[Editor’s note: This is the first of a two-part article on the provisions of the Revised Corp. Code of the Philippines (R. A. 11232). The continuation can be read here. ]
Date of Effectivity/Repeal of Old Corporation Code
The Revised Corporation Code of the Philippines, Act No. 11232 (the “Revised Corp. Code” or the “Law”) became effective on February 23, 2019 following its publication in 2 newspapers of general circulation, as declared by the Securities and Exchange Commission (SEC) on February 28, 2019. President Rodrigo Duterte signed the Law on February 20, 2019 after it was passed by the Senate and the House of Representatives on November 28, 2018. It was also earlier published in the Official Gazette on February 21, 2019 but the SEC did not consider this as the effectivity date.
In its Repealing Clause, the Revised Corp. Code expressly repealed the 1980 Corporation Code (the “Old Corp. Code”) which had no amendments for almost 39 years. The Old Corp. Code had over the years been deemed not attuned to the changing business environment and requirements, thus, the need for a change was recognized.
The enactment of the Revised Corporation Code is a welcome development in light of the requirements of modern technology and business. The facilitation and easing up of procedural requirements for incorporating corporations and extension of corporate existence to maintain business continuity and stability provides a significant assistance to investors and the public. The requirement for more consciousness about and compliance with a good corporate governance framework for corporations bodes well for an ever growing Philippine economy. The challenge is for the SEC and the business community to work towards achieving the goals of this new law through an efficient implementation and faithful adherence.
Unchanged Corporate Principles and Concepts
While the Revised Corp. Code now contains 188 sections compared to the 149 sections of the Old Corp. Code, it maintains the definition of a corporation, the classes of corporations, classification of shares, the management structure of corporations, corporate powers and capacity, dissolution process, mergers and consolidations, and licensing of foreign corporations. The main principle of having a corporation with a separate and distinct legal personality from those of its stockholders/member, directors/trustee, officers and employees remains albeit a recognition of the need for corporate governance and minority protection is now a recurring theme in this new Law.
Significant Changes and Introductions
But there are significant changes on corporation law and principles introduced by the Revised Corp. Code. The substantive changes in the Revised Corp. Code may be classified into the following main categories:
- Ease in doing business;
- Process improvements in corporate activities;
- Corporate continuity and stability;
- Corporate Governance; Directors’ and officers’ accountability;
- SEC jurisdiction and authority expansion.
Contributions to Ease in Doing Business
- Incorporation facilitated:
- Partnerships, associations or corporations, singly or jointly with others but not more than 15 may now be incorporators – 10; but if singly or to be a One Person Corporation (“OPC”), incorporator must be a natural person, trust or an estate – Sec. 116;
- No more residency requirement for incorporators and directors – 10 and 22
- Professionals or partnerships or associations organized for the practice of a profession are not allowed to organize as a corporation – 10
- Changes in the contents of the Articles of Incorporation (AOI) – 13 and 14 and related sections
- Corporate Name – must be distinguishable from a name that is already reserved or registered for the use of another corporation, or is not protected by law; or is not contrary to existing law, rules and regulations. – 17
- Requires online verification – 18
- If a One Person Corporation (“OPC”), the letters “OPC” must be indicated either below or at the end of its corporate name – 120
- Principal Office Address – now allows general reference to city or municipality and not a specific office address;
- Corporate Term – now with a perpetual existence unless its AOI provides otherwise – 11
- For existing corporations – automatically now have perpetual existence, unless by a majority vote of its stockholders, notifies the SEC that it elects to retain its specific corporate term under its present AOI – 11, 2nd par.
- Effect of non-use of corporate charter, failure to organize or commence business is now for a period of five (5) years (no longer for 2 years) from its date of incorporation – deemed revoked certificate of registration – 21
- Incorporators – May be partnerships, associations or corporations; may be only one (1) incorporator but still not more than 15; and no more residency requirement – 10
- Directors/Trustees – No more minimum number of five (5) and no more residency requirement – 22
- If a corporation vested with public interest – at least 20% of the Board must be independent directors, i.e. independent of management and free from any business or relationship that could affect exercise of independent judgment – 22 –
- No required minimum capital stock except if required by special law – 12; – see, e.g. FIA on minimum paid up capital of foreign corporations in the domestic market.
- No more required 25% minimum subscription and paid up capital stock at incorporation – previous Sec. 13 deleted – but in an increase of authorized capital stock the 25% subscription and 25% paid up requirements are still imposed – 37
- Arbitration Agreement – to govern dispute resolution between the corporation, its stockholders or members arising out of the implementation of the AOI or by-laws, or from intra-corporate relations; criminal offenses and interests of third parties are not arbitrable; binding on the corporation, its directors, trustees, officers, executives and managers; should indicate number of arbitrators and procedure for appointment; power to appoint granted to a designated independent third party; or failing which, the SEC; other usual arbitration provisions – 181
- Treasurer’s Certification in Article Ninth of the AOI, the Treasurer is named and he is a signatory to the AOI thereby certifying the information in the seventh and eighth clauses of the AOI – 14. – seems to imply no need for Treasurer’s Affidavit.
- Treasurer must be a resident – Sec. 40
- Tenth Article – contains undertaking to change the name of the corporation
- Electronic filing – in accordance with SEC rules Sec. 13
- The requirement for “favorable recommendation of appropriate government agency to the effect such articles or amendment is in accordance with law” for incorporation or amendment for public utilities, educational institution and other corporations governed by special law was deleted
- Adoption of By-laws – no longer required to be done within one (1) month from the incorporation, may still be adopted and filed prior to incorporation (along with the AOI)- 45
- By-laws may provide for the modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes – in person; by proxy; by remote communication or in absentia – 46
- May provide for arbitration agreement – 46
Introduction of OPC as a type of corporation
Secs. 115 to 132 – corporation with a single stockholder; stock corporation; cannot be a non-stock corporation;
- Who may form – only natural persons, trust, or an estate may form an OPC; banks; quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-chartered GOCCs may NOT incorporate an OPC; professionals wanting to exercise their profession cannot form an OPC; foreigners and non-residents may form an OPC.
- How much capital – no minimum authorized capital stock except as otherwise required by special law; open to foreigners but need to comply with FIA requirement of US$200,000 for domestic market enterprise.
- What should be filed – AOI; no need for By-laws; name should indicate “OPC” either below or at the end of the corporate name.
- Who constitute the OPC –
- the single stockholder shall be the sole director and president of the OPC;
- within 15 days from issuance of certificate of incorporation, the OPC shall appoint a treasurer, corporate secretary, and other officers as necessary, and SEC is notified of appointments within 5 days;
- single stockholder cannot be corporate secretary;
- but can be treasurer, provided, he posts a bond to the SEC in a sum required by SEC, with a written undertaking to faithfully administer the OPC’s funds, and to invest and disburse the same according to the AOI; bond is renewed every 2 years or as often required by SEC;
- nominee and alternate nominee stockholders are required to be designated who shall take the place of the single stockholder as director and manage the corporation’s affairs in the event of death of the single stockholder. Written consent of the nominee or alternate nominee is attached to the application for incorporation; consent may be withdrawn in writing before death or incapacity of the single stockholder; may be changed at any time.
- Corporate secretary has special functions to maintain minutes and notify in case of death of single stockholder.
- Reports to be filed by OPC – AFS; disclosure of self-dealings and related party transactions; others required; failure to file for 3 consecutive times or intermittently within a period of 5 years will result in delinquent status.
- Liability of OPC – Sole shareholder has burden of proving that the OPC was adequately financed; and that the property of the OPC is independent of the stockholder’s personal property – otherwise, the sole shareholder shall be jointly and severally liable for the debts and other liabilities of the OPC. Principle of piercing the veil of corporate fiction applies.
- Conversion from an Ordinary Corporation to an OPC – when a single stockholder acquires all the stocks of an ordinary stock corporation, he may apply for conversion into an OPC; thus, a certificate of filing of amended articles of incorporation is issued by the SEC to reflect the conversion. OPC becomes legally responsible for the latter’s outstanding liabilities as of the date of conversion.
- Conversion from an OPC to an Ordinary Stock Corporation – may also be applied for and granted through an amendment of the AOI.
- Effect of death of single shareholder – the nominee or alternate nominee transfers the shares to the duly designated legal heir or estate within 7 days from receipt of either an Affidavit of heirship or self-adjudication executed by the sole heir; then the heirs shall notify the SEC of the decision to either wind up and dissolve the OPC or to convert into an ordinary stock corporation.
Process improvements in corporate activities
- Stockholders/Members Meetings – Written notice of regular meetings may be sent through the means of communications provided by bylaws, by electronic mail or other SEC allowed manner – 49 – at least 21 days (instead of 2 weeks)
- Notice of meeting is now required to be accompanied by:
- Proxy form to be submitted to corporate secretary prior to meeting;
- When attendance, participation, and voting are allowed by remote communication or in absentia, the requirements and procedures to be followed when a stockholder or member elects either option; and
- When the meeting is for the election of directors or trustees, the requirements and procedure for nomination and election.
- Voting of Stockholders/Members – stockholders or members are allowed to vote through remote communication or in absentia in election of directors, and in shareholders meetings Shareholders who participate through remote communication or in absentia are deemed present for purposes of quorum. The right of a stockholder to vote by remote communications or in absentia is recognized in corporations vested with public interest, even if provision is absent in its by-laws. – 23.– SEC to issue rules and regulations re participation and voting through remote communication or in absentia, taking into account the company’s scale, number of shareholders or members, structure and other factors consistent with the protection and promotion of shareholders’ or members’ meetings.
- Notice of Special Meetings – may be sent electronically when allowed by the bylaws or done with the consent of the stockholders, and in accordance with the rules and regulations of the SEC – following purposes to: extend or shorten corporate term – 36, increase or decrease its capital stock, or incur, create or increase any bonded indebtedness – Sec. 37, approve the sale of all or substantially assets of the corporation – Sec. 39, or invest the corporate funds in another corporation or business – Sec. 41.
- Directors/Trustees Meetings – Notice of meetings must be sent at least two (2)days prior to the scheduled meeting – no longer one (1) day
- Directors or trustees who cannot physically attend or vote at board meetings can participate and vote through remote communication such as videoconferencing, teleconferencing, or other alternative modes of communication. Directors or trustees cannot attend or vote by proxy at board meetings. – Sec. 52
- Electronic Filing of AOI and applications for amendments – 13 The SEC is required to develop and implement an electronic filing and monitoring system. It shall promulgate rules to facilitate and expedite corporate name reservation and registration, incorporation, submission of reports, notices, and documents required under the Revised Corp. Code, and sharing of pertinent information with other government agencies – Sec. 180
Corporate continuity and stability
- Perpetual Existence – Corporations now have a perpetual existence or corporate term, unless the AOI provides otherwise, or in the case of existing corporations, unless majority of the stockholders elect to retain the specific corporate term provided in its AOI and advised the SEC – 11
- Revival of Corporate Term – A corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities existing prior to its revival. Upon approval by the SEC, the corporation shall be deemed revived and a certificate of revival of existence shall be issued – 11
- Election of Replacement Directors/Trustees – when vacancy due to term expiration, the election should be held no later than the day of such expiration; when vacancy is due to a removal, the election may be held on the same day as the removal; but in both cases, no later than 45 days from the vacancy; term of replacement director or trustee is only for the unexpired term – 28
- Election of an emergency director/emergency board – is now allowed when there is no quorum in the board of directors due to resignation, death or disqualification and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors. The emergency director serves only to address the emergency and ceases when a replacement director is elected. The SEC must be notified – 28
- Corporations are empowered to enter into partnerships, joint venture or any commercial agreements – 35(h) – expands rule in jurisprudence that corporations can only enter into joint ventures and not partnerships.
(Senior Partner Dicky Salazar leads the Corporate and Commercial Law practice group of the Firm and represents foreign and Filipino mining companies involved in all aspects of mining from exploration, project financing, construction, development and processing. Dicky’s existing foreign and domestic mining clients range from operating companies to exploration entities. He can be reached at [email protected].)