Every Philippine corporation states its primary and secondary purposes in its Articles of Incorporation. The primary purpose is the main business the company is formed to carry on; secondary purposes are the other activities it is authorized to undertake.
The rule comes from the Revised Corporation Code, and the wording you choose decides what the company may legally do, which ownership limits apply to it, and when a later change of direction needs a formal amendment. This guide explains what the law requires, how the purpose ties to the industry classification you select in the SEC's system, and how to write a purpose clause the company can grow into.
Key Takeaways
- Articles of Incorporation must state the corporation's specific purpose or purposes, and where there is more than one, which is primary and which are secondary.
- In SEC eSPARC, you select the company's industry classification first, and the primary purpose must match it.
- A corporation may only exercise powers conferred by the Code or its articles, and those necessary or incidental to them. Acts outside them are ultra vires.
- The primary purpose carries extra weight: investments reasonably necessary to accomplish it do not need stockholder approval.
- The Foreign Investment Negative List restricts activities, so every purpose you state is checked against the ownership rules.
- A vague or mismatched purpose clause can come back from the SEC with comments and a request to amend it before approval.
- Purposes can be changed later by amending the articles, but an amendment takes time. Write purposes broad enough to cover the activities you expect to add.
What the Revised Corporation Code Requires
Section 13 of the Revised Corporation Code (Republic Act No. 11232) lists what the articles must contain. Item (b) is the purpose clause: "the specific purpose or purposes for which the corporation is being formed. Where a corporation has more than one stated purpose, the articles of incorporation shall indicate the primary purpose and the secondary purpose or purposes."
The form in Section 14 follows the same line. Its second article reads: "That the purpose or purposes for which such corporation is incorporated are: (If there is more than one purpose, indicate primary and secondary purposes)."
Section 16 sets out when the SEC may disapprove articles. Two of its grounds bear directly on the purpose clause: where "the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations," and where "the required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with." Articles of banks, insurance companies, pawnshops and other financial intermediaries also need a favorable recommendation from the appropriate government agency.
A disapproval is not the end of the application. The same section requires the SEC to give the incorporators "reasonable time from receipt of the disapproval within which to modify the objectionable portions of the articles."
Start With the Industry Classification
Before you write a purpose, the SEC's online registration system asks you to classify the company. The eSPARC user guide is direct about it: "Corporations are classified by industry based on the Philippine Standard Industrial Classification (PSIC). Select the exact or closely related industry classification and group in relation to the proposed primary business activity." The system links a PSIC-Purpose Finder to help you choose.
The purpose comes next, and the same guide defines it: "Primary purpose refers to the main business activity of the company." The two have to describe the same business. A company classified under IT services whose primary purpose describes trading, or the reverse, has told the SEC two different things about what it does.
So work in that order. Settle what the company will actually do, choose the PSIC group closest to it, then write a primary purpose that describes that activity in full.
Why the Primary Purpose Carries the Most Weight
The purpose clause is not a description for the file. It sets the limits of what the corporation can do.
- It defines the company's powers. Under Section 44, no corporation may exercise powers other than those conferred by the Code or by its articles, except as necessary or incidental to them. Section 35 gives every corporation the power to do what is "essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation." An activity outside the stated purposes, and not incidental to them, is ultra vires.
- It decides who approves an investment. Under Section 41, investing corporate funds in another corporation or business generally needs approval by a majority of the board, ratified by stockholders holding two-thirds of the outstanding capital stock. Where the investment is reasonably necessary to accomplish the primary purpose, that stockholder approval is not required.
- It drives the ownership question. The Foreign Investment Negative List restricts activities, not industries. Consulting for private clients is open to foreign ownership, while government procurement of consulting services is capped at 40%. A foreign-owned company that qualifies as an export enterprise can be up to 100% foreign-owned only if its activity is not on List A or List B. What the company is allowed to do is written in its purpose clause.
What Secondary Purposes Are For
Secondary purposes authorize activities beyond the main business: services that support it, a related line the company expects to add, or the holding of assets the business needs. They give the corporation room to act without amending its articles each time the business widens.
They are not free. Each secondary purpose is an activity the company is authorized to carry on, so each one is read against the same ownership rules as the primary purpose. A secondary purpose that falls on the Negative List brings that activity's limit into the company's structure, even if the founders never intended to rely on it.
The supporting clauses most articles carry
Alongside the business-specific secondary purposes, approved articles commonly carry a set of supporting clauses. Each one authorizes something the business needs while keeping the company clear of an activity that is regulated in its own right:
- Training related to the company's products and services, without operating as a formal educational institution regulated by TESDA.
- Acquiring and leasing property the business needs, except financial leasing, so the company is not read as a leasing or financing business. A company more than 40% foreign-owned adds "except to own land."
- An incidental-acts clause: to do what is necessary, convenient or incidental to the stated purposes, as allowed by law. It mirrors the corporate powers the Code already grants and closes the list.
- A public-investment proviso: the corporation shall not solicit, accept or take investments or placements from the public, nor issue investment contracts. Raising money from the public is a regulated securities activity.
Where the primary purpose touches work a profession or a licensing regime covers, a further proviso confirms the company will not engage in it without being qualified and authorized under the applicable law.
How to Write a Purpose Clause
- Make the primary purpose the business you will actually run, and match it to the classification. Describe what the company will sell, and to whom, in one clear statement that sits inside the PSIC group you selected. A primary purpose that does not match the operations creates problems later, from the Section 41 approval route to the company's classification under the ownership rules.
- Describe activities, not industries. "Software development and IT services for clients abroad" says what the company does. "Technology" does not. The ownership rules and the regulators read the activity.
- Write broad enough to grow into, within the business. Amending the articles takes time, so cover the related activities you expect to add in the next few years, in the primary purpose's own description and in the secondary purposes. Stay within the business you classified: unrelated activities widen the ownership questions and can draw SEC comments without adding anything the company will use.
- Check every purpose, not only the primary one. Read each against List A and List B of the Negative List, and against any law that governs the activity directly. Retail trade, for example, carries its own capital conditions under RA No. 11595.
Four Purpose Clauses, Worked Through
Each example below shows the business, the classification to look for, the clause, and the reasoning behind it. They illustrate structure and are not SEC-approved wording: every company's clause should be drafted for its own business and checked against the classification it selects.
1. A foreign-owned software company
The business: a company, majority-owned by a foreign parent, that builds and licenses software and supports clients in the Philippines and abroad.
Classification to look for: the PSIC group closest to computer programming and related IT services, found through the PSIC-Purpose Finder.
Primary purpose: To engage in, conduct and carry on the business of developing, designing, licensing, selling to business clients, installing and maintaining computer software and applications, without engaging in retail trade, and of providing information technology services, including systems integration, technical support and related consultancy, to clients in the Philippines and abroad; provided that the corporation shall not engage in the practice of any profession or in any activity that requires a license, permit or other government authorization unless it is duly qualified and authorized under applicable laws.
Secondary purposes: (1) To conduct product, technical and end-user training related to the software and services in the primary purpose, without operating as a formal educational institution regulated by TESDA; (2) to acquire, register, license and hold patents, copyrights, trademarks and other intellectual property related to its business; (3) to purchase, lease, except financial leasing, or otherwise acquire the property, equipment and facilities its business requires, except to own land; and (4) to perform and undertake such acts and activities as may be necessary, convenient or incidental to the attainment of the foregoing purposes, as may be allowed by law.
Proviso: provided that the corporation shall not solicit, accept or take investments or placements from the public, nor issue investment contracts.
Why it is written this way:
- Software and IT services are not on the Negative List, so foreign ownership turns on capital: above 40% foreign, a domestic market enterprise needs US$200,000 in paid-in capital, or US$100,000 on one of three routes.
- "Selling to business clients, without engaging in retail trade" keeps the company out of retail, which carries its own ownership and capital conditions.
- The clause says lease, not own, real property. A corporation more than 40% foreign-owned cannot own private land.
2. A BPO that exports its services
The business: a Philippine company delivering customer support and back-office work to clients overseas.
Classification to look for: the PSIC group closest to business process outsourcing and call-center activities, found through the PSIC-Purpose Finder.
Primary purpose: To engage in, conduct and carry on the business of providing business process outsourcing services, including customer contact, technical support, data processing, back-office and other information technology-enabled services, primarily to clients located outside the Philippines; provided that the corporation shall not engage in the practice of any profession or in any activity that requires a license, permit or other government authorization unless it is duly qualified and authorized under applicable laws.
Secondary purposes: (1) To recruit and train its own personnel, and to conduct operational and quality-assurance training, without operating as a formal educational institution regulated by TESDA; (2) to purchase, lease, except financial leasing, or otherwise acquire the premises, equipment and telecommunications facilities its operations require, except to own land; (3) to enter into contracts with affiliates and service providers necessary to deliver its services; and (4) to perform and undertake such acts and activities as may be necessary, convenient or incidental to the attainment of the foregoing purposes, as may be allowed by law.
Proviso: provided that the corporation shall not solicit, accept or take investments or placements from the public, nor issue investment contracts.
Why it is written this way:
- Serving clients "primarily" outside the Philippines is consistent with the export-enterprise test, which is a ratio rather than an export-only rule: a company exporting at least 60% of its output, in an activity not on List A or List B, can be up to 100% foreign-owned with no minimum paid-in capital.
- The test is continuing. The company registers with the Board of Investments and reports its export ratio, so the clause should describe the business it will keep running.
- The licensed-profession proviso matters for a BPO: back-office and data-processing work can touch activities reserved to licensed professionals, such as accountancy.
- Recruitment is limited to its own personnel. Private recruitment as a business, for local or overseas employment, is capped at 25% foreign equity.
- The BPO incorporation guide covers the rest of the setup.
3. A management consulting firm
The business: a firm advising private companies on operations, strategy and organization.
Classification to look for: the PSIC group closest to management consultancy activities, found through the PSIC-Purpose Finder.
Primary purpose: To engage in, conduct and carry on the business of providing management consultancy services to private enterprises, including business strategy, operations improvement, organizational design and project management; provided that the corporation shall not engage in the practice of any profession or in any activity that requires a license, permit or other government authorization unless it is duly qualified and authorized under applicable laws.
Secondary purposes: (1) To conduct research, studies, seminars and capacity-building programs related to its consultancy services, without operating as a formal educational institution regulated by TESDA; (2) to prepare and distribute reports, manuals and other materials to its clients in connection with its consultancy services; (3) to purchase, lease, except financial leasing, or otherwise acquire the property and equipment its business requires, except to own land; and (4) to perform and undertake such acts and activities as may be necessary, convenient or incidental to the attainment of the foregoing purposes, as may be allowed by law.
Proviso: provided that the corporation shall not solicit, accept or take investments or placements from the public, nor issue investment contracts.
Why it is written this way:
- "To private enterprises" is deliberate. Consulting for private clients is open to foreign ownership, while government procurement of consulting services is capped at 40% foreign equity.
- A firm that intends to bid for government consulting work should decide its ownership with that cap in view before it writes the activity in.
4. A holding company
The business: a company formed to own and manage shares in operating subsidiaries.
Classification to look for: the PSIC group closest to activities of holding companies, found through the PSIC-Purpose Finder.
Primary purpose: To invest in, purchase, subscribe for, acquire, own, hold, sell and otherwise dispose of shares of stock, bonds and other securities of any corporation or entity, and to manage, supervise and provide support services to the corporations in which it invests, without engaging in the business of an investment company or a dealer in securities.
Secondary purposes: (1) To provide management, administrative and support services to its subsidiaries and affiliates, without acting as an investment adviser or engaging in financing; (2) to borrow and raise money from banks, its stockholders and affiliates, and to secure its obligations in connection with its investments; (3) to purchase, lease, except financial leasing, or otherwise acquire the property and equipment its business requires, except to own land; and (4) to perform and undertake such acts and activities as may be necessary, convenient or incidental to the attainment of the foregoing purposes, as may be allowed by law.
Proviso: provided that the corporation shall not solicit, accept or take investments or placements from the public, nor issue investment contracts.
Why it is written this way:
- Investment is the primary purpose, so under Section 41 of the Revised Corporation Code an investment reasonably necessary to accomplish it does not need separate stockholder approval.
- The public-investment proviso matters most here. A holding company raises money from its own stockholders, affiliates and lenders, never from the public.
- The ownership limits that apply follow the businesses it holds. The holding company guide covers the structure.
When the SEC Sends Comments
A purpose clause that is vague, too broad, or out of step with the industry classification may not pass on the first submission. The SEC can return the application with comments and ask for the purpose to be revised before it approves the articles. Every round of comments adds time before the certificate of incorporation is issued.
Section 16 of the Code gives the incorporators reasonable time to modify the objectionable portions, so a returned application can be corrected rather than refiled. The cost is time.
Korp drafts the purpose clause with the classification and the ownership rules in view, and handles any SEC comments and requested amendments as part of its incorporation service.
Changing Your Purpose Later
A purpose clause can be changed. Under Section 15, any provision of the articles may be amended by a majority vote of the board of directors and the vote or written assent of stockholders representing at least two-thirds of the outstanding capital stock, without prejudice to dissenting stockholders' appraisal right.
The amendment takes effect once the SEC approves it.
An amendment is not instant. It needs a board resolution and the stockholders' vote, a filing with the SEC, and the SEC's review, which can bring its own comments, before the change takes effect. In the meantime the company cannot start the new activity. That is why the best practice is to anticipate: write the purposes at incorporation broad enough to cover what the business is likely to do in the next few years, within the line of business it classified.
How Korp Prepares Your Articles
Korp's incorporation packages include the preparation and submission of the SEC forms, the Articles of Incorporation and the By-Laws, so the industry classification and purpose clause are drafted together, with the company's actual business and ownership in view, and any SEC comments on them are handled for you. Foreign founders can start with incorporation for foreigners, where the purpose clause and the foreign-ownership rules are settled together.
Get started with your company's details, and settle the purpose clause before anything is filed with the SEC.
Frequently Asked Questions
What is the primary purpose in the Articles of Incorporation?
The primary purpose is the main business the corporation is formed to carry on. The Revised Corporation Code requires the articles to identify it whenever the corporation states more than one purpose.
Can a corporation have more than one purpose?
Yes. A corporation may state several purposes, but Section 13 of the Revised Corporation Code requires the articles to indicate which is the primary purpose and which are the secondary purposes.
Can a company do business outside its stated purposes?
No. Under Section 44 of the Revised Corporation Code, a corporation may only exercise powers conferred by the Code or its articles, and those necessary or incidental to them. Acts outside them are ultra vires.
How do I change my company's primary or secondary purpose?
Amend the Articles of Incorporation. Section 15 requires a majority vote of the board and the vote or written assent of stockholders representing at least two-thirds of the outstanding capital stock. The amendment takes effect once the SEC approves it. Because this takes time, write purposes broad enough at incorporation to cover the activities you expect to add.
Does the primary purpose have to match the industry classification?
Yes. In SEC eSPARC you select an industry classification under the Philippine Standard Industrial Classification, "in relation to the proposed primary business activity," and then enter the purpose. Both should describe the same business.
Can the SEC ask me to change my purpose clause?
Yes. The SEC can return an application with comments and ask for a vague or mismatched purpose clause to be revised before it approves the articles.
Does the purpose clause affect foreign ownership?
Yes. The Foreign Investment Negative List restricts specific activities, so each stated purpose is read against it. An activity on the list carries that entry's foreign equity limit.
Sources
- RA No. 11232, Revised Corporation Code of the Philippines (Lawphil)
- SEC eSPARC User Guide, Regular Processing (SEC)
- Executive Order No. 113, s. 2026, with the 13th Regular Foreign Investment Negative List (Official Gazette)
- RA No. 7042, Foreign Investments Act of 1991 (Lawphil)
- RA No. 11595, amending the Retail Trade Liberalization Act (Lawphil)
Recommended
- Korp.ph | The Negative List in the Philippines: Can Foreigners Own 100% of a Company?
- Korp.ph | How to Incorporate a Corporation Online in the Philippines (Step-by-Step Guide)
- Korp.ph | How to set up a holding company in the Philippines
- Korp.ph | Anti-Dummy Law guide for startups in the Philippines
