Authored by Maria Christina J. Macasaet-Acaban, Ina Alexandra A. Dominguez and Joemyl J. Baloro
Recent Developments
On 20 February 2019, Philippine President Rodrigo Duterte signed into law Republic Act (RA) No. 11232 or the Revised Corporation Code of the Philippines (Revised Code). The Revised Code expressly repeals Batas Pambansa Blg. 68 or the Corporation Code of the Philippines, and aims to improve the ease of doing business in the country.
The Revised Code took effect on 23 February 2019.
What the regulation says
The Revised Code initiates significant changes to the legal framework for the registration and operation of private corporations in the Philippines, including the following:
A. Simplifying Corporate Registration
The Revised Code simplifies the requirements to set-up and register a corporation with the SEC. The provisions of the new law likewise expressly recognize the importance of technology and its use to facilitate government and internal corporate processes.
1. Removal of minimum number of shareholders, directors, trustees, and minimum capitalization requirements
The Revised Code no longer requires five shareholders to establish a new corporation. It has also removed, subject to compliance with special laws, the minimum subscribed and paid-up capital requirement for stock corporations.
2. One Person Corporation
The new law permits natural persons, trusts or estates to form One Person Corporations, with the single shareholder becoming, by default, the sole director and president.
3. Perpetual existence
Under the Revised Code, a corporation shall have perpetual existence unless its articles of incorporation provide otherwise. This new law repeals the prior 50 year maximum corporate term.
The new law grants perpetual existence to corporations whose corporate terms have not yet expired. Corporations who intend to be bound by a specific corporate term must notify the SEC.
A corporation whose corporate term has expired may submit an application to the SEC for a revival of its corporate existence, together 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.
4. Electronic Filing and Monitoring System
In line with the government's drive to eliminate red tape and streamline government procedures, the Revised Code mandates the SEC to develop and implement a system to enable electronic submission of applications, reports and other documents, as well as the sharing of pertinent information with other government agencies.
5. Electronic notices and remote communication
Shareholders and directors are expressly allowed to participate in meetings through remote communication.
To encourage efficient communication of notices to the shareholders, members, directors or trustees, the Revised Code permits sending of notices by electronic means.
B. Strengthening Corporate Governance
The Revised Code also aims to improve corporate governance and protection of minority shareholders, through the following provisions:
1. Appointment of Independent Directors and Compliance Officer
The new law requires a corporation vested with public interest[1] to have (i) a board with independent directors occupying at least 20% of its board seats, and (ii) a compliance officer.
An independent director is one, who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or relationship which could (or could reasonably be perceived to) materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
2. Additional reporting requirements
Apart from the annual financial statements and general information sheets required for all corporations, a corporation vested with public interest must also submit (i) a director compensation report; and (ii) a director appraisal or performance report, which should include the standards or criteria used to assess each director.
3. Emergency Board
In the event an emergency action is required to prevent grave, substantial and irreparable loss or damage to the corporation, and the current number of directors is not enough to constitute a quorum, the Revised Code permits the appointment of a temporary director to fill in the vacancy, by the unanimous vote of the remaining directors.
The action by the temporary director shall be limited to the emergency action necessary, and his term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement director, whichever comes earlier.
C. Other Important Provisions
Other notable amendments introduced by the new law include the following:
1. The corporate articles of incorporation and/or bylaws may include an arbitration agreement for intra-corporate disputes. In order to be valid, the provision must specifically mention the number of arbitrators and manner of their appointment.
2. The minimum amount of security deposit required for foreign corporations doing business in the Philippines is increased from PhP 100,000 to PhP 500,000.
3. A person required to file a report with the SEC may redact confidential information from such report. The confidential information shall be filed in a supplemental report labelled "confidential", together with a request for confidential treatment of the report and the specific grounds for the grant thereof.
Actions to Consider
Clients are advised to (1) familiarize themselves with changes to the requirements and procedures brought about by the Revised Code, and (2) consider how to incorporate the new arrangements initiated by the Revised Code in their business model and operations. The Revised Code grants a grace period of two years, from the Revised Code's effectivity, for existing corporations to comply with the new requirements of the new law.
Quisumbing Torres may continue to assist you in understanding this new law, and how its provisions may impact your business.
[1] (a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The Securities Regulation Code", namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least Fifty Million Pesos (PhP 50,000,000) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares;
(b) Banks and quasi-banks, nonstock 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 the businesses vested with public interest similar to the above, as may be determined by the Commission, after taking into account relevant factors which are germane to the objective an purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations and other analogous factors.