Articles of Incorporation for Non-Stock Corporations

What are the Articles of Incorporation?

The Articles of Incorporation is the document that lays down the details of a non-stock corporation. It is drafted before it begins its operations.

A non-stock corporation is an organization that does not issue shares of stock (as compared to a stock corporation that issues shares of stock, hence the name non-stock corporation). The persons involved (called "members") do not have ownership over the corporation and will not gain profits from its activities. The profits will only be used to achieve the objectives of the corporation which is usually for charitable and educational purposes.

Non-stock corporations are usually formed as educational institutions, foundations, charitable institutions, non-profit organizations, and the like.

What are the different types of Articles of Incorporation?

The following are the different types of Articles of Incorporation:

• Articles of Incorporation for Non-Stock Corporations. This is a document that is necessary to create a non-stock corporation. A non-stock corporation is an organization that does not issue shares of stock meaning the persons involved (called the members) do not have ownership over the capital of the corporation. This document should be used to form a non-stock corporation.
• Articles of Incorporation for Stock Corporations. This is a document that is needed to form a stock corporation. A stock corporation is a business organization that issues shares of stock meaning the persons involved (called shareholders) have ownership over the capital of the stock corporation.
• Articles of Incorporation (Non-Stock Educational Corporation). This is needed to form a non-stock educational corporation such as schools, colleges, universities, and other educational institutions.
• Articles of Incorporation (One Person Corporation). This is used to form a stock corporation where there is only one person (called the single stockholder) who owns the corporation.

To form partnerships, the following should be used:

• Articles of Partnership (General Partnership). This is a document wherein persons enter into a contract of general partnership which is an agreement where they contribute money, property, or services to gain profits from its business operations. In a general partnership, the persons involved called "general partners" gain profits and pay for losses that are proportionate to the value of the money or property that they have given to the partnership but they will have to pay with their own money (apart from the money or property that they have contributed to the Partnership) if the partnership's money and properties will not be enough to pay all of its financial obligations.
• Articles of Partnership (Limited Partnership). This is a document wherein persons enter into a contract of limited partnership which is an agreement where they contribute money, property, or services to gain profits from its business operations. In a limited partnership, the persons involved called "limited partners" gain profits and pay for losses that are proportionate to the value of the money or property that they have given to the partnership. Note further that if the partnership's money and properties will not be enough to pay all of its financial obligations, the limited partners will only have to pay for the losses from the money or property that they give to the partnership and not with their personal money.

Is it mandatory to have Articles of Incorporation?

To create a non-stock corporation, the Articles of Incorporation for Non-Stock Corporations should be prepared and submitted to the Securities and Exchange Commission, so that it can be recognized as a legal and valid organization.

Without this document, it is as if no such non-stock corporation was created. This means it should not be operating the activities of a non-stock corporation because they are not recognized as one by the government.

What does membership mean in a non-stock corporation?

Membership in a non-stock corporation and all rights arising from said membership such as right to vote for certains persons to be officers of the corporation and right to participate in its decision making process, is purely personal and cannot be transferred. Meaning, the members if qualified under the Articles of Incorporation and the By-laws, cannot simply give their membership to another person.

Gaining and losing one's membership can be determined under the Articles of Incorporation and the By-laws of the non-stock corporation. Unless otherwise provided in the Articles of Incorporation, termination of membership has the effect of ending all rights of a member in the corporation or its property.

Juridical entities, such as corporations, may be members of a non-stock corporation provided that there are duly designated or authorized representatives of the juridical entity.

What does contributed capital mean?

The contributed capital is anything of value such as money or property given to the non-stock corporation to pay for its expenses in its operations which basically is its lifeblood without which it will not be able to conduct its activities. There is no minimum contributed capital required, however, in the case of foundations, the minimum contributed capital is one million (P1,000,000.00) pesos. In the case of foundations, the amount should be deposited in the bank in the name of the treasurer-in-trust and a bank certificate of deposit is required for registration.

What are the prerequisites of the Articles of Incorporation?

There is no minimum capitalization required for a non-stock corporation. However, if the non-stock corporation has minimum capitalization i.e. money or property is contributed, a certain percentage of the corporation's capital should be owned by Filipino citizens depending on the specific industry with which the corporation is engaged, to be legal and valid.

For example, if a corporation is an advertising company, 70% of the capital thereof must be owned by Filipino Citizens and the remainder of 30% may be owned by foreign citizens. If the corporation is a private recruitment agency, engaged in defense-related structure construction, 60% of the capital thereof must be owned by Filipino Citizens, and 40% may be owned by foreign citizens. The Foreign Investment Negative List may be inspected to determine the Filipino ownership requirement for corporations in a specific industry. If the requirement under the list mentioned is not complied with, any violating corporation may be meted with a fine or suspension, or its officers may be punished with imprisonment.

Who is involved in the Articles of Incorporation?

The following are the parties in the Articles of Incorporation

• Incorporators. They are the members mentioned in the Articles of Incorporation as originally forming or composing the corporation. They are the signatories of the Articles of Incorporation. There must be a minimum of five and a maximum of fifteen incorporators to form a corporation. Incorporators must all be natural persons (another corporation cannot be an incorporator) of legal age and a majority of the incorporators must be residents of the Philippines. Incorporators of a non-stock corporation must be a members of the same.
• Trustees. must be natural persons (another corporation cannot be a trustee) of legal age and must be members of the corporation. The majority of the trustees must be residents of the Philippines, and they exercise all the corporate powers and conduct the business of a non-stock corporation. They also hold and control all the properties of the corporation. They are elected from among the members of the corporation. A non-stock corporation must have at least one and may have more than fifteen trustees. They shall hold office for not more than three years until their successors are elected and qualified. Trustees elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period.
• Treasurer. The treasurer is in charge of the general oversight of the finances of the non-stock corporation and is elected as such by the members. The treasurer also must affix his signature to the Articles of Incorporation.

Who cannot enter into the Articles of Incorporation?

Foreigners are not allowed to be incorporators and trustees if the business activity of the corporation is fully reserved for Filipino ownership.

Examples of business activities that are fully reserved for Filipino ownership are mass media (except recording), retail trade with paid-up capital of less than US$2,500,000.00, cooperatives, and private securities agencies.

Note that an incorporator and a trustee must be qualified as a member of the non-stock corporation at the time it is formed. Further, a person is disqualified from being a trustee of any corporation if, within 5 years before the election or appointment, the person was:

• Convicted by final judgment of (a) an offense punishable by imprisonment for a period exceeding six years, (b) a violation of the Revised Corporation Code, or (c) a violation of the Securities Regulation Code.
• Found administratively liable for any offense involving acts of fraud.
• Found liable by a foreign court or equivalent foreign regulatory authority for acts, violations, or misconduct similar to those in the abovementioned points.

How long can a non-stock corporation last?

A non-stock corporation can have a perpetual existence, meaning, it can exist indefinitely. Further, the incorporators may choose how long the life of a non-stock corporation will be e.g. for fifty years.

What has to be done once the Articles of Incorporation are ready?

Once the document is completed, the incorporators and the treasurer must sign at least three original copies of the document.

The document also includes an Acknowledgment portion. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity. To notarize the document, the parties must go to a notary public to acknowledge that they have signed the Distribution Agreement freely and voluntarily. They should also present a valid I.D. issued by an official agency bearing their photograph and signature such as a driver's license or a passport, among others.

Once the document is notarized, one original copy will be kept by the corporation, one original copy will be kept by the notary public and the last original copy of the Articles of Incorporation may be submitted to the Securities and Exchange Commission, together with the other requirements (e.g. cover sheet, name verification slip, by-laws, and, if necessary, registration to, endorsement or clearances from other government agencies), to register the corporation.

Is it necessary to notarize the Articles of Incorporation for it to be valid?

Yes. the Articles of Incorporation must be notarized because it is a document that is required to be submitted to a government agency i.e. Securities and Exchange Commission. Note that it is mandatory for government agencies to only accept notarized documents.

Note further that the Articles of Incorporation should be notarized before a notary public located in the place where the non-stock corporation will operate (principal office). The notary public may charge based on the percentage of the amount of capital involved, which is usually ay 1% and this should be paid by the incorporators.

Lastly, notarization of the Articles of Incorporation converts the same from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

Is it necessary to register the Articles of Incorporation?

Yes. The Articles of Incorporation must be registered before the Securities and Exchange Commission. Other requirements such as a cover sheet, name verification slip, by-laws, and, if necessary, registration to, endorsement, or clearances from other government agencies should also be submitted. For a more complete list of requirements, the website of the Securities and Exchange Commission should be checked.

Note that the incorporators must complete all of the required documents, then they should pay the registration fees and submit the documents to the website of the Securities and Exchange Commission.

Once the correct requirements are complete and accepted, the Securities and Exchange Commission will issue a Certificate of Registration of the corporation signifying that the corporation is valid and exists under the law.

What are the costs involved in the finalization of Articles of Incorporation?

For the notarization of the Articles of Incorporation, some notaries public may charge based on the percentage of the amount of capital involved, which is usually ay 1% e.g. if the capital of the non-stock corporation is PHP 100,000.00, then the notary public may charge PHP1000.00.

Further, to register and submit the Articles of Incorporation and other documents attached, the Securities and Exchange Commission will charge a registration fee of PHP500.00 and other fees. For a complete list of fees, the website of the Securities and Exchange Commission may be checked.

What must the Articles of Incorporation contain?

The Articles of Incorporation must contain the following information:

• The name of the non-stock corporation,
• The purposes of the non-stock corporation,
• The duration of the non-stock corporation,
• The place where the non-stock corporation will operate (principal office),
• The details of the incorporators and trustees,
• The capital contributions in the non-stock corporation, and
• The details of the treasurer.

Which laws are applicable to Articles of Incorporation?

Articles of Corporation are governed by the Revised Corporation Code of the Philippines. However, other laws, their rules and regulations, and SEC rules may affect the conduct and transactions of the Corporation such as but not limited to the 1987 Constitution of the Philippines, the Securities Regulation Code, the Foreign Investment Act, the Republic Act 8179, specifically the Foreign Investment Negative List, the Anti-Money Laundering Act, and the Anti-Dummy Law may affect the ownership and board membership requirements of a corporation, depending on the business of the corporation. The paid-up capital may also have a minimum amount depending on the industry.

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