Corporation Law: The Revised Corporation Code of the Philippines - Sec 10

THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE II -  INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

SEC. 10. Number and Qualifications of lncorporators. - Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes: Provided, That natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. lncorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock. 

A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code.

NOTES 

1. Incorporators. 

• Incorporators are those stockholders or members mentioned in the Articles of Incorporation as originally forming and composing the corporation and who are signatories thereof.
• The basic qualifications of incorporators under Section 10 may be enumerated as follows:
1. The incorporator must be a natural or juridical entity;
2. There must not be more than 15 incorporators;
3. If the incorporator is a natural person, he or she must be of legal age;
4. Each incorporator of a stock corporation must own or be a subscriber to at least one share of the capital stock. 
• It is now allowed for a corporation to have only one incorporator if the corporation is a One Person Corporation (OPC).
• Section 10 of the RCCP provides that any person, partnership, association or corporation can be an incorporator "singly" or "jointly with others." 
• Hence, there can be one incorporator only for an OPC but at least two incorporators but not more than fifteen (15) are required for a corporation that is not an OPC.

2. Persons who can be Incorporators. 

• lncorporators may either be natural persons or corporations, partnerships and associations.
• Section 10 of the RCCP eliminated the rule under the Corporation Code that incorporators must be natural persons. 
• Reason for the new rule:
• The old rule that set five (5) as the minimum number of incorporators and limited incorporators and limited the incorporators to natural persons was deemed to be a "stumbling block for many investors to incorporate."
• Investors name individuals as incorporators, with no real interest in the corporation, just to comply with the legal requirement. 
• For local business, owners, naming the entire household as incorporators ー from cook to driver ー is not unusual because of the requirement that of five incorporators.

2b. Meaning of Associations.

• The sponsor of the bill clarified that "associations" refer to non-profit organizations being organized. 
• However, it follows that these associations/organizations already acquired legal personality. 
• Non-profit organizations can be non-stock corporations incorporated under the RCCP. 
• In addition, duly registered homeowners, associations likewise have juridical personality.

2c. Practice of Profession.

• Natural persons who are licensed to practice profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize a a corporation unless otherwise provided under special laws. 

2d.  Rural Banks.

• It should be noted that an exception to the old rule under the Corporation Code is Section 4 of Republic Act No. 7353 (as amended Republic Act No. 10574), otherwise known as the Rural Banks Act of 1992, which provides that upon consultation with the rural banks in the area, duly established cooperatives and corporations primarily organized to hold equities in rural banks may organize a rural bank. 
• Under the RCCP, corporations can now be incorporators not only of rural banks but also of other types of banks, like commercial banks and universal banks, provided that they are allowed to do so by the Monetary Board of the Bangko Sentral ng Pilipinas. There is no prohibition in the New Central Bank Act and the General Banking Law for corporations to be incorporators.

2e. Local Government Units. 

• It should also be recalled that under the Corporation Code, local government units may organize corporations but subject to the limitations imposed under the Local Government Code of 1991 and the Code of Conduct and Ethical Standards for Public Officials and Employees.
• Hence, it is believed that municipal corporations fall under the term "corporation" under Section 10 of the RCCP. 
• It is believed that corporations include both private and public corporations.

2f. Nominees. 

• Under the previous rule that disallowed juridical persons to be incorporators, corporations resorted to nominees in order to comply with the requirement that there should be a minimum of five (5) incorporators and five (5) original directors of a corporation. 
• With the use of nominees, the problem of dealing with a corporation was obviated because the personality of the corporation was transposed to that (single) individuals (the nominee/s) who represent/s the interest of the corporation.
• Hence, corporations who wished to incorporate another entity were legally allowed to designate nominees who are natural persons to hold share/s for them (the trustor-corporations) to qualify the natural persons as directors or incorporators. 
• This arrangement involves both a trust agreement for the shares and agency. 
• Under Section 10 of the RCCP, it is no longer necessary for a corporation to resort to designating nominees to incorporate another corporation. 
• However, there is nothing in the RCCP that prohibits the appointment of nominees especially if the corporation wants the Board of Directors to be a group of professionals who will manage the corporation. 
• To lessen the number of persons who may be involved in the incorporation process, these persons who are the original directors may also be the incorporators together with the corporation.

2g. Approval to Act as Incorporator.

• If an incorporator is a corporation, this constitutes investment by the incorporator-corporation in another corporation. 
• Hence, the decision is subject to Section 41 of the RCCP, which requires the approval of both the Board of Directors or Trustees and the stockholders or members if the investment is for any purpose other than the primary purpose.
• If the investment is consistent with the primary purpose of the corporation, the approval by the Board of Directors or Trustees is all that is required. 
• However, it is noted that Section 5 of SEC Memorandum Circular No. 16, Series of 2019 (dated 30 July 2019) requires stockholders/member's approval for corporate investments as incorporators in new corporations without qualification. 

3. Number of Incorporators and Shares.

• The requirement is that the incorporators must not be more than 15. 
• In stock corporation, the incorporators must own at least one share.
• It is not correct to assume that the incorporators are always the only original subscribers. They may be so but not in all cases. 
• While there can be only one incorporator under the new law, the RCCP does not limit the number of original subscribers. 
• Hence, theoretically, there can be one incorporator but the rest of the shares may be subscribed originally by other persons.
• The intention of the legislature when the requirement of ownership of at least one share by incorporators was imposed under the Corporation Code (and adopted under the RCCP) was to indicate who really represents the corporation at its inception. 
• The public used to be misled under the old law (prior to the Corporation Code) as to who had authority to act because there were incorporators who were not stockholders.

4. Capacity

• An incorporator must have capacity to act.
• Capacity to act is the power to do acts with legal effect.
• Restrictions on capacity to act:
1. Minority,
2. Insanity or imbecility,
3. The state of being a deaf-mute,
4. Prodigality, and 
5. Civil interdiction
• Incapacitated persons cannot be incorporators.
• Incorporators who are natural persons must be of legal age. 
• Hence, minors ー those below 18 years ーcannot be incorporators. 

5. Gender. 

• Married women can be incorporators. 
• A special law expressly provides that women have equal rights to act as mcorporator.
• This is in line with the rule that "women of legal age, regardless of civil status, shall have the capacity to act and enter into contracts which shall in every respect be equal to that of men under similar circumstances."

6. Philippine Residence Not Required. 

• Non-residents may be incorporators. 
• There is no residency requirement for incorporators under the RCCP. 
• Unlike the Corporation Code the RCCP, no longer requires that the majority of the incorporators be residents of the Philippines. 
• It should be noted that a person is a resident under the Corporation Code if he is physically present in the Philippines with an intention to remain present therein.

7. No Citizenship Requirement. 

• There is no requirement that the majority of the incorporators must be citizens of the Philippines
• The rule however is subject to the requirements of pertinent nationalization laws. 
• For, instance, if the law requires all stockholders to be Filipino citizens, then it follows that all in corporators must also be citizens.

8. Accomplished Fact.

• An incorporator remains to be an incorporator even if he will later on cease to be a corporator or shareholder. 
• Thus, one will still be an incorporator even if he/she/its already transferred all his/her/its shares to another. Being an incorporator is an accomplished fact.

Practice Questions:

Q: What is the definition of an incorporator? 

A: Incorporators are individuals or entities mentioned in the Articles of Incorporation who form and compose the corporation and are signatories thereof.

Q: Who can be incorporators under the RCCP? 

A: Incorporators can be natural persons, corporations, partnerships, or associations. 

The RCCP eliminated the previous requirement that incorporators must be natural persons, aiming to facilitate incorporation and remove obstacles for investors.

Q: Are non-profit organizations allowed to be incorporators under the RCCP? 

A: Yes, non-profit organizations and duly registered homeowners' associations have legal personality and can be incorporators, falling under the term "associations" in Section 10 of the RCCP.

Q: Can licensed professionals or professional associations organize a corporation? 

A: Natural persons licensed to practice a profession and professional partnerships or associations cannot organize a corporation unless specified under special laws.

Q: Can local government units organize corporations under the RCCP? 

A: Yes, local government units can organize corporations under the RCCP, subject to limitations imposed by the Local Government Code of 1991 and the Code of Conduct and Ethical Standards for Public Officials and Employees.

Q: Was the use of nominees common under the previous incorporation rules? 

A: Yes, under the old rules, corporations used nominees to comply with the requirement of a minimum of five incorporators and directors. However, the RCCP no longer necessitates the use of nominees.

Q: Is there any restriction on the number of original subscribers in a corporation under the RCCP? 

A: There is no limit on the number of original subscribers in a corporation under the RCCP. While there can be one incorporator, the rest of the shares may be subscribed by other persons.

Q: Can minors act as incorporators under the RCCP? 

A: No, minors (those below 18 years) cannot be incorporators under the RCCP as they are not considered of legal age.

Q: Is Philippine residency a requirement for incorporators under the RCCP? 

A: No, there is no residency requirement for incorporators under the RCCP. Unlike the Corporation Code, the RCCP does not mandate that the majority of incorporators be residents of the Philippines.

Q: Does an incorporator lose their status if they transfer all their shares to another person? 

A: No, an incorporator remains an incorporator even if they later transfer all their shares to another person. Being an incorporator is considered an accomplished fact and does not change based on share transfers.