Articles of Incorporation

Nature and Function of the Articles

The articles of incorporation are the basic charter of a domestic corporation and the principal document by which incorporators ask the State, through the Securities and Exchange Commission, to create a juridical person.

They are more fundamental than bylaws because they identify the corporation, define its purposes, state its capital or contribution structure, disclose its organizers and initial governing body, and fix the basic limits within which corporate powers may be exercised.

After the certificate of incorporation is issued, the articles operate as a contract among the State, the corporation, and its stockholders or members, subject always to the reserved power of the State to regulate corporations and to amend corporate law.

The articles do not by themselves create corporate existence. Juridical personality begins only upon issuance by the SEC of the certificate of incorporation, except where a special law provides another mode of creation.

Execution, Form, and Filing

The articles must be in a form substantially compliant with the Revised Corporation Code and SEC requirements, signed and acknowledged or otherwise authenticated by all incorporators.

They may be prepared in any official language, but the contents must be definite enough to allow the SEC, creditors, investors, stockholders, members, and the public to determine the corporation's identity, lawful business or activity, capitalization, and initial governance structure.

Incorporators who are natural persons must be of legal age. Juridical persons may participate as incorporators when legally capable and duly authorized, and a stock corporation's incorporator must own or subscribe to at least one share.

A corporation may be organized by one or more incorporators but not more than fifteen, subject to the special statutory rules for a one person corporation and to restrictions applicable to corporations engaged in the practice of professions or activities governed by special laws.

Filing the articles is a regulatory act, not a private contract alone. The SEC examines whether the proposed corporation can lawfully exist, whether required contents are present, and whether the proposed purpose, nationality, name, and capital structure comply with law.

Mandatory Contents

The articles must contain the material facts required by the Revised Corporation Code. Omitting a required matter may prevent registration, delay incorporation, or create uncertainty over powers and internal rights.

Corporate Name

The corporate name stated in the articles is the legal name under which the corporation acquires rights, assumes obligations, sues, is sued, and transacts business.

The name must be distinguishable from names already reserved or registered, must not be protected by law for another entity, and must not be deceptive, confusing, contrary to law, or offensive to public policy.

The SEC may require a change of name even after incorporation when the registered name is later found to be noncompliant. A change of name does not create a new corporation and does not extinguish existing obligations.

Corporate name protection is not merely a technical registration rule. It prevents public confusion, protects business goodwill, and helps creditors and regulators identify the juridical person responsible for corporate acts.

Purpose Clause

The articles must state the corporation's specific lawful purpose or purposes. A corporation may not be formed for an unconstitutional, illegal, immoral, or impossible purpose.

If there is more than one purpose, the articles must identify the primary purpose and may state secondary purposes. A corporation may not have more than one primary purpose because the primary purpose determines the main corporate undertaking and may affect nationality, licensing, capitalization, and regulatory requirements.

The purpose clause confines corporate authority, but it also carries with it powers reasonably necessary or incidental to accomplishing the stated purpose. An act need not be described word for word in the articles if it is a usual, proper, or necessary incident of the authorized business.

A transaction substantially outside the express, implied, or incidental powers arising from the purpose clause may be treated as ultra vires. The consequence may involve internal accountability, injunctive relief, regulatory action, or limits on enforceability depending on the parties, good faith, performance, and protection due to innocent third persons.

Where a business activity is reserved to Philippine nationals, limited by equity ownership rules, or subject to prior approval of a government agency, the purpose clause must be consistent with the applicable nationality and licensing requirement.

Corporations generally may not be organized to practice a learned profession when the law reserves professional practice to natural persons, unless a special law permits corporate practice under defined conditions.

Principal Office

The articles must state the place where the principal office is to be located, and the principal office must be within the Philippines.

The principal office is the corporation's official domestic address for SEC records, corporate notices, service-related matters, keeping of records when required by law, and determining the proper place connected with corporate residence.

A change in the principal office that alters the city or municipality stated in the articles generally requires an amendment of the articles. A change only in a more specific address may also require appropriate SEC notification under applicable regulations.

The stated principal office should be genuine and usable because fictitious or obsolete office information may impair notices, regulatory compliance, and the ability of stockholders, members, creditors, or government agencies to locate the corporation.

Corporate Term

Under the Revised Corporation Code, a corporation has perpetual existence unless its articles provide a specific corporate term.

If the articles state a fixed term, the corporation exists only for that period unless the term is extended by amendment before expiration, or unless revival is allowed under the statutory rules for expired corporations.

An extension of term is a fundamental change because it continues the corporate franchise beyond the period originally stated. A shortening of term is likewise fundamental because it accelerates the period for dissolution and liquidation.

Existing corporations formed under the prior law are generally treated consistently with the Revised Corporation Code's perpetual term rule, subject to the statutory election to retain a definite term when properly made.

Incorporators and Initial Board

The articles must state the names, nationalities, and residence addresses of the incorporators because those details establish the persons who brought the corporation into existence and help determine compliance with nationality and qualification requirements.

The number of directors or trustees must be stated. Directors of a stock corporation are subject to the statutory ceiling applicable to directors, while trustees of a nonstock corporation may be governed by the more flexible rules for trustees and by the articles or bylaws.

The articles must name the first directors or trustees who will serve until successors are elected and qualified. Their designation bridges the period between incorporation and the first regular election.

Directors must generally be stockholders, and trustees must generally be members, because board authority is tied to the representative structure of the corporation. Loss of the qualifying share or membership may affect continued eligibility.

The residence and nationality disclosures of initial directors or trustees matter when the corporation is subject to statutory nationality rules, independent director requirements, or special regulatory qualifications.

Capital Structure of Stock Corporations

For a stock corporation, the articles must state the amount of authorized capital stock, the number of shares into which it is divided, and the par value of shares when the shares have par value.

If shares are without par value, the articles must state that fact and must comply with the statutory limits on no-par shares. No-par value shares are issued without a stated nominal value, but they still represent proportional equity interests and are governed by the consideration received for their issuance.

The articles must identify the original subscribers, their nationalities and residence addresses, the amount subscribed by each, and the amount paid on each subscription.

The Revised Corporation Code removed the general minimum subscribed and paid-in capital rule for ordinary stock corporations, but special laws may still require minimum capitalization, paid-in capital, or ownership levels for particular industries.

Authorized capital is the maximum share capital the corporation may issue without amending the articles. Subscribed capital is the portion taken by subscribers, and paid-in capital is the amount actually paid on subscriptions or issued shares.

A pre-incorporation subscription supports the formation of the corporation and is generally binding according to statutory rules. It becomes especially important because the articles disclose the original financing base on which incorporation is sought.

Where the corporation is engaged in a partly nationalized or fully nationalized activity, the subscription details in the articles help determine whether the corporation satisfies the required Philippine ownership level at incorporation.

Nonstock Corporations

For a nonstock corporation, the articles must state the amount of capital or contributions when applicable, the names, nationalities, and residence addresses of contributors, and the amount contributed by each.

A nonstock corporation does not issue shares and does not distribute profits to members as such. Its articles must therefore show the nonprofit, eleemosynary, civic, educational, religious, cultural, social, professional, trade, or other lawful nonstock purpose for which it is formed.

Membership rights in a nonstock corporation arise from the articles, bylaws, and applicable membership rules rather than from share ownership. The articles may therefore be important in determining classes of members, voting rights, and the destination of assets upon dissolution.

Nonstock corporations may have trustees instead of directors, and the articles or bylaws may provide for trustee terms and board composition consistent with the Revised Corporation Code.

Optional and Special Provisions

The articles may include provisions not inconsistent with law, morals, public policy, or the corporation's nature. Such provisions become part of the corporation's charter and may bind stockholders, members, directors, trustees, officers, and the corporation itself.

Share classifications, preferences, restrictions, and limitations should be stated in the articles when they affect substantive rights. Preferred shares, redeemable shares, founders' shares, non-voting shares, and other classes must be authorized in a manner consistent with law.

Preferences affecting dividends, liquidation, conversion, redemption, or voting are not presumed. They must be created in the articles or in an amendment authorized by the articles and approved as required by law.

Non-voting shares may be created when allowed by law, but non-voting status does not remove statutory voting rights on fundamental corporate matters where the law requires all affected shares to vote.

Redeemable shares require authority in the articles because redemption allows the corporation to reacquire shares under agreed terms, even in some cases regardless of unrestricted retained earnings, subject to statutory safeguards and creditor protection.

Founders' shares may grant special rights for a limited period when lawfully provided, but special privileges cannot permanently destroy the statutory allocation of corporate power or defeat mandatory rights of other stockholders.

Restrictions on transfer, qualifications for ownership, arbitration clauses, and close corporation provisions may be placed in the articles when the law requires charter-level notice or when the restriction affects substantive property or governance rights.

Any optional provision must yield to mandatory provisions of the Revised Corporation Code, special laws, constitutional ownership restrictions, and valid SEC regulations.

SEC Review and Grounds for Non-Approval

The SEC may refuse to approve articles that are not substantially compliant in form, contain an unlawful or improper purpose, use an impermissible corporate name, violate nationality or ownership requirements, or lack a required endorsement from another government agency.

Before disapproval, incorporators should be given a reasonable opportunity to correct or modify defective articles when the defect is curable.

SEC approval of the articles does not validate provisions that are void by law. A charter clause contrary to a mandatory statute is ineffective even if it appears in filed articles.

Registration also does not excuse later noncompliance with licensing, capital, nationality, reportorial, tax, labor, environmental, or industry-specific requirements. Incorporation creates juridical personality, but it does not automatically grant every permit needed to operate.

Effects After Incorporation

Once the SEC issues the certificate of incorporation, the corporation becomes a separate juridical person with powers, attributes, and liabilities distinct from those of its stockholders, members, incorporators, directors, trustees, and officers.

The articles identify the corporation's express powers, but the corporation also has statutory, implied, and incidental powers necessary to carry out its lawful purposes.

Stockholders and members are charged with notice of the articles because they define basic rights and restrictions. Persons dealing with the corporation are likewise affected by charter matters that are public, registrable, or required by law to be disclosed.

The corporation cannot rely on its articles to avoid liability for acts done through authorized agents within the scope of corporate business, nor can stockholders use charter formalities to justify fraud, evasion of obligations, or misuse of the corporate fiction.

Bylaws, board resolutions, contracts, and internal policies must conform to the articles. In case of conflict, the articles generally prevail over bylaws and ordinary corporate acts because the articles are the higher organic instrument.

Amendment of Articles

The articles may be amended to change matters such as name, purpose, principal office, term, capital structure, share rights, board size, or other charter provisions, provided the amendment is lawful and made through the required corporate approvals.

An amendment generally requires approval by a majority of the board of directors or trustees and the vote or written assent of stockholders representing at least two-thirds of the outstanding capital stock or at least two-thirds of the members of a nonstock corporation.

Where different classes of shares are affected, class voting or separate consent may be necessary because an amendment cannot alter class rights without observing the protections attached to those shares.

Amended articles must contain the full charter as amended, not merely a detached list of changes, so that the SEC record shows the corporation's complete governing document.

An amendment becomes effective upon SEC approval or, in cases where the law treats inaction as approval, upon the lapse of the statutory period without SEC action for reasons not attributable to the corporation.

Dissenting stockholders may have appraisal rights when the amendment substantially changes corporate rights in a manner covered by law, such as changes affecting purpose, term, investment restrictions, or rights attached to shares.

No amendment may authorize an illegal purpose, impair vested rights without legal basis, defeat creditor protection rules, evade nationality restrictions, or retroactively validate acts that were void for being contrary to law.

Defects and Curative Principles

Defects in the articles before SEC approval usually prevent incorporation unless corrected. Defects discovered after incorporation are treated according to their nature: some are curable by amendment, some expose the corporation to sanctions, and some may support State action against the corporate franchise.

A colorable attempt to incorporate, followed by use of corporate powers under a certificate or apparent authority, may affect the rights and liabilities of persons who dealt with the entity as a corporation.

Persons who assume to act as a corporation without valid incorporation may be held liable under principles preventing them from denying the corporate existence they represented to others.

Private parties generally cannot mount a collateral attack on corporate existence when the State has issued a certificate and the corporation is functioning under it; direct proceedings by the State or proper regulatory action are the usual means to question the franchise.

Curative doctrines protect commercial stability, but they do not legalize fraud, constitutional violations, unlawful purposes, or corporate acts beyond what the law allows.

Relationship with Bylaws and Corporate Governance

The articles establish the corporation's identity and fundamental powers, while bylaws regulate internal governance, meetings, elections, officers, notices, quorum, and administrative procedures.

Bylaws cannot expand the corporation's purposes beyond the articles, remove rights fixed in the articles, or contradict share preferences, membership classes, or transfer restrictions placed in the articles.

Board resolutions and officer acts must be traceable to the articles, the Revised Corporation Code, special laws, bylaws, or valid delegated authority. Corporate authority begins with the charter and is implemented through governance acts.

For this reason, the articles should be read as the corporation's organizing instrument, public notice document, and continuing limit on corporate action throughout the corporation's existence.