Corporation Law: The Revised Corporation Code of the Philippines - Sec 16

   THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE II -  INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS


Sec 16. Grounds When Articles of Incorporation or Amendment May be Disapproved. 
The Commission may disapprove the articles of incorporation or any amendment thereto if the same is not compliant with the requirements of this Code: Provided, That the Commission shall give the incorporators, directors, trustees, or officers as reasonable time from receipt of the disapproval within which to modify the objectionable portions of the articles or amendment. The following are ground for such disapproval:

(a) The articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein;

(b) The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations;

(c) The certification concerning the amount of capital stock subscribed and/or paid is false; and

(d) The required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with.

No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops and other financial intermediaries shall be 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.

NOTES 

1. Ministerial Duty.

  • The duty of the SEC to approve an application for registration is ministerial provided that all the requirements of law are complied with. 
  • The SEC must approve the Articles of Incorporation if the applicant has substantially complied with the requirements of the RCCP. 
  • However, Section 16 recognizes the power of the SEC to reject the Articles of Incorporation or any proposed amendment thereto if the provisions of the RCCP are violated. 
  • The SEC should give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment.
2. Rejection Not Based on the Submitted Articles.
  • Section 16 enumerates the grounds for rejecting the Articles of Incorporation or any amendment thereto.
    • Section 16 (a), (b) and (d)
      • can be determined on the basis of the Articles of Incorporation itself and the other required documents. 
  • General Rule: If the Articles of Incorporation and its supporting papers are in order, the Securities and Exchange Commission has no recourse but to issue the Certificate of Incorporation. 
  • Exceptions: 
    • Presidential Decree No. 902-A provides that the SEC may reject the Articles of Incorporation after consultation with the Board of Investment, Department of Trade and Industry, National Economic and Development Authority or any appropriate agency, if the establishment, organization or operation of the corporation will not be consistent with the declared national policies. 
      • For this purpose, it may be necessary to go beyond the Articles of Incorporation and the supporting papers in order to determine if the establishment, organization or operation of the corporation is inconsistent with the declared national policies.  
    • The Articles of Incorporation or any amendment thereto may be rejected if it is not substantially in accordance with the form prescribed in the RCCP. The prescribed form is provided in Section 14 of the RCCP.
3. Illegal or Immoral Purposes. 
  • Rejection of the Articles of Incorporation or any amendment thereto will result if the purpose or purposes of the corporation are patently unconstitutional, illegal; immoral, or contrary to government rules and regulations.
  • Thus, the Articles of Incorporation may be rejected if: 
    1. The declared purpose of the corporation is to promote and enhance the incorporation of the Philippines as an American State;
    2. The purpose is to practice certain professions except in certain cases; 
    3. The corporation is organized to engage in illegal gambling; 
    4. The purpose of the corporation is immoral such as to provide a "mail-order-bride" service;
    5. The purpose of the corporation is to establish a local government unit like a barangay.
4. False Certification. 
  • The Articles of Incorporation or any amendment thereto may be rejected if the certification incorporated therein concerning the amount of capital stock subscribed and/or paid is false. 
  • This ground is expressly provided for in Section 16(c) of the RCCP. 
  • The irregularity cannot be determined just by looking at the Articles of Incorporation. 
  • The false nature of the entries therein may be determined only later upon investigation. 
  • In such a case, there is also a ground to deny the application or revoke the registration under Section 16(c) of the RCCP. 
  • The same is also a ground to revoke the registration under Section 6(1) of Presidential Decree No. 902-A because there is fraud in procuring the certificate of registration. 
5. Time to Correct. 
  • The disapproval of the Articles of Incorporation need not be a final disapproval.
  • Section 16 of the RCCP provides that the SEC shall give the incorporators, directors, trustees, or officers a reasonable time from receipt of the disapproval within which to modify the objectionable portions of the articles or any amendment thereto.
6. Nationalization Requirement. 
  • The Articles of  Incorporation or any amendment thereto may also be rejected if 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. 
    • For example, the Articles of Incorporation of a corporation engaged in buying and selling realty may be rejected if foreigners own more than 40% of the subscribed capital. 
7. Endorsement by Government Agencies. 
  • Section 16 of the RCCP provides that no Articles of Incorporation or amendment to Articles of Incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or the amendment is in accordance with law. 
  • Consistently, the SEC numerates the businesses requiring endorsements from different government agencies in the formation of corporations:
  1. Civil Aeronautics Authority
    • Air Transport
  2. Bangko Sentral ng Pilipinas
    • Banks
    • Pawnshops
    • Other Financial Intermediaries with Quasi-Banking Functions
  3. Department of Social Welfare and Development
    • Charitable Institutions and Social Welfare Organizations
  4. Department of Energy
    • Electric Power Plants
    • Trading Petroleum Products
  5. Department of Health
    • Hospitals,
    • Dental Clinics
    • Medical Clinics
    • Maintenance Organizations
  6. Insurance Commission
    • Insurance
    • Mutual Benefit Insurance Commission Associations (also Pre-Need Corporation)
  7. Governance Commission for Government-Owned or Controlled Corporations
    • Non-chartered Government-Owned and Controlled Corporations
  8. Professional Regulation Board
    • Professional Associations
  9. National Telecommunications Commission
    • Radio
    • TV
    • Telephone
    • Internet 
    • Value-added Services
  10. Philippine Overseas Employment Administration (POEA)
    • Recruitment for Overseas Employment
  11. Philippine National Police
    • Security Agency
    • Anti-Crime Task Force
    • Gun Clubs
  12. National Tobacco Administration
    • Tobacco Related Business
  13. Bureau of Fire Protection
    • Volunteer Fire Brigade
  14. Maritime Industry Authority
    • Water Transport
    • Ship-building 
    • Ship Repair
  15. Local Waterworks Utilities Administration/Manila Waterworks and Sewerage System and National Water Resources Board
    • Waterworks corporations 

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