Incorporating a corporation

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By Kelvin Lee

Question of Law

Thursday, June 19, 2014


ONE of the questions I frequently encounter as a lawyer is why one should incorporate. Related questions that flow from that are on the requirement of incorporators for a corporation and the number of directors needed, among others.

This is actually fairly simple. The Corporation Code is specific in that “a corporation is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.” (Sec. 2, Corporation Code).

The Code also states that “Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations.” (Sec. 3, Corporation Code). We shall focus mostly on stock corporations since that is what most people or businessmen need.

In order to incorporate a corporation, one needs incorporators. In this, Sec. 5 of the Corporation Code can guide us. “Corporators are those who compose a corporation, whether as stockholders or as members.

Incorporators are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. Corporators in a stock corporation are called stockholders or shareholders.”

The Corporation Code also provides for the number and qualifications of incorporators. “Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.” (Sec. 10, Corporation Code).

A corporation can only exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless the period is extended. (Sec. 11, Corporation Code). The avenue to incorporate is by filing Articles of Incorporation with the Securities and Exchange Commission (SEC). The form of the Articles of Incorporation is in Sec. 15 of the Corporation Code.

Now, the main reason one should incorporate is the limited liability aspect of a corporation. A corporation is a separate entity or an artificial being created by law. And it allows for limitation of, or exemption from, individual liability of shareholders. (Sundiang, Commercial Law, p. 249).

As per the Supreme Court, “one of the advantages of a corporate form of business organization is the limitation of an investor’s liability to the amount of investment, which flows from the legal theory that a corporate entity is separate and distinct from its stockholders.” (San Juan Structural v. Court of Appeals, 295 SCRA 631).

One can easily understand how this limited liability can be an advantage to any businessman or investor. Of course, there are exceptions to the limited liability rule, which we can discuss at another time.

***

The opinions expressed herein are solely of Atty. Lee. This column does not constitute legal advice nor does it create a lawyer-client relationship with any party. You can reach Atty. Lee at lvlawoffices@gmail.com

Published in the Sun.Star Davao newspaper on June 19, 2014.

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