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Corporate Securities Info

One-person corporation

With the enactment of the Revised Corporation Code (RCC), entrepreneurs may be encouraged to start their business as a corporation rather than as a sole proprietorship.

There are pros and cons in using either facility for that purpose, but, by and large, corporations have proven to be more advantageous in the long run.

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Before, organizing a corporation required getting at least five people to act as incorporators and raising P5,000 as minimum paid-up capital. Meeting that capital requirement was a no-brainer. It was looking for quality incorporators that often posed a problem.

Aside from sharing the entrepreneur’s vision, they should also enjoy his or her trust and confidence. It is common knowledge that when money becomes an issue between friends or relatives, the best of ties could be irreparably frayed.

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The RCC has made life easier for entrepreneurs. They can organize one-person corporations (OPC), or corporations with only one stockholder, and be able to enjoy the rights and privileges that traditionally organized corporations are entitled to.

For obvious reasons, the sole stockholder is the OPC’s sole director and president. Within five days from its incorporation, the OPC has to appoint a treasurer, corporate secretary and other officers as it may deem necessary and inform the Securities and Exchange Commission (SEC) of such appointments.

The RCC says the single stockholder may not be appointed as corporate secretary. The use of the word “may” and not “shall” indicates there is no prohibition for the single stockholder from taking on that job too.

Neither is it required that the treasurer be another person. If the single stockholder appoints himself or herself to be treasurer, he or she shall give a bond to the SEC in such amount as may be required, commit to disburse the OPC’s money according to its articles of incorporation, and renew the bond every two years, or as often as the SEC may require.

All told, therefore, the sole stockholder can concurrently perform the duties of director, president, corporate secretary and treasurer of the OPC.

With the simple organizational setup, OPCs are not obliged to put up a minimum authorized capital stock, unless the business it wants to engage in is governed by a law that requires a certain amount of capital to be placed upfront.

The OPC scheme, however, is not allowed for banks and quasi-banks; preneed, trust and insurance companies; public and publicly listed companies; and non-charted government-owned and -controlled corporations.

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These companies solicit funds from the public or engage in government activities so it is essential they organize and operate under stricter regulatory requirements.

Another plus for OPCs is its exemption from submission and filing of its bylaws, or the procedures to be followed in the conduct of its internal corporate affairs.

That liberality, however, does not mean OPCs are free to do anything they want with their funds or business. The rules that govern other forms of corporations shall, whenever appropriate, also apply to OPCs.

To distinguish OPCs from other corporations and, at the same time, alert the public about its unique character, the letters “OPC” have to be written below or at the end of its corporate name. The three letters may be looked at as a “caveat emptor” notice to whoever wants to do business with an OPC.

This brings us to the question of the extent of the liability of the single stockholder in light of the doctrine that since a corporation has a personality separate and distinct from its stockholders, the latter cannot be held responsible for corporate debts and liabilities.

The rule on separate personality remains applicable to OPCs. With regard to liability, the RCC states that a single stockholder who claims limited liability has the burden of proof of affirmatively showing the OPC is adequately financed.

If the single stockholder cannot prove that the property of the OPC is independent of his or her personal property, he or she shall be jointly and severally liable for the debts and other liabilities of the OPC.

Bottom line, the single stockholder’s assets can, under the situation mentioned above, be made to answer for the OPC’s obligations.

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