Number and Qualifications of Incorporators | Incorporation and Organization | Corporations | BUSINESS ORGANIZATIONS

Topic: Incorporation and Organization of Corporations – Number and Qualifications of Incorporators (Philippine Corporate Law)

In the Philippines, the primary legislation governing corporations is the Revised Corporation Code (Republic Act No. 11232), which took effect on February 23, 2019, amending and modernizing various provisions of the previous Corporation Code. The Revised Corporation Code includes detailed guidelines on the formation, organization, and operation of corporations, particularly regarding the number and qualifications of incorporators.

1. Definition and Role of Incorporators

Incorporators are the individuals who initiate the formation of a corporation by executing and filing the corporation’s articles of incorporation with the Securities and Exchange Commission (SEC). They are responsible for setting the groundwork for the corporation’s legal existence.

2. Number of Incorporators

Under the Revised Corporation Code, a corporation may be formed with as few as one incorporator. This change is significant, as the previous code required a minimum of five incorporators. Under the new code:

  • One Person Corporations (OPC): The Revised Corporation Code introduced the OPC, allowing a single individual to form a corporation, eliminating the need for multiple incorporators for this type of structure.
  • Standard Corporations: While a corporation can have more than one incorporator, there is no prescribed maximum number of incorporators.

3. Qualifications of Incorporators

The Revised Corporation Code sets out specific qualifications that incorporators must meet. These qualifications are designed to ensure accountability and compliance with Philippine corporate law. The key qualifications are:

  1. Natural Persons or Juridical Entities: Incorporators may be either:

    • Natural persons who are of legal age.
    • Juridical entities, provided that these entities are authorized by law to form a corporation in the Philippines.

    In One Person Corporations, only natural persons, trusts, and estates may act as incorporators. Banks and other entities exercising trust functions may also act as incorporators in a representative capacity.

  2. Residency Requirement: There is no strict residency requirement for incorporators under the Revised Corporation Code. Both resident and non-resident foreigners may be incorporators, provided they meet the nationality restrictions applicable to certain businesses under Philippine law.

  3. Age Requirement: For individual (natural person) incorporators, they must be of legal age (18 years or older).

  4. Corporate Capacity of Juridical Persons: For juridical entities acting as incorporators, they must have the power and authority to be an incorporator, which must be expressly allowed by their articles of incorporation or organization documents.

  5. Minimum Share Subscription and Payment:

    • Incorporators are required to subscribe to a minimum number of shares at the time of incorporation.
    • They must subscribe to at least one share of stock if forming a stock corporation.
    • To facilitate the establishment of the corporation, incorporators must collectively own or subscribe to at least 25% of the authorized capital stock.
    • Of the subscribed capital stock, a minimum of 25% must be paid-up upon incorporation.
  6. Citizenship and Foreign Ownership Restrictions: Foreigners may act as incorporators unless restricted by the Foreign Investment Act or specific sectoral laws.

    • For certain industries (e.g., media, telecommunications, and natural resources), foreign ownership may be restricted or capped at certain percentages.
    • In cases where foreign equity is restricted (such as utilities, which must be at least 60% Filipino-owned), incorporators must comply with nationality requirements applicable to the specific business.
  7. Tax Identification Number (TIN): All incorporators must possess a valid TIN for SEC filing purposes.

4. Duties and Liabilities of Incorporators

Incorporators do not automatically retain any rights, duties, or liabilities in the corporation beyond the formation process, as their primary role is to sign and execute the Articles of Incorporation. However:

  • Founding Shareholder Status: Incorporators are usually initial shareholders and may also take on director or officer roles within the corporation. Once elected as directors, they become responsible for overseeing corporate management and can incur liabilities under fiduciary duties.
  • Pre-Incorporation Contracts: Incorporators are often responsible for pre-incorporation agreements or contracts. While these contracts do not legally bind the corporation upon incorporation, the board may adopt them post-incorporation.

5. Filing Requirements for Incorporators

To incorporate, the following documents must be filed with the SEC:

  • Articles of Incorporation: This foundational document must include the incorporators' names, addresses, TINs, and signatures. It details the corporation’s primary purpose, authorized capital stock, and other organizational matters.
  • Bylaws (for certain corporations): The incorporators are responsible for drafting and filing bylaws governing internal operations within one month after incorporation, though the bylaws are not a requirement for all types of corporations.

6. Special Cases and Exemptions

  • Foreign Corporations: Foreign corporations wishing to operate in the Philippines may not be "incorporators" in the strict sense but must secure a license to do business, usually through a branch, representative office, or subsidiary.
  • OPCs: In the case of One Person Corporations, the sole incorporator exercises control over the corporation, although nominee and alternate nominee details must be specified in the Articles of Incorporation.

Practical Considerations for Incorporators

  1. Subscription and Capital Requirements: Compliance with minimum paid-up capital and subscription requirements is crucial, as failure may lead to the SEC's denial of the application for incorporation.
  2. Nationality Compliance: Incorporators must verify that they meet the necessary citizenship or residency requirements, particularly in foreign-restricted industries.
  3. Legal Compliance and Good Faith: Incorporators are encouraged to act in good faith and ensure transparency when incorporating, as non-compliance can lead to penalties or delays.

Conclusion

The Revised Corporation Code has simplified the incorporation process, allowing corporations to form with a single incorporator and removing numerous barriers to entry. Nonetheless, incorporators must adhere to the Revised Corporation Code's guidelines regarding nationality, legal age, subscription, and paid-up capital. The Philippines' flexible yet structured incorporation process ensures that corporations are established with accountability, promoting responsible corporate growth and compliance with both local and international business standards.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.