5 years prior to the original or
subsequent expiry dates unless there are justifiable reasons for an earlier extension as may be determined by
the SEC. (Corporation Code, sec. 11)
FIFTH: That the names, nationalities and residences of the incorporators of the corporation are as
follows:
NAME NATIONALITY RESIDENCE
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
Note: There should be a minimum of 5 and a maximum of 15 incorporators, all of legal age and a majority of
whom are residents of the Philippines. Each incorporator of a stock corporation must own or be a subscriber to
at least 1 share of the capital stock of the corporation. (Corporation Code, sec. 10)
A corporation cannot be an incorporator (unless otherwise provided by special law that authorizes corporations
to become incorporators). A corporation can be a subscriber of shares in the corporation.

SIXTH: That the number of directors or trustees of the corporation shall be ………….; and the names,
nationalities and residences of the first directors or trustees of the corporation are as follows:
NAME NATIONALITY RESIDENCE
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
Note: There should be a minimum of 5 and a maximum of 15 directors or trustees. A non-stock corporation
will have trustees in lieu of directors. The persons named as directors or trustees in the articles of
incorporation will occupy those positions untl the first regular directors or trustees are duly elected.
SEVENTH: That the authorized capital stock of the corporation is ……………………………
(P………………….) PESOS in lawful money of the Philippines, divided into …………… shares with the
par value of …………………………….. (P…………………..) Pesos per share.
(In case all the share are without par value):
That the capital stock of the corporation is ……………………… shares without par value. (In case some
shares have par value and some are without par value): That the capital stock of said corporation
consists of …………………… shares of which ………………….. shares are of the par value of
………………………… (P…………………) PESOS each, and of which ………………………….. shares
are without par value.
Note: The Corporation Code does not impose any minimum capital stock on stock corporations; however,
the paid-in capital of the corporation must not be less than PhP5,000. There are special laws that require
minimum capital stock for corporations that wish to engage in certain areas of activities. For example, a
wholly owned Philippine subsidiary of a non-Philippine corporation may be required to have a minimum
capitalization of US$200,000.
The articles of incorporation must state the number and type of shares the corporation can issue. For
corporations with a single class of shares, the number of shares is usually determined by dividing the proposed
authorized capital stock with the proposed par value of the shares. In general, a corporation will have a single
class of common shares. However, a corporation may have different classes of shares (e.g., common and
preferred shares), which will entitle the holders thereof to such rights, privileges or restrictions as may be
stated in the articles of incorporation. Shares may be voting, non-voting, preferred in the distribution of
dividends, preferred in the distribution of assets in case of liquidation, convertible, redeemable, etc.

A par value share is one with a specific money value fixed in the articles of incorporation and appearing in the
certificate of stock. The primary purpose of the par value is to fix the minimum subscription or issue price of
the shares. (Corporation Code Annotated, p. 81 [2006]).

A no par value share is one without any stated value appearing on the face of the certificate of stock. It will
have an “issued value”, i.e., the consideration fixed by the corporation for the issuance of the shares. (Id.)

Any restrictions on the transfer of shares should also be stated in the articles of incorporation. These
restrictions may include rights of first refusal, rights of last refusal, tag along rights, drag along rights, etc.

EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above stated has been
subscribed as follows:
Name of Subscriber Nationality No of Shares Amount Subscribed
……………………………. ……………….. …………………… …………………..
……………………………. ……………….. …………………… …………………..
……………………………. ……………….. …………………… …………………..
……………………………. ……………….. …………………… …………………..
……………………………. ……………….. …………………… …………………..
Note: At least 25% of the authorized capital stock of a stock corporation must be subscribed (and the
Treasurer must submit a sworn statement confirming this requirement). (Corporation Code, sec. 14). Because
the Corporation Code uses the phrase “at least twenty-five percent (25%) of the authorized capital stock of the
corporation”, my view is that the 25% requirement should be based on amount of authorized capital stock,
which is a peso amount, and not on the number of shares. I understand that there is a view (which I do not
agree with) that the 25% requirement should also take into account the number of shares of the corporation.
NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent of the total
subscription as follows:
Name of Subscriber Amount Subscribed Total Paid-In
…………………………….. ……………………………….. ………………………….
…………………………….. ……………………………….. ………………………….
…………………………….. ……………………………….. ………………………….
…………………………….. ……………………………….. ………………………….
…………………………….. ……………………………….. ………………………….
(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-stock, Nos. 7, 8 and 9
of the above articles may be modified accordingly, and it is sufficient if the articles state the amount of
capital or money contributed or donated by specified persons, stating the names, nationalities and
residences of the contributors or donors and the respective amount given by each.)
Note: At least 25% of the total subscription must be paid. For example, if the corporation has an authorized
capital stock of PhP1,000,000 with 1,000,000 shares having a par value of PhP1 each, the amount subscribed
must be at least PhP250,000 (equivalent to 250,000 shares) and the amount paid must at least be PhP62,500,
which amount must be deposited with the bank at the time the application for incorporation is filed.
Payment for shares may be in the form of cash, property, etc. However, additional documents must be
submitted to the SEC if the payment is not in the form of cash.

TENTH: That ………………………………… has been elected by the subscribers as Treasurer of the
Corporation to act as such until his successor is duly elected and qualified in accordance with the by-
laws, and that as such Treasurer, he has been authorized to receive for and in the name and for the
benefit of the corporation, all subscription (or fees) or contributions or donations paid or given by the
subscribers or members.
Note: The articles of incorporation must name the treasurer-in-trust, who holds in trust the subscriptions paid
by the subscribers of the corporation.
ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens
shall provide the following):
“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
recorded in the proper books of the corporation and this restriction shall be indicated in all stock
certificates issued by the corporation.”
Note: The foregoing provision applies to corporations that will engage in partly-nationalized activities. The
Foreign Investment Negative List issued pursuant to the Foreign Investments Act contains a summary of
nationalized and partly-nationalized activities.
IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this ……………….
day of …………………………, 19 ……….. in the City/Municipality of ………………………………….,
Province of …………………………………………., Republic of the Philippines.
…………………………………….. ………………………………………
…………………………………….. ………………………………………
…………………………………………
(Names and signatures of the incorporators)

SIGNED IN THE PRESENCE OF:

………………………………… ………………………………………
(Notarial Acknowledgment)
The articles must be acknowledged by all of the incorporators. (Corporation Code, sec. 14)

(Note: This is part of a series of “How To” articles. These articles intend to give the reader a general
overview of the legal aspects of doing certain things and they will not contain all details regarding the
proposed action. There may be changes to applicable laws and regulations after the article is posted. You
should consult your lawyer if you wish to take a particular action. See Disclaimer page for additional
disclaimers.)
What is the difference between a stock and non-stock corporation?

A stock corporation as the name implies, issues shares of stock in return for an interest in the
corporation. Those receiving stock are known as stockholders or shareholders. Stockholders are entitled to
vote for the corporation's board of directors but are generally not entitled to participate in the day-to-day
activities of the company.

A non-stock corporation does not issue stock and has “members” rather than stockholders. Members of a
non-stock corporation are similar in many respects to members of an unincorporated association. A community
association or club is an example of a non-stock corporation.

POWERS THAT BE: Board Resolution vs. Special Power of Attorney (Case Digest: Bank of the Philippine
Islands vs. Hon. Court of Appeals, et al., G.R. No. 168313. October 6, 2010)
By Siesta-friendly

Why the Supreme Court can still be bothered with an issue as simple as that involved in this case is a
failure in the system leading to unnecessary clogging of courts’ dockets and further delay in the
disposition of cases with substantial issues.

Anyway, below is the condensed form of the case.

First Union Group Enterprises (First Union) borrowed from Bank of the Philippine Islands
(BPI) PhP5,000,000.00 and USD123,218.32. As partial security for the loan, Spouses Linda and Eddy Tien
executed a Real Estate Mortgage Agreement covering 2 condominium units. Linda also executed a
Comprehensive Surety Agreement where she agreed to be solidarily liable with First Union for its
obligations to BPI. Despite repeated demands, First Union failed to pay BPI the amounts due.

First Union’s and Linda’s continued failure to settle their outstanding obligations prompted BPI to file a
complaint for collection of sum of money. The complaint’s verification and certificate of non-forum
shopping were signed by Ma. Cristina F. Asis (Asis) and Kristine L. Ong (Ong). However, no Secretary’s
Certificate or Board Resolution was attached to evidence Asis’ and Ong’s authority to file the
complaint. Instead of submitting a board resolution, BPI attached a “Special Power of Attorney” (SPA)
executed by Zosimo A. Kabigting (Zosimo), Vice-President of BPI. The SPA authorized Asis and Ong or
any lawyer from the Benedicto Versoza Gealogo and Burkley Law Offices to initiate any legal action
against First Union and Linda.

First Union and Linda filed a motion to dismiss on the ground that BPI violated Rule 7, Section 5 of the
Rules of Civil Procedure (Rules); BPI failed to attach to the complaint the necessary board resolution
authorizing Asis and Ong to institute the collection action against First Union and Linda.

BPI filed an “Opposition to the Motion to Dismiss,” arguing that the verification and certificate of non-
forum shopping sufficiently established Asis’ and Ong’s authority to file the complaint and proof of their
authority could be presented during the trial. Further, BPI alleged that a complaint “can only be
dismissed under Section 5, Rule 7 of the 1997 Rules of Civil Procedure if there was no certification against
forum shopping.” The provision, according to BPI, “does not even require that the person certifying
should show proof of his authority to do so.”
The RTC granted First Union’s and Linda’s Motion to Dismiss.

The CA affirmed.

BPI filed a petition for review on certiorari before the SC. It contended that in Shipside v. Court of
Appeals (February 20, 2001, G.R. No. 143377, 352 SCRA 334), the SC excused Shipside’s belated
submission of its Secretary’s Certificate and held that it substantially complied with the rule requiring
the submission of a verification and certificate of non-forum shopping as it did, in fact, make a
submission.

BPI’s cited Shipside case also involved the absence of proof – attached to the petition – that the filing
officer was authorized to sign the verification and non-forum shopping certification. In the Motion for
Reconsideration that followed the dismissal of the case, the movant attached a certificate issued by its
board secretary stating that 10 days prior to the filing of the petition, the filing officer had been
authorized by petitioner’s board of directors to file said petition. Thus, proper authority existed but was
simply not attached to the petition. On this submission, the petitioner sought and the SC positively
granted relief.

In the present case, the SC did not see a situation comparable to the cited Shipside. BPI did not submit
any proof of authority in the first instance because it did not believe that a board resolution evidencing
such authority was necessary. Instead of immediately submitting an appropriate board resolution – after
the First Union and Linda filed their motion to dismiss – BPI argued that it was not required to submit
one and even argued that:

The Complaint can only be dismissed under Section 5, Rule 7 of the 1997 Rules of Civil Procedure if there
was no certification against forum shopping. The Complaint has. The provision cited does not even
require that the person certifying show proof of his authority to do so x x x.

In fact, BPI merely attached to its opposition a special power of attorney issued by Mr. Kabigting, a bank
vice-president, granting Asis and Ong the authority to file the complaint. Thus, no direct authority to file
a complaint was initially ever given by BPI – the corporate entity in whose name and behalf the
complaint was filed. Only in its Reply to the Comment to plaintiff’s Opposition to the Motion to Dismiss
did BPI “beg the kind indulgence of the Honorable Court as it inadvertently failed to submit with the
Special Power of Attorney the Corporate Secretary’s Certificate which authorized Mr. Zosimo Kabigting
to appoint his substitutes.” Even this submission, however, was a roundabout way of authorizing the
filing officers to file the complaint.

BPI, interestingly, never elaborated nor explained it’s belatedly claimed inadvertence in failing to submit
a corporate secretary’s certificate directly authorizing its representatives to file the complaint; it
particularly failed to specify the circumstances that led to the claimed inadvertence. Under the given
facts, rather than an inadvertence, there was an initial unwavering stance that the submission of a
specific authority from the board was not necessary. In blunter terms, the omission of the required
board resolution in the complaint was neither an excusable deficiency nor an omission that occurred
through inadvertence. In the usual course in the handling of a case, the failure was a mistake of counsel
that BPI never cared to admit but which nevertheless bound it as a client. From this perspective, BPI’s
case is different from Shipside so that the ruling in this cited case cannot apply.

The SC held that the dismissal of the case is appropriate without prejudice to its refiling as the Rules
allow.

It bears mention that under the Corporation Code, the “corporate powers of all corporations xxx shall be
exercised, all business conducted and all property of such corporations controlled and held by the board
of directors xxx (Section 23).” No corporate officer can just execute an SPA to delegate corporate
authority.

Secretary's Certificates
A contract is voidable if the individual that signed the contract did not have the authority. Officers of a corporation
have implied authority to sign agreements because of their position as an officer.They may also have authority that
the company has delegated to them. What about other individuals in the company or individuals that may not even
work for the company? How do you check their authority?

The best way is to ask for what is called a "Secretary's Certificate". A “Secretary's Certificate” is a document that is
signed and sealed by the Secretary of the Corporation that states that the Board of Directors has voted to delegate
authority to a specific individual or group and whether they have the right to further delegate that authority. The
Secretary's Certificate would need to be stamped with their seal or whatever is required by that jurisdiction for it to be
an official corporate document.

If you have a sealed Secretary's Certificate stating that they have delegated authority to that individual any contract
signed by that individual would be binding. If you had a statement that a specific individual is authorized to delegate
authority for certain actions, you would also want a signed statement from that individual that documents the
delegation. Without proof of the delegation and/or the right to delegate, the company could simply void the bid or
contract saying that the person didn't have the authority.For example, a corporation could delegate authority to their
general counsel to sign documents and allow the general counsel to further delegate that authority to outside law
firms where that delegation would be subject to specific parameters.
Creating an agent that can bind the corporation would also require a delegation of authority by someone in the
corporation that both has has been granted the authority and has the right to further delegate it.

In most companies the head of procurement is granted authority by the Board of Directors to sign procurement
contracts and they are given the right to further delegate signing authority down to lower levels in procurement. That
grant only applies to the legal entity they received their delegation of authority from. For example a CPO of a Parent
Company would not have the right to delegate authority to a procurement manager in a subsidiary unless that
subsidiary gave them the right to have both authority to sign for that subsidiary and the right to further delegate it to
individuals within that subsidiary.