Aiming to provide a more business-friendly environment and boost the competitiveness of the economy, the Philippines recently enacted Republic Act No. 11232 or the Revised Corporation Code, which replaces the old code.
Under the old law, a corporation’s maximum term of existence was 50 years. Even though this period was extendible, many corporations failed to extend the term for various reasons, including simple neglect, missing nominee directors, or squabbling shareholders, among others. This resulted in some businesses prematurely closing down even though they were still productive.
The new law seeks to cure this by providing that all existing and future corporations shall have perpetual existence, unless the stockholders choose a shorter term (Section 11).
Moreover, the old law required a minimum of five incorporators in order to form a corporation. It also required a minimum of five directors, each of whom was required to be a stockholder. The result was that investors assigned nominees or dummies to become shareholders and directors just to comply with the minimum, even though these nominees or dummies did not have anything to do with the business.
The new law removes the minimum requirements and allows any natural person, trust, or estate to form a “One Person Corporation” or OPC as long as the OPC will not engage in any excluded activity (Section 116). These excluded activities are banking, quasi-banking, pre-need, trust, insurance, public and publicly listed companies, non-chartered government-owned and controlled corporations, and exercise of profession (Section 117). The OPC can make decisions by himself/itself as the sole director.
The Revised Corporation Code also completely deletes the minimum required capital stock. Previously under the old law, new corporations were required to have at least 25% of their capital stock subscribed, of which 25% was required to be paid-up. The minimum paid-up capital was PhP5,000. Note however that the minimum paid-in capital imposed by laws other than the Revised Corporation Code for special sectors (such as, the Retail Trade Act, the Foreign Investment Act, the General Banking Law, the Financing Company Act) were not affected Republic Act No. 11232.
These changes are expected to allow investors more flexibility in structuring their businesses.
Other highlights of the Revised Corporation Code are as follows:
- In case of a vacancy in the board of directors, and such vacancy prevents the board from constituting a quorum to act on an emergency situation in order to prevent grave, substantial, and irreparable loss or damage to the corporation, the directors are allowed to temporarily fill the vacancy by unanimously selecting a director from among the existing officers (Section 28). The powers of the “emergency director” are limited to actions pertaining to the emergency situation, and his/her term shall end within a reasonable period after the emergency situation has passed. Previously under the old law, if a vacancy is created either through removal by stockholders or expiration of the term of a director, the board had to wait for a stockholders’ meeting to fill the vacancy.
- As part of efforts to improve ease of doing business, the Revised Corporation Code mandates the SEC to develop and implement an electronic filing and monitoring system.
- The Revised Corporation Code allows electronic transmittal of notices among stockholders and/or directors. It also mandates the SEC to develop an electronic filing and monitoring system (Section 180).
- Stockholders who cannot be physically present during meetings are now allowed to vote through remote communication or in absentia (Section 49). Likewise, directors or trustees may now participate and vote in meetings through remote communication such as videoconferencing or teleconferencing (Section 52).
In a public statement, the Philippine Securities and Exchange Commission (SEC) said the revised law affords more protection to corporations and stockholders and promotes good corporate governance.
“Collectively, the amendments are aimed at encouraging entrepreneurship and the formation of new businesses, improving the ease of doing business in the country, promoting good corporate governance, increasing protection afforded to corporations and stockholders, and deterring corporate abuses and fraud,” read the SEC public statement, quoting Chairperson Emilio Aquino.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.