Corporation and Partnership Law Notes

1 Partnership and Corporation (GROUP 3) PARTNERSHIP – General Provisions Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a) Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a) Quick Summary 1. Personal Circumstances of the partners 2. Name of partnership 3. Purposes of partnership 4. Principal Office address 5. Managing partner and duties

6. Term or existence 7. Capital contribution of each partner 8. Division of profits 9. Salary of managing Partner 10. Dissolution of partnership 11. Joint Acknowledgment

ARTICLES OF GENERAL PARTNERSHIP Essential Features: • • •

There must be a valid contract Legal capacity of partners Mutual contribution of asset and/or industry to a common fund

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There must be at least one general partner Object must be lawful Primary purpose: to gain profits

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Form of contract:

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General rule: No specific form is required for its validity or existence. (Article 1771 in relation to Article 1456, NCC)

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Exceptions:

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Where the contract of partnership has a capital P3,000 or more, in money or property (Article 1772): it shall appear in public instrument and must be recorded in the Office of the Securities and Exchange Commission. Note: Failure to comply does not prevent the formation of the partnership or affects its liability and that of the partners to third persons but gives the partner the right to compel each other to execute the contract. NOTE: Where immovable property or real rights are contributed regardless of the value thereof (Article 1773 NCC)  

• 1. 2. 3. 4. 5. 6. 7. 8. 9. • • • • • • • •

Must be in writing in a public instrument An inventory of the property contributed, signed by the parties is attached to the public instrument. Note: Absence of either formality renders the contract VOID.  Where the contract falls within the Statue of Frauds. • • ARTICLES OF LIMITED PARTNERSHIP • Quick summary: Personal Circumstances of partners Name of Limited Partnership – should always be accompanied by LTD after the name Purpose/s of the Limited partnership Principal place of business Term of existence Capital contribution Designation and salary of general partner Division of profits Joint acknowledgment • Other provisions (if agreed upon): Additional contributions to be made by each limited partner and the times at which or events on the happening of which they shall be made. The time when the contribution of each limited partner is to be returned. The right of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution. The right of partners to admit additional limited partners. The right of one or more limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority. The right of the remaining general partner to continue business on the death, retirement, civil interdiction or insolvency of a general partner. The right of a limited partner to demand and receive property other than case in return for his contribution. •

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(SEE ATTACHED SAMPLE OF ARTICLES OF PARTNERSHIP OF A LIMITED PARTNERSHIP)

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument,

which must be recorded in the Office of the Securities and Exchange Commission. •

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

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Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

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Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n) • •

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Corporation Code of the Philippines

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General Provisions:

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SECTION 10 - NUMBER AND QUALIFICATIONS OF INCORPORATORS.

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Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the philippines, may form a prvate corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.

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Section 11. CORPORATE TERM.

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A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. That corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this code: provided, that no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the securities and exchange commission.

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NOTES:

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Term of Corporate Existence

1. exist for the term specified in the Articles of Incorporation not exceeding FIFTY (50) YEARS, unless sooner legally dissolved or unless its registration is revoked upon any grounds provided by law 2. may be reduced or extended by AMENDMENT of articles of incorporation by complying with the procedural requirements – approved by majority of vote of Board of Directors or Trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of members • • Limitations in Extension of Corporate Term 1. term shall not exceed 50 years in any one instance

2. amendment is effected before the expiration of the corporate term of existence 3. extension cannot be made earlier than five (5) years prior to expiration date unless there are justifiable reasons as may be determined by the Securities and Exchange Commission • • Effect of Extension/Expiration of Term 1. extension of corporate term before expiration of original term constitutes continuation of the old corporation 2. corporation ceases to exist and is dissolved ipso facto upon expiration of period fixed in articles of incorporation, in absence of compliance with legal requisites for extension of period 3. term expiration of corporation does not produce its immediate dissolution for all purposes—continued as a body corporate for THREE (3) YEARS after the time when it would dissolve 4. REINCORPORATION- life of corporation expired may be reincorporated only by complying with REGISTRATION REQUIREMENTS under Corporation Code, filing of new AI and BY-LAWS accompanied by supporting documents • • Automatic Extension of Term •

Allowed by AMENDMENT of AI within FIVE YEAR period before the expiration date of the existing term, during which the SEC may look into the financial structure of the corporation and its past operations or actuations

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CORPORATION CODE OF THE PHILIPPINES – Section 12

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Minimum capital stock required of stock corporations

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Stock corporations incorporated under this code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law, and subject to the provisions of the following section.

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NOTES:

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Capital Stock Requirement

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Corp. Code does not set a minimum Authorized Capital Stock except otherwise provided by special law as long as the PAID-UP CAPITAL is not less than P5, 000. Special laws may require HIGHER PAID-UP CAPITAL for commercial banks, insurance companies and investment houses

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Filipino percentage ownership requirement regarding corporate capital Corporations for exploration, development, and utilization of natural resources – at least 60% of the capital owned by Filipino citizens Public service corporations – at least 60% of the capital owned by Filipino citizens, foreign investors participation – limited to their proportionate share in its capital, all executive and managing officers are Filipino citizens Educational Corporations - at least 60% of the capital owned by Filipino citizens, other than those established by religious orders and mission boards • Corporations engaged in mass media and advertising industry – MASS MEDIA – 100% owned and managed by Filipino citizens ADVERTISING INDUSTRY – at least 70% of the capital stock owned by citizens of the Philippines, foreign investors participation – limited to their

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proportionate share in its capital, all executive and managing officers are Filipino citizens Banking Corporations – at least 60% of the capital stock of any bank or banking institution established after General Banking Act (July 24,1948) owned by Filipino citizens Corporations engaged in retail trade – capital is wholly owned by Filipino citizens Rural Banks – capital stock must be fully owned and held directly or indirectly by Filipino citizens, or corporations, associations, or cooperatives under Philippine Laws Corporations engaged in coastwise shipping - at least 60% of the capital stock of which or any interest in said capital totally owned by Filipino citizens Financing companies - at least 60% of the capital owned by Filipino citizens Corporations engaged in the pawnshop business – at least 70% of the voting capital stock owned by Filipino citizens Corporations engaged in the recruitment and placement of workers, locally or overseas – at least 75% of the authorized and voting capital stock owned and controlled by Filipino citizens Corporations engaged in the operation of a private detective, watchman, or security guard agencies – 100% Filipino owned Under the Flag law – preference given to producers or manufacturers of materials and supplies in the Philippines, and to domestic entities (75% of capital owned by Filipino citizens) in the purchase of articles for the Government • Minimum Subscription and paid-up capital (Sec. 13)

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Pre-incorporation- at least 25% of the amount of the authorized capital stocks has been actually subscribed and that at least 25% of such subscription paid. In no case shall the paid-up capital be less than 5,000 Post-incorporation- the minimum 25% subscription and 25% paid up capital is required not only during the incorporation period but also in case of increase of the authorized capital stock.( Sec.38, par 4.) • ARTICLES OF INCORPORATION OF STOCK CORPORATION

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Basic contents under Section 14 & 15, Corporation Code:

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Paragraph 1: name of the corporation Paragraph 2: primary and specific purpose/s for which the corporation is being incorporated; where there is more than one stated purpose, indicate which is the primary purpose and which is/are the secondary purpose or purposes Paragraph 3: place where the principal office of the corporation is to be located (must be within the Philippines) Paragraph 4: term for which the corporation is to exist (not exceeding 50 years) Paragraph 5: names, nationalities, and residences of the incorporators Paragraph 6: number of directors or trustees [must be at least five (5) but not more than fifteen (15)] and state the name, nationalities and residence of the persons who shall act as directors until the first regular ones are duly elected and qualified Paragraph 7: (amount of authorized capital stock, number of shares into which it is divided, and in case of par value shares, the par value of each, Paragraph 8: names, nationalities and residences of the original subscribers, and the amount subscribed by each on his subscription; (if some or all of the shares are without par value, state such fact) Paragraph 9: names, nationalities and residences of the original subscribers, and the amount paid by each on his subscription

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Paragraph 10: other matters which the incorporators may deem necessary and convenient. Paragraph 11: Designation of Treasurer • Other requirements:

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It must be signed by the incorporators and by at least two witnesses Acknowledged before a notary public, Attached with a treasurer’s affidavit. • ARTICLES OF INCORPORATION OF NON STOCK CORPORATION

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Note: Same basic contents with that of a stock corporation.

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Please take note of the following differences:

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May not include a purpose which would change or contradicts its nature as a non-stock corporation Names, nationalities and residence of persons who shall act as trustees until the first regular ones are duly elected and qualified Names, nationalities and residences of the contributors and the amount contributed by each, instead of subscriptions. • • (SEE SAMPLE ATTACHED ARTICLES OF INCORPORATION and TREASURER’S AFFIDAVIT)

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Corporation By-laws

• Definition: These are rules of action adopted by a corporation for its own government and for the government of its stockholders or members and those having the direction, a management and control of its affairs. •

Corporation Code – BY LAWS (Sec. 46)

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When adopted: • (a) No later than one (1) month after receipt from SEC of official notice of issuance of Certificate of Incorporation.

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Requirement: Affirmative vote of stockholders representing at least majority of outstanding capital stock (Stock Corp.) or members (Non-Stock) Must be signed by stockholders or members voting for them • • (b) Prior to incorporation • Requirement: all of them

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Approval of all incorporators AND must be signed by

Where kept:

(1) In the principal office of the corporation ; AND

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(2) Securities and Exchange Commission

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When effective: Only upon the SEC’s issuance of a certification that the by-laws are not inconsistent with the Corporation Code.

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Special corporations: By-laws and/or amendments thereto must be accompanied by a certificate of the appropriate government agency to the effect that such by-laws / amendments are in accordance with law. 

banks or banking institutions

     

building and loan associations trust companies insurance companies public utilities educational institutions other special corporations governed by special laws

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Sec. 47. Contents of by-laws. - Subject to the provisions of the Constitution, this Code, other special laws, and the articles of incorporation, a private corporation may provide in its by-laws for:

1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees; 2. The time and manner of calling and conducting regular or special meetings of the stockholders or members; 3. The required quorum in meetings of stockholders or members and the manner of voting therein; 4. The form for proxies of stockholders and members and the manner of voting them; 5. The qualifications, duties and compensation of directors or trustees, officers and employees; 6. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof; 7. The manner of election or appointment and the term of office of all officers other than directors or trustees; 8. The penalties for violation of the by-laws; 9. In the case of stock corporations, the manner of issuing stock certificates; and 10.Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. (21a) • • - End •

SAMPLE LEGAL FORMS

1. Articles of Partnership (General Partnership) ARTICLES OF PARTNERSHIP OF XYZ

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KNOW ALL MEN BY THESE PRESENTS:

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1. These Articles of Partnership, made and executed by and among: •

Juan Tamad, (Filipino), residing at #8 Rector Ave., Manila;

• (and)

Maria Makiling, (Filipino), residing at #7 Recto Ave., Manila;

• legal age,

Juan dela Cruz, (Filipino), residing at #6 Recto Ave., Manila; all of

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WITNESSETH:

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2. They have formed a partnership among themselves under the name and style of XYZ;

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3. The purposes for which said partnership is formed are: •

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(here state purposes of the firm)

4. The principal office of the partnership shall be located at 50th flr., ABC Bldg., Rufino St., Makati City;

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5. It is hereby stipulated that Juan Tamad shall be the partner upon whom the management of the firm and the use of its signature shall be entrusted; that he shall exercise such powers necessary to attain the purposes of this partnership, including the power to draw drafts, bills of exchange and other negotiable instruments and accept the same for and in the name of the firm; to appoint and dismiss employees and to fix their tenure and compensation; to deposit money in banks and with the counter-signature of the Treasurer, withdraw the same for purposes of the partnership; and (others).

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6. The term of existence of this partnership shall be ten (10) years to commence from and after the execution of these articles;

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7. The capital of the partnership as contributed by the partners are as follows, to wit: •

Juan Tamad

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Maria Makiling

P100,000;

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Juan dela Cruz

P100,000;

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P100,000;

thereby making a TOTAL CAPITAL of

P300,000;

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8. The profits and loses shall be divided share and share alike among the partners of the partnership (or in proportion to their respective capital);

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9. The managing partner is hereby given a salary of thirty thousand PESOS (P30,000) per month;

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10. If during the term of the partnership, any of the partners shall die, the partnership shall continue among the surviving partners, unless one of the latter expressly requests for dissolution •

IN WITNESS WHEREOF, the parties have hereunto set their hands, this

3rd of March, 2010 in Manila, Philippines. •

_____________

_______________

(Signature of partners)

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Signed in the Presence of:

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__________________________ •

____________

________________________

(JOINT ACKNOWLEDGMENT)

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Republic of the Philippines)

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City of Baguio

) S.S.

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BEFORE ME, this 18th day of February, 2014 in the city of Baguio, personally appeared: • Juan Tamad with CTC number 1234565 issued at Baguio City On January 08, 2014, and Driver’s License No. N25-0123456 issued by the Land Transportation Office on July 12, 2012; • Maria Makiling with CTC number 2345476 issued at Baguio City On February 08, 2014, and Driver’s License No. N25-0563456 issued by the

Land Transportation Office on August 2, 2011; and • Juan De La Cruz with CTC number 3534565 issued at Baguio City On December 20, 2013, and Driver’s License No. N25-0563456 issued by the Land Transportation Office on June 11, 2012; • All known to me to be the same persons who executed the foregoing instrument, and that they respectively acknowledged that the same is their free voluntary act and deed. • • WITNESS MY HAND AND SEAL , at the place and on the date above written. • • ATTY. ABE O. GADO • Notary Public for Baguio • Rm 202, 2nd Floor Lopez Bldg. Session Road,Baguio City Appointment no.234 • Until December 31, 2014 • • • • • • • • • • • •

BP No. 123456 01/10/14 – Baguio PTR No. 1324567 01/09/2014 – Baguio Roll No. 123456 , 5/05/2009 MCLE No. I -03665 09/09/2013 MCLE No. II – 876565 09/18/2013 Serial Number of Commission M-234

Doc No. 11 Page No. 22 Book No. V Series of 2014 •

2. Articles of Partnership (Limited Partnership) • • ARTICLES OF PARTNERSHIP OF “XYZ, LTD.” • • KNOW ALL MEN BY THESE PRESENTS: • • 1. These Articles of Partnership, made and executed by and among: • Juan Tamad, general manager, (Filipino), residing at #8 Rector Ave., Manila; • Maria Makiling, limited partner, (Filipino), residing at #7 Recto Ave., Manila; (and) • Juan dela Cruz, limited partner, (Filipino), residing at #6 Recto Ave., Manila; • all of legal age, WITNESSETH: • • 2. The above-named partners have formed a limited partnership among themselves under the name and style of XYZ, Ltd; • • 3. The purposes for which the said partnership is formed are: • (state the object or character of the business); • 4. The principal office of the partnership shall be at 50th flr., ABC Bldg., Rufino St., Makati City;

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5. The term for which the partnership is to exist shall be ten (10) years to commence from and after the execution of this agreement; 6. The capital of this partnership shall be three hundred thousand PESOS (P300,000), Philippine currency, contributed by the partners as follows, to wit:

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Juan Tamad (general partner)………… Maria Makiling (limited partner) …………

P100,000; P100,000;

and • • • • •

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Juan dela Cruz (limited partner)…………

P100,000;

7. Juan Tamad, general partner, is hereby designated the manager of the partnership, with a monthly salary of P30,000. 8. The profits and loses shall be divided share and share alike among the partners of the partnership (State in what proportion they shall share in the profits and in the losses). IN WITNESS WHEREOF, the parties have hereunto set their hands, this 3rd of March, 2010 in Manila, Philippines. __________________ __________________ _________________ • (Signature of partners) Signed in the Presence of: ______________________________ ______________________________ •

(JOINT ACKNOWLEDGMENT) •

• 3. Articles of Incorporation •

ARTICLES OF INCORPORATION OF • __________________________

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KNOW ALL MEN BY THESE PRESENTS:

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The undersigned incorporators, all of legal age and a majority of whom are residents of the Philippines, have this day voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the Republic of the Philippines;

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AND WE HEREBY CERTIFY:

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FIRST: That the name of said corporation shall be “___________, INC. or CORPORATION”;

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SECOND: That the purpose or purposes for which such corporation is incorporated are: (If there is more than one purpose, indicate primary and secondary purposes);

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THIRD: That the principal office of the corporation is located in the City/Municipality of _______, Province of _______, Philippines;

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FOURTH: That the term for which the said corporation is to exist is ___ years from and after the date of issuance of the certificate of incorporation;

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FIFTH: That the names, nationalities and residences of the incorporators of the corporation are as follows:

NATIONALITY RESIDENCE _____________ __________ _____________ __________ _____________ __________ _____________ __________ _____________ __________ • SIXTH: That the number of directors or trustees of the corporation shall be _______; and the names, nationalities and residences of the first directors or trustees of the corporation are as follows: •

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NATIONALITY RESIDENCE _____________ __________ _____________ __________ _____________ __________ _____________ __________ _____________ __________ • SEVENTH: That the authorized capital stock of the corporation is ______________________ (P___________) PESOS in lawful money of the Philippines, divided into __________ shares with the par value of ____________________ (P_____________) Pesos per share. •

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NAME ______ ______ ______ ______ ______

NAME ______ ______ ______ ______ ______

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(In case all the shares are without par value):

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That the capital stock of the corporation is ______________ shares without par value. (In case some shares have par value and some are without par value): That the capital stock of said corporation consists of _____________ shares of which ______________ shares are of the par value of _________________ (P____________) pesos each, and of which _________________ shares are without par value.

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EIGHTH: That at least twenty five (25%) percent of the authorized capital stock above stated has been subscribed as follows: • Name of Subscriber Nationality No of Shares Subscribed Amount Subscribed • _______________ ________ • ________________ ________ • ________________ ________ • ________________ ________ • ________________ ________

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• NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent of the total subscription as follows: Amount Subscribed Total Paid-In ________________ ___________ ________________ ___________ ________________ ___________ ________________ ___________ ________________ ___________ • (Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly, and it is sufficient if the articles state the amount of capital or money contributed or donated by specified persons, stating the names, nationalities •

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______________ _______________ ______________ ______________ _____________ _______________ _____________ _______________ _____________ _______________

Name of Subscriber • ________________ • ________________ • ________________ • ________________ • ________________

and residences of the contributors or donors and the respective amount given by each.) •

TENTH: That _____________________ has been elected by the subscribers as Treasurer of the Corporation to act as such until his successor is duly elected and qualified in accordance with the by-laws, and that as such Treasurer, he has been authorized to receive for and in the name and for the benefit of the corporation, all subscription (or fees) or contributions or donations paid or given by the subscribers or members.

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ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the following):

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“No transfer of stock or interest which will reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the proper books of the corporation and this restriction shall be indicated in all the stock certificates issued by the corporation.”

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IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this ____ day of _____, 19 ______ in the City/Municipality of ________, Province of ______, Republic of the Philippines.

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(Names and signatures of the incorporators) • SIGNED IN THE PRESENCE OF: __________________ __________________

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ACKNOWLEDGMENT

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Republic of the Philippines) Makati City, Metro Manila )

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BEFORE ME, a notary public for and in the City of _______ Philippines, this ___ day of _______ personally appeared: •

Name

CTC/Passport No./ID No.

Date

Place

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all known to me to be the same persons who executed the foregoing Articles of Incorporation and they acknowledged to me that the same is of their free and voluntary act and deed.

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IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal on the date and at the place first above written.

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Doc. No. _____; Page No. _____; Book No. _____; Series of 2000..

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4. Treasurer’s Affidavit • •

REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF ) S.S.

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PROVINCE OF )

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That I have been elected by the subscribers of the corporation as Treasurer thereof, to act as such until my successor has been duly elected and qualified in accordance with the by-laws of the corporation, and that as such Treasurer, I hereby certify under oath that at least 25% of the authorized capital stock of the corporation has been subscribed and at least 25% of the total subscription has been paid, and received by me, in cash or property, in the amount of not less than P5,000.00, in accordance with the Corporation Code.

I, ____________________, being duly sworn, depose and say:

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____________________ (Signature of Treasurer)

SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality of _____ Province of _________, this ___day of _____, _____; by___ with Res. Cert. No. ______ issued at ______ on _____, 19_____ • NOTARY PUBLIC • My commission expires on _________, 20 _____

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Doc. No. _____ Page No. _____ Book No. _____ Series of 20____