Republic Act No. 11232, otherwise known as the “Revised Corporation Code of the Philippines” or “RCC”, was signed into law by President Rodrigo Duterte on 20 February 2019. The RCC took effect on 23 February 2019, following the completion of its publication in Manila Bulletin and the Business Mirror. The new law updates the almost 39-year old Corporation Code of the Philippines with the aim of improving the ease of doing business in the country. Existing corporations affected by the new requirements of the RCC are given a period of two (2) years to comply (Sec. 185).
Some of the salient amendments to the Corporation Code include:
1. Incorporators (Sec. 10) – The RCC removed the absolute requirement of having a minimum of five (5) individuals in the formation of corporations.
2. One-Person Corporation (Sections 115, 116, 130, 131) – The law now allows the establishment of a One-Person Corporation (OPC) composed of a single shareholder, who may be a natural person, a trust or an estate. A shareholder may acquire all the stocks of an ordinary stock corporation and apply for the conversion thereof into an OPC. In terms of liability, the single shareholder claiming limited liability has the burden of affirmatively showing that the corporation was adequately financed.
3. Corporate Term (Sec. 11) – The corporate term limit of fifty (50) years has been removed such that a corporation can now enjoy perpetual existence unless expressly limited by its articles of incorporation. Such perpetual corporate term shall also apply to corporations incorporated prior to the RCC, unless said corporations elect to retain a specific corporate term.
4. Revival of Corporate Existence (Sec. 11) – The new law also states that a corporation whose term has expired can apply with the Securities and Exchange Commission (SEC) for the revival of its corporate existence, 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 the SEC’s approval, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued giving it perpetual existence, unless its application for revival provides otherwise.
5. Filing of Electronic Documents with the SEC (Sec. 13) – The Articles of Incorporation and applications for amendments thereto may be filed with the SEC in the form of electronic documents, in accordance with the rules on electronic filing that the SEC will promulgate.
6. Capital Stock (Sec. 12) – Stock corporations are no longer required to have a minimum capital stock, unless specifically provided by special law. Moreover, the RCC removed the requirement that 25% of the authorized capital stock be subscribed and that 25% of the subscribed capital stock be paid for purposes of incorporation as previously mandated under Section 13 of the Corporation Code, which was deleted in its entirety.
7. Non-Use of Corporate Charter and Continuous Inoperation (Sec. 21) – The RCC extended the allowable period for non-use of corporate charter from two (2) years to five (5) years from the date of incorporation. The certificate of incorporation shall be deemed revoked as of the day following the end of the 5-year period. Meanwhile, a corporation which has commenced its business but subsequently becomes inoperative for a period of at least five (5) years may be deemed a delinquent corporation and shall have a period of two (2) years to resume operations. Failure to resume operations within the period given by the SEC shall cause the revocation of its certificate of incorporation.
8. Election of Directors or Trustees (Sec. 23) – The new law allows stockholders or members, when authorized by the by-laws or by a majority of the board of directors, to vote through remote communication methods or in absentia. A stockholder or member who participates through remote communication or in absentia will still be considered present for purposes of determining the existence of a quorum.
9.Corporate Officers (Sec. 24) – The RCC mandates a corporation vested with public interest to appoint a Compliance Officer, in addition to the mandatory positions of President, Treasurer and Corporate Secretary. The law now also expressly requires that the Treasurer should be a resident of the Philippines.
10. Removal of Directors or Trustees (Sec. 27) – The RCC empowers the SEC, unilaterally or upon a verified complaint, and after due notice and hearing, to remove members of the Board of Directors or Trustees who are determined to be disqualified to be elected to or to hold such position.
11.Corporate Powers (Sec. 35) – The RCC removes the prohibition on domestic corporations to donate to a political party or candidate or for purposes of partisan political activity.
12. Meetings of Stockholders; Notices; Manner of Voting Thereat (Sec. 49 and 57) – The RCC now provides that if the date of the regular meeting of the stockholders or members is not fixed in the By-Laws, the same shall be held on any date after April 15 of every year as determined by the Board of Directors or Trustees. Written notices of regular meetings may now be sent to stockholders and members through electronic mail and such other means as may be allowed by the SEC. The right of stockholders or members to vote may now also be exercised through remote communication or in absentia, under rules and regulations to be issued by the SEC governing 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.
13. Remedy if a Corporation Refuses a Demand for Inspection (Sec. 73) – If the corporation denies or does not act on a demand for inspection and/or reproduction of corporate records, the aggrieved stockholder or member may report such denial or inaction to the SEC, which shall, within five (5) days from receipt of such report, conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records.
14. Financial Statements (Sec. 74) – The new law provides that if the paid-up capital of the corporation is less than Six Hundred Thousand Pesos (P600,000.00) or such other amount as may be determined appropriate by the Department of Finance, the financial statements may be certified under oath by the President and the Treasurer, and need not be certified by an independent certified public accountant.
15. Requirement for Branch Offices of Foreign Corporations to Deposit Securities (Sec. 143) – The new law provides that within sixty (60) days from issuance by the SEC of a license to transact business to a branch office of a foreign corporation, said branch must deposit acceptable securities to the SEC with an actual market value of at least Five Hundred Thousand Pesos (P500,000.00) for the benefit of present and future creditors of the licensee. In addition, within six (6) months after the fiscal year of the licensee, the SEC may require the licensee to deposit additional securities or financial instruments equivalent in market value to two percent (2%) of the amount by which the licensee’s gross income exceeds Ten Million Pesos (P10,000,000.00).
16. Jurisdiction Over Party-List Organizations (Sec. 182) – The RCC provides for the transfer of jurisdiction over party-list organizations from the SEC to the Commission on Elections (COMELEC), subject to the implementing rules to be jointly promulgated by the SEC and the COMELEC.
17. Violations and Penalties – The RCC now enumerates various specific offenses and their corresponding penalties, with special emphasis on fraud and graft and corrupt practices:
a. Unauthorized Use of Corporate Name (Sec. 159);
b. Violation of Disqualification Provision (Sec. 160);
c. Violation of Duty to Maintain Records, to Allow Inspection or Reproduction (Sec. 161);
d. Willful Certification of Incomplete, Inaccurate, False or Misleading Statements or Reports (Sec. 162);
e. Independent Auditor Collusion (Sec. 163);
f. Obtaining Corporate Registration Through Fraud (Sec. 164);
g. Fraudulent Conduct of Business (Sec. 165);
h. Acting as Intermediaries for Graft and Corrupt Practices (Sec. 166);
i. Engaging Intermediaries for Graft and Corrupt Practices (Sec. 167);
j. Tolerating Graft and Corrupt Practices (Sec. 168);
k. Retaliation Against Whistleblowers (Sec. 169); and
l. Other Violations of the Code (Sec. 170).
18. Arbitration Agreement (Sec. 181) – The law now allows an arbitration agreement to be included in the Articles of Incorporation or By-Laws of a corporation.