On 20 February 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines, which may be considered landmark legislation, updating the 38-year old Corporation Code of the Philippines to apply to modern times.
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 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 an OPC. Further, as defined, it appears that a juridical entity such as a corporation may not be the stockholder in an OPC.
Similar to other corporations, 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/she 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, and disburse and invest the same according to its registration. However, he/she may not act as its corporate secretary.
Under the old code, a corporation had a term limit of 50 years, unless extended. Its existence was 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 a 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. The new code also allows the revival of a corporation with an expired term by filing an application with the SEC.
Minimum capital stock
The new code has removed the 25% subscription, payment and minimum paid-up capital requirements provided under the old code. 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”.
The new code has also removed the minimum number of incorporators, directors and trustees, which stood at five 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 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 has reiterated the requirement to elect independent directors in corporations vested with public interest 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 a 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.
With respect to corporate officers, section 24 of the new code now requires the treasurer to be a resident of the Philippines, and corporations vested with public interest to appoint a compliance officer.
Remote or in absentia voting
Following the concept of allowing board meetings by way of videoconferencing, teleconferencing, or other alternative modes of communication that are 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 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, which was required in the past.
Existing corporations affected by certain provisions of the new code are given two years from its effectivity to comply with requirements. With the significant changes introduced under the new code, the author anticipates that the SEC will issue supplemental regulation specifying the requirements and procedure to comply with its provisions.
Renz J Pagayanan is a senior associate of the corporate and special projects department of ACCRA Law Offices.
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