The Bicameral Conference Committee of the Philippine Congress approved in late 2018 the reconciled versions of the House and Senate on the bill amending the country’s Corporation Code of the Philippines (Batas Pambansa Bilang 68, Corporation Code).
One of the changes include the One Person Corporation (OPC). The current law only allows the creation of a corporation with a minimum of five (5) incorporators who must be natural persons. While another corporation can become a stockholder of a new corporation, only natural persons can become incorporators.
Under the proposed amended Corporation Code, a new corporation may be established with a single stockholder who may either be a natural person, trust, or an estate. Below are the 10 things that a potential single stockholder should know about creating an OPC under the proposed amendments.
- No minimum authorized capital stock
No minimum capitalization is required in order to establish an OPC. However, one-fourth of the capitalization must be subscribed at the time of incorporation and at least Php5,000 should be paid-up. For example, a sari-sari store owner who wants to enjoy limited liability can form an OPC by having just Php50,000 as authorized capital stock. She can structure this into 50,000 shares with Php1.00 as par value. She, however, needs to subscribe 12,500 shares (a fourth of the ACS) and cough-up Php5,000 as paid-up capital usually in the form of a bank deposit in trust for the OPC.
- Financial companies are not allowed from forming OPCs
Banks, quasi-banks, pre-need, insurance, public and publicly listed companies, and non-chartered GOCCs, cannot incorporate as OPC under the proposed amendment. In the first place, only natural persons are allowed to form OPCs. These fiduciary companies are better regulated by the Bangko Sentral ng Pilipinas.
- Professionals excluded from OPCs
A natural person licensed to exercise a profession may not organize as an OPC for the purpose of exercising such profession except as otherwise provided under special laws.
Following the sari-sari store owner example, assuming she’s also a licensed Interior Designer, she can only organize an OPC for her retail business. If she also wants to practice her profession as an Interior Designer, she needs to set-up shop as a solo practitioner or join a partnership or firm of interior designers.
- ‘OPC’ suffix to corporate name
A natural person may use any commercially distinctive name as the corporate name of the OPC. She may even use her own name as the name of the OPC, as long as the name is not confusingly similar to existing corporate or trade names. However, to let the public know that said person created a limited liability company, the letters ‘OPC’ should be indicated either below or at the end of its corporate name.
In the same example, the sari-sari store owner may use ‘Juana Dela Cruz Variety Store, OPC’ as the OPC’s corporate name. She may likewise use ‘The Little Store Down The Street, OPC’ as corporate name, assuming that the first one is confusingly similar to an existing trade name.
- Only Articles of Incorporation Needed
Just like a regular corporation, an OPC needs to submit an Articles of Incorporation, which sets forth the primary business of the OPC, its corporate address, capitalization and the names and details of the single stockholder, her nominee and alternate nominees. The Securities and Exchange Commission will issue the required form for this.
An OPC need not submit and file by-laws as there is no board or a set of stockholders to manage.
If the single stockholder is a trust or an estate, the AOI shall substantially contain the name, nationality, and residence of the trustee, administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties, including their proof of authority to act on behalf of the trust or estate.
- Single Stockholder as Director and Officer
The single stockholder shall be the sole director and president of the OPC. She may not appoint herself as corporate secretary but may assume the role of a treasurer. In such case, a bond shall be given in such a sum as may be required by the SEC and which shall be renewed every two (2) years or as often as may be required.
- Incapacity of Single Stockholder
In the unlikely event that the single stockholder becomes incapacitated, the proposed amended Corporate Code allows the nominee indicated in the AOI to take over the management of the OPC. In case the nominee becomes incapacitated as well, then the alternate nominee will manage the OPC in her stead. After the end of her incapacity, the single stockholder can resume the management of the OPC as president.
In case of the demise of the single stockholder, the nominee will take over the management of the OPC until the heirs of the single stockholder can decide among themselves who will take the place of the deceased.
- Limited Liability of the OPC
The OPC has a separate personality to its single stockholder and the latter cannot be held liable for the financial liabilities of the OPC, provided that she’s able to show that the OPC is adequately financed.
In our continuing example, if the ‘Juana Dela Cruz Variety Store, OPC’ goes bankrupt, its creditors can only go after the OPC to recover the debts that the business owed. Ms. Juana Dela Cruz, the licensed Interior Designer and single stockholder of the OPC, may not be sued for the debt owed by the OPC.
Of course, a single stockholder is prohibited from using an OPC as a vehicle or shield to commit fraud, crime, or other illegal activities.
- Conversion of OPC to a Regular Corporation
A single stockholder can convert her OPC to a regular corporation having a set of directors, officers and other stockholders. This will allow the OPC to expand its business and secure more financial resources. The proposed amended Corporation Code requires the single stockholder to apply for conversion with the SEC and comply with all requirements of a regular corporation. After the requirements are satisfied, the SEC will issue a Certificate for Filing Amended Articles of Incorporation reflecting the conversion.
In the same manner, a regular corporation may request its conversion to an OPC. A stockholder needs to acquire all the shares of the regular corporation and comply with the other requirements of an OPC.
- Reportorial Requirements
An OPC needs to file an annual audited financial statement; a report on all the explanations or comments by the president on the qualification, reservation or adverse remarks made by the auditor in the FS; a disclosure of all self-dealings and related party transactions between the OPC and the single stockholder, as well as other reports as the SEC may require.
These submissions are public in nature and will give third parties an opportunity to understand the financial and commercial state of the OPC.
The amended Corporation Code is expected to make the Philippine business scene more inclusive to smaller players and hasten the creation of new companies by foreign investors. Senate Bill 1280 can be accessed here.
(Monique Annabelle R. Lee and Ma. Leichelle G. Bautista joined the Firm in 2018 and assist Senior Partner Dicky Salazar in corporate housekeeping duties for the Firm’s clients. Monique and Lei may be reached at [email protected] and [email protected].)