On 20 February 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (the “New Code”), which may be considered as a landmark legislation updating the 38-year-old Corporation Code of the Philippines (the “Old Code”) to adjust to modern times.
The New Code aims to improve ease of doing business and modernize procedures to improve and elevate the standards in the country’s corporate setting in line with existing international best practices. According to Senator Franklin M. Drilon, the principal sponsor and author of the Code, the amendments are focused on “removing barriers hindering the entry of both small and large enterprises into the Philippine market” as it aims to foster smoother transactions in pursuing business in the Philippines.
Some notable amendments under the Code are: (1) One Person Corporation; (2) Perpetual Existence; (3) Minimum Capital Stock; (4) Incorporators, Directors, Trustees, and Officers; and (5) Remote Communication and In-Absentia Voting.
ONE PERSON CORPORATION
The Old Code required at least five (5) stockholders to form a corporation.
Under the New Code, a one person corporation (“OPC”) may now be formed by a single stockholder, who may be a natural person, trust or an estate. However, banks and quasi-banks, pre-need, trust, insurance, public and publicly listed companies, and non-chartered government-owned and controlled corporations may not incorporate as OPC. Further, as defined, it appears that a juridical entity, such as a corporation, may not be the stockholder in an OPC.
Similar to all other corporations, as provided by the New Code (unless a special law requires otherwise), an OPC is not required to have a minimum capital stock. It does not need to adopt corporate by-laws unlike an ordinary corporation. In lieu of the meetings, an OPC may simply prepare written resolutions, signed and dated by the single stockholder.
The single stockholder will act as the president and sole director of the OPC. He may also act as its treasurer, upon submission of a bond to the Securities and Exchange Commission (“SEC”) and a written undertaking to faithfully administer its funds, disburse and invest the same according to its registration. However, he may not act as its corporate secretary.
It is important to note though that the New Code requires the single stockholder to prove that the OPC is sufficiently financed, and its assets are independent from his personal property, in order to claim limited liability. Otherwise, he shall be jointly and severally liable for the liabilities of the OPC.
Under the Old Code, a corporation has a term limit of 50 years, unless extended. Its existence is deemed dissolved upon expiration of the term.
Under the New Code, the default rule is that a corporation shall have perpetual existence, unless otherwise specified in the Articles of Incorporation. As transition, corporations existing prior to the effectivity of the New Code shall have a perpetual term unless the corporation, upon the required vote of its stockholders, notifies the SEC that it elects to retain its specified term.
In this connection, the New Code incorporates a “Lazarus” provision which allows the revival of a corporation whose term has expired by filing an application with the SEC. Upon approval, the corporation shall be deemed revived 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, giving it perpetual existence unless otherwise specified.
MINIMUM CAPITAL STOCK
The Old Code required that at least 25% of the authorized capital stock must be subscribed, and at least 25% of the total subscription must be paid by the stockholders, provided that the minimum paid-up capital shall not be lower than Php5,000.00.
The New Code removed the aforementioned 25% subscription, payment and minimum paid-up capital requirements. The New Code states that “stock corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided by special law.”
INCORPORATORS, DIRECTORS, TRUSTEES, AND OFFICERS
The New Code removed the minimum number of incorporators, directors and trustees, which stood as five (5) under the Old Code.
Section 10 of the New Code states that “any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes.” It appears that the New Code allows juridical persons to act as incorporators unlike the Old Code which limits incorporators to natural persons.
Moreover, the New Code reiterated the requirement to elect independent directors in corporations vested with public interest such as: (a) public companies, (b) banks and quasi-banks, non-stock savings loan associations, etc., and (c) other corporations as may be determined by the SEC. The independent directors shall constitute at least 20% of the entire board membership.
The New Code also allows the creation of an “emergency board” when the vacancy in the board prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation. During an emergency, the remaining directors or trustees may fill the vacancy temporarily from among the officers of the corporation to pass the necessary emergency action.
Section 24 of the New Code retained the officers and its qualifications under the Old Code, except for the treasurer, who is now required to be a resident of the Philippines. In addition, corporations vested with public interest are now obliged to appoint a compliance officer.
REMOTE COMMUNICATION AND IN ABSENTIA VOTING
Following the concept of allowing board meetings by way of videoconferencing, teleconferencing, or other alternative modes of communication which have been made explicit under the New Code, the New Code took a step further by allowing stockholders or members to exercise their right to vote through remote communication or in absentia when authorized under the by-laws, subject to the rules and regulations to be issued by the SEC. With this amendment, it appears that the stockholders and members need not be physically present or represented by proxies in meetings, as required in the past.
Existing corporations affected by certain provisions of the New Code are given a period of two (2) years from its effectivity within which to comply with the requirements thereon.
With the aforementioned significant changes introduced under the New Code, we anticipate that the SEC will issue supplemental regulation specifying the requirements and detailed procedure to comply with its provisions.