To keep abreast of changing times and make doing business in the Philippines easier, the Revised Corporation Code (RCC) has introduced the concept of a corporation with a single stockholder. Under the RCC, a natural person, trust or estate can now establish a one-person corporation (OPC). For the purpose of transition, it also allows an old domestic stock corporation (OSC) incorporated prior to the enactment of the RCC to be converted into an OPC. Pursuant to this, the Securities and Exchange Commission (SEC) released its proposed guidelines on the conversion of an OSC to an OPC for public feedback.
Process and requirements
Pursuant to the guidelines, an application for conversion from an OSC to OPC will be processed as an amendment of the articles of incorporation. The guidelines further provide that when a single stockholder acquires all the stocks of an OSC, the OSC may apply for conversion into an OPC by submitting, among others, the following requirements: (1) an affidavit of conversion, which must be executed by the single stockholder who has acquired all the outstanding shares of the ordinary stock corporation and countersigned by the corporation’s corporate secretary, setting out: (i) the total number of shares of the OSC issued and outstanding; (ii) a list of stockholders of the OSC before the acquisition of all the outstanding shares by the single stockholder; and (iii) the name of the single stockholder who acquired all of the outstanding shares of an OSC in his/her own name in the books of the corporation; (2) an original copy of the document effecting the transfer; and (3) the articles of incorporation of the OPC, duly prepared, signed and acknowledged by the single stockholder and by the corporation’s treasurer, in accordance with the SEC guidelines on the establishment of an OPC.
The articles of incorporation of the OPC should retain the provision indicating the names and addresses of the original incorporators of the OSC, and should modify the provisions on the number of directors, their names and addresses, their subscription and payment details, to reflect the name, address, subscription and payment details of the single stockholder. The corporate name of the corporation should likewise be amended to include the letters “OPC”, either below or at the end of its corporate name.
Upon issuance of the Certificate of Filing of Amended Articles of Incorporation by the SEC reflecting the conversion to an OPC, the articles of incorporation and bylaws of the OSC shall be deemed superseded and the OPC shall succeed the OSC, own all its properties, assume all rights and obligations, and be legally responsible for all the OSC’s outstanding liabilities. The OPC will retain the company registration number of the OSC and will have the “OPC” prefix in order to reflect its new nature.
OPC and OSC comparison
Given the simplicity of the process provided by the guidelines, it is enticing to convert an OSC into an OPC. However, one should first consider the benefits and drawbacks of having to convert an OSC into an OPC before proceeding to do so.
In an OPC, when an action is needed on any matter, it is sufficient to prepare a written resolution, which shall be signed and dated by the single stockholder and recorded in the minutes book of the OPC. In contrast, a majority of the board of directors of an OSC must meet and approve the action and resolution. Therefore, it is easier for an OPC to approve a course of action to address a certain matter.
Given that both the OPC and OSC are corporate entities, with a separate personality from their respective stockholders, the stockholders of both the OPC and OSC can take advantage of their limited liability features. As such, stockholders of both OPCs and OSCs generally should not be held personally liable for the debts and liabilities of the corporation more than their actual or promised investments in the corporation.
In an OPC, however, the sole shareholder claiming limited liability has the burden of showing that the OPC is adequately financed, and that the property of the OPC is independent of the single stockholder’s personal property. Failure to do so may render the stockholder solidarily liable for the debts and liabilities of the OPC.
In contrast, the stockholders of an OSC can generally claim limited liability without proving that the OSC is adequately financed, and that the property of the OSC is independent of the stockholder’s personal property.
In the end, the decision to convert to an OPC depends on various circumstances. At least with these guidelines, existing OSCs have the option to convert into an OPC, and no longer need to establish a new corporation.
Leia Clarissa Veronica R Veracruz is an associate in the corporate and special projects department at ACCRALAW.
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