When can the Securities and Exchange Commission disapprove the Articles of Incorporation? (Sec. 16)

Attorney Marie Chris Bataan introduces the topic of when the Securities and Exchange Commission (SEC) may disapprove Articles of Incorporation or amended Articles of Incorporation. This is governed by Section 16 of the Corporation Code.

One primary ground for disapproval is if the Articles of Incorporation are not compliant with the law, specifically failing to substantially comply with the requirements of Section 13. An example given is having more than the allowed 15 incorporators.

Before outright disapproval, Section 16 mandates that the SEC must provide incorporators, directors, trustees, or officers a reasonable time to modify objectionable portions of the articles or amendments.

The second ground is when the stated purpose(s) of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations. An example is a primary purpose to sell dangerous and unregulated drugs.

The third ground concerns false certifications regarding the amount of capital stocks subscribed and paid. The articles are sworn documents, and any false information found by the SEC leads to disapproval.

The fourth ground for disapproval is failure to comply with the required percentage of Filipino ownership of capital stock, as mandated by existing laws or the constitution. Examples include mass media, which requires 100% Filipino ownership, and educational corporations, requiring at least 60% Filipino ownership.

For corporations vested with public interest, such as banks, insurance companies, and financial intermediaries, their Articles of Incorporation or amendments require a favorable recommendation from the appropriate government agency before SEC approval. This ensures compliance with specific laws applicable to these types of corporations.