Rules on incorporators under the revised Corporation Code

23 December 2022

Mazars' Corporate Services Principal, Joanne Ranada, shares new rules for incorporators and other significant updates to the Corporation Code.

One of the major changes in the Revised Corporation Code of the Philippines was the rules for incorporators.

Incorporators are the stockholders or members in the articles of incorporation initially forming and composing the corporation and who are signatories thereof.

Under the old Code, an incorporator, numbering five to fifteen, is any natural person of legal age. The majority of the named incorporators should be residents of the Philippines.  They must also be subscribers to at least one share of capital stock.

The revised Code broadened the requirement to include natural persons and juridical entities such as partnerships, associations or corporations. While natural persons are still required to be of legal age and hold one share of capital stock, they are no longer required to be residents of the Philippines.  However, those licensed to practice a profession and partnerships or associations for the purpose of practicing a profession are only allowed to organise as a corporation if provided by special laws. 

As a result, incorporators may now be composed of any combination of the natural person, partnership, domestic corporations, or associations, including foreign corporations.

Every individual signing as an incorporator must indicate the capacity upon which he is signing.  This is especially required where the individual is representing a juridical entity, i.e. corporation, partnership, and the like

In all cases, incorporators must have a tax identification number (TIN).  While all Filipino citizens are presumed to already have a TIN, foreign nationals are required to secure a TIN from the Bureau of Internal Revenue (BIR), whether they are signing on their own or in a representative capacity. 

Foreign nationals as incorporators

The Code does not prohibit foreign nationals from being incorporators.  What is not allowed is when the corporation’s business activity is the practice of the profession. 

Under the Philippine Constitution, the practice of all professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed by law.  This was reiterated in the Twelfth Foreign Investments Negative List, which was previously written about here.  The List also enumerated the professions where foreigners are not allowed to practice in the Philippines except if subject to reciprocity and those where the corporate practice is allowed.

Partnerships as Incorporators

The partnership must be registered with the SEC.  The application of the corporation must be accompanied by a Partners’ Affidavit duly executed by all the partners to the effect that:

  1. They have authorised the partnership to invest in the corporation about to be formed; and
  2. They have designated one of the partners to become a signatory to the articles of incorporation. 

Partnerships that have been dissolved or whose term has already expired are prohibited from being an incorporator.

Domestic Corporations as Incorporators

An incorporator who is a domestic corporation has to be registered with the SEC.  Considering that it will be required to hold at least one share of capital stock, the investment must be approved by a majority of the board of directors or trustees (in the case of non-stock corporations) and ratified by the shareholders representing 2/3 of the outstanding capital stock or at least 2/3 of the outstanding capital stock of the corporation.

Since an incorporator signs the articles of incorporation, the authorised signatory to the formation documents must be duly approved by the domestic corporation.  No corporation with a delinquent, suspended or revoked status with the SEC can be an incorporator.  It also follows that a corporation whose term has expired can neither be an incorporator.

Foreign Corporations as Incorporators

Similar to that of a domestic corporation-incorporator, when a foreign corporation is made, the application for registration must be accompanied by a copy of a document authorising the foreign corporation to invest in the Philippines through the corporation being formed.  The document should also specifically name the designated signatory on behalf of the said foreign corporation.  Examples of these documents include board resolution, director’s certificate, secretary’s certificate, and the like, which must be authenticated or apostilled.

 

The Corporate Services Unit will be dedicating a series of articles highlighting the change in the Philippines’ new corporate law.