Salient Changes under the Revised Corporation Code
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 the 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. Organization of Corporations
The RCC removed the absolute requirement of having a minimum of five (5) individuals in the formation of corporations.
The RCC removed the absolute requirement of having a minimum of 5 individuals in the formation of corporations (Sec. 10). 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 (Sec. 115, 116, 130, 131).
Stock corporations are still not required to have a minimum capital stock, unless specifically provided by special law. Notably, in the revised form of the Articles of Incorporation (AOI), it is no longer required that the capitalization be in “lawful money of the Philippines” (Sec. 14). 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 (Sec. 12). However, the 25%-25% requirement was retained for any increase in the authorized capital stock (Sec. 27).
The corporate term limit of 50 years has been removed such that a corporation can now enjoy perpetual existence unless expressly limited by its AOI. Such perpetual corporate term shall also apply to corporations incorporated prior to the RCC, unless said corporations elect to retain a specific corporate term. 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 (Sec. 11). The RCC also extends the allowable period for non-use of corporate charter from 2 years to 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 5 years may be deemed a delinquent corporation and shall have a period of 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 (Sec. 21).
2. New Classifications of “Corporations Vested with Public Interest”
In lieu of the expansion of application of the system of Independent Directors under the Securities Regulation Code (SRC), the RCC has classified the following corporations vested with public interest, whose board shall have independent directors constituting at least 20% of such board:
a. Publicly-held corporations under the SRC whose securities are registered with the SEC, corporations listed with an exchange or with assets of at least P50,000,000.00 and having 200 or more holders of shares, each holding at least 100 shares of a class of its equity shares;
b. Banks and quasi-banks, non-stock savings and loan associations, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries; and
c. Other corporations engaged in businesses vested with public interest similar to the above, as may be determined by the SEC.
3. Board of Directors/Trustees
With the introduction of the OPC, the minimum number of directors to incorporate is reduced from 5 to 1, while the maximum is retained at 15 directors. For trustees, however, the RCC has removed the maximum number which can be elected. Some of the changes in the qualification and term of the board of director or trustees include the removal of the residency requirement for a majority of the board and the extension of the term of trustees from 1 year to 3 years (Sec. 22).
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 inabsentia. A stockholder or member who participates through remote communication or inabsentia will still be considered present for purposes of determining the existence of a quorum (Sec. 23).
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/Trustees who are determined to be disqualified to be elected to or to hold such position (Sec. 27).
When there is a vacancy in the Office of the Director/Trustee which prevents the remaining directors from constituting a quorum and emergency action is required to prevent irreparable loss or damage to the corporation, the remaining directors are allowed to temporarily fill the vacancy from among the officers of the corporation, thereby constituting an emergency board, subject to certain requirements (Sec. 28).
4. Corporate Officers
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 be a resident of the Philippines (Sec. 24).
The election or non-holding of election of the directors, trustees and officers of the corporation is required to be reported to the SEC, which is empowered under certain conditions to summarily order that an election be held (Sec. 25).
5. Corporate Powers
Under Section 35 of the RCC, additional powers are expressly granted to corporations, namely: the power to enter into a partnership, joint venture or any other commercial agreement with a natural person or another corporation [Sec. 35 (h)]; and, for domestic corporations, the power to donate to a political party or candidate or for purposes of partisan political activity [Sec. 35 (j)].
6. Shareholder Actions
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/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 (Sec. 49 and 57).
The law also allows an arbitration agreement to be included in the AOI or By-Laws of a corporation (Sec. 181).
7. Corporate Books and Records
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 5 days from receipt of such report, conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records. This right to inspect is expressly made subject to confidentiality rules under prevailing laws (Sec. 73).
With regard to the financial statements of a corporation, the RCC provides that if the paid-up capital of the corporation is less than 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 (Sec. 74).
8. Foreign Corporations
The new law provides that within 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 P500,000.00 for the benefit of present and future creditors of the licensee. In addition, within 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 2% of the amount by which the licensee’s gross income exceeds P10,000,000.00 (Sec. 143).
A domestic corporation who acts as a resident agent of a foreign corporation must be of sound financial standing and must show proof that it is in good standing as certified by the SEC (Sec. 144).
9.Investigations, Offenses and Penalties
Under the new law, jurisdiction over party-list organizations is transferred from the SEC to the Commission on Elections (COMELEC), subject to the implementing rules to be jointly promulgated by the SEC and the COMELEC (Sec. 182).
The RCC also enumerates the 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).
10. Technological Updates
Aside from recognizing stockholder or member votes cast in absentia via remote communication methods, the new law also allows the AOI and applications for amendments thereto to be filed with the SEC in the form of electronic documents, in accordance with the rules on electronic filing that the SEC will promulgate (Sec. 13). The SEC is further mandated to implement an electronic filing and monitoring system to expedite corporate name reservation and registration, incorporation, submission of reports, notices and documents required by the RCC (Sec. 180).