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Amicus Curiae

Patricia O. Ko

The One Person Corporation -- a new proposal

Patricia O. Ko

March 14, 2016

For the entrepreneur who wishes to venture into a business on his own, our current laws offer him limited options in terms of business structures he can pursue. A sole proprietorship ensures that the business is in his name alone, but exposes the entrepreneur to greater financial risk since he would be personally liable for the debts of his business. Establishing a corporation would mitigate this risk since a stockholder’s liability is “limited” to the amount of his investment, but our Philippine Corporation Code (B.P. Blg. 68) does not allow individuals to establish one-man corporations yet.

 

 

To set up a corporation, the entrepreneur would have to invite at least four other persons to act as incorporators and “nominee” directors in his business venture, which he may view as an unnecessary inconvenience. Clearly, the simplest option would be to allow sole proprietors to enjoy the benefits of incorporation similar to other jurisdictions. The good news is this option is no longer as remote. The pending Senate Bill No. 2945, which proposes numerous amendments to the Corporation Code, seeks to allow the formation of a “One Person Corporation” (OPC) which may be a welcome change for the business sector.

The OPC will be a type of corporation wholly owned by the single stockholder, who may be either a natural person, a juridical person acting through its duly authorized representative, or even a trust, estate or account acting through its trustee, administrator or custodian, respectively.

The advantage of the OPC is that decision making on corporate matters will become more efficient since the single stockholder is also the sole director, President, and Treasurer of the OPC. While signed written resolutions are allowed in lieu of meetings, the single stockholder will still be required to appoint a Corporate Secretary to record corporate matters.

To ensure that the OPC is able to continue its business affairs with minimal interruptions, the single stockholder is entitled to designate a nominee, and an alternate nominee who will act as a director and manage the affairs of the OPC in case the single stockholder becomes temporarily or permanently incapacitated.

Safeguards are also in place to protect the creditors from potential abuses of the OPC’s limited liability advantage. Under the proposed bill, a single stockholder becomes joint and severally liable for the OPC’s debts and other liabilities when there is a co-mingling of the single stockholder’s and the OPC’s property.

However, there are some characteristics of the OPC which may hinder its being favored as a business structure.

First, the establishment of the OPC will require substantial capital infusion. The proposed minimum authorized capital stock for the OPC is a million pesos (P1,000,000), which should be paid in a single lump sum at the time of incorporation and physically separated from the single stockholder’s personal funds.

While it may be argued that the capital requirement serves to ensure that the single stockholder is serious in the pursuit of his business, it may also be too burdensome to require the single stockholder to immediately put up such amount at the time of incorporation, especially if you consider that in contrast, it is proposed that a regular stock corporation will only have a minimum paid up capital of Sixty Two Thousand Five Hundred Pesos (P62,500.00) at the time of incorporation.

Second, a single stockholder can only incorporate and maintain one OPC at any one instance, which may be viewed as being too restrictive, since it does not provide the single stockholder the opportunity to use the OPC structure for various business ventures. Nevertheless, the proposed bill will allow a single stockholder to convert his OPC to a regular stock corporation and vice versa, which provides a bit of counterbalance to the inflexibility of allowing only one OPC per single stockholder.

While the OPC has its appeal, it is not to say the OPC is for every businessman. Some may still do well to continue on with the sole proprietorship route considering the extra costs involved to set up an OPC, the need to comply with the corporate reportorial requirements of Securities and Exchange Commission, and the different tax rates which a sole proprietorship and corporation are subjected to. Notwithstanding, the OPC will be a business structure that will best suit the need of sole proprietors who desire the practical advantages that a corporation’s separate legal personality and limited liability provides. It is certainly a much-deserved recognition of the importance of the small businessman’s contribution to economic growth and is a step towards making these small businesses globally competitive.