16th Apr 2013
The Articles of Incorporation is the bible of a corporation. It spells out the pertinent information concerning:
a. The name of the Corporation
b. The primary and secondary purposes of the Corporation
c. Place of principal office of the Corporation
d. Term of existence of the Corporation (normally 50 years)
e. Names, nationalities, and residences of the incorporators The Corporation Code requires incorporators to be any number of natural persons not less than five (5) but not more than fifteen (15), all of whom must be of legal age and must own or be a subscriber of at least one (1) share of the capital stock of the corporation
f. Number of directors, which should not be less than 5 and not more than 15
g. Names, nationalities and residences of the persons who shall acts as directors until the first regular directors are duly elected and qualified in accordance with the Corporation Code
h. The amount of the authorized capital stock of the Corporation, which must be stated in Philippine Pesos, and the number of shares into which it is divided
i. Names, nationalities and residences of the original subscribers, and the amount subscribers and paid by each on his subscription
j. The Corporate Treasurer
The aforementioned information can be found in the Articles of Incorporation and shall govern the corporation until duly amended.
It bears great emphasis that there is a proper procedure for amending the Articles of Incorporation in the Philippines. Any revision thereto cannot be done by mere corporate memo or notice. Hence, should one wish to change the corporate name, principal office address, number of directors or purpose of the corporation, compliance with Section 16 of the Corporation Code is mandatory, to wit:
“Sec. 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board 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 in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.
The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof 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 the stockholders or members, shall be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities and Exchange Commission 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.”
As can be gleaned from the foregoing, there are three (3) basic requirements for amending the Articles of Incorporation, namely:
1. Majority vote of the board of directors
2. Written assent of the stockholders representing at least 2/3 of the outstanding capital stock
3. Approval by the Securities and Exchange Commission
Anent the first 2 requisites, a meeting must be held, whether it be during the regular annual meeting or a special meeting called for such purpose. The rules regarding the meeting (i.e. notice, place, etc.) can be found in the corporate by-laws.
The meeting of the stockholders must first take place and the issue of the amendment must be assented to by stockholders representing at least 2/3 of the outstanding capital stock. Thereafter, it must be approved by at least a majority of the board of directors and duly certified by the Corporate Secretary.
To prove that these acts have been complied with, the following documents will be executed:
1. Resolution of the Stockholders
2. Board Resolution
3. Directors’ Certificate
4. Secretary’s Certificate
The aforementioned documents, together with the amended Articles of Incorporation must be submitted to the Securities & Exchange Commission. If the amendment refers to the corporate purpose which requires a secondary license from a government agency, then the endorsement or license from such government agency must also be submitted. If there is an increase in the authorized capital stock, then a Treasurer’s Affidavit and corresponding Bank Certificate must be submitted to prove such fact.
The amendment of the Articles of Incorporation may be disapproved pursuant to Section 17 of the Corporation Code which states:
“Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. – The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations;
3. That the Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or paid if false;
4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution.
No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law.”
Furthermore, the names of the incorporators, the first set of directors and subscribers, the initial treasurer, their original subscription and the place and date of execution of the first Articles of Incorporation cannot be amended.
If the Securities & Exchange Commission finds the amendment in order, it shall correspondingly issue a Certificate of Amendment of Articles of Incorporation. It is worth emphasizing that if a corporation does not properly amend its Articles of Incorporation, the Corporation shall be penalized by the Securities & Exchange Commission with an initial fine of Ten Thousand Pesos (P10,000.00) for the first violation.
Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392.