The Revised Corporation Code
Republic Act No. 11232 aka the Revised Corporation Code (RCC) was signed into law in February 2019. It amended the 38 year old Corporation Code of the Philippines (Batas Pambansa Blg. 68).
It appears that the RCC has largely achieved its purpose to advance business climate, improve the ease of doing business, encourage more investments, strengthen the corporate governance system, and incorporate global best practices.
There are numerous changes brought by the RCC, some of which are as follow:
Term, capitalization, commencement and corporate officers
Perpetual existence. Corporations now have perpetual existence, unless otherwise provided. (Sec 11, RCC) This is a welcome development as in the past, stockholders will suddenly discover that the charters of their corporations have expired resulting in the need to incur expenses for revival.
Capital stock. Corporations are no longer required to have any minimum capital stock and the previous requirement that at least 25 percent of the authorized capital stock must be subscribed with at least 25 percent of that be paid-in has been removed. (Sec. 12 & 14, RCC)
Corporate officers. The RCC lists mandatory corporate officers who shall be the president, treasurer and the corporate secretary. The treasurer must now be a resident of the Philippines and, for corporations vested with public interest, the appointment of a compliance officer is required. (Sec. 24, RCC)
Non-use of corporate charter. If a corporation does not formally organize and commence business within five years, from the previous two years, its charter shall be deemed revoked.
Corporations may also be placed on delinquent status if they had commenced operations but later become inoperative for 5 years. These entities are given 2 years to resume operations. (Sec. 21, RCC)
Formation of corporations
Two to 15 incorporators. Under the old Corporation Code, at least five incorporators who were natural persons were needed to form a corporation. This resulted in situations where office staff, drivers, and kasambahays would stand in as incorporators when in reality they have no capital contribution in the corporation.
The RCC provides that any person, partnership, association or corporation, singly or jointly with others but not more than fifteen in number may organize a corporation. Accordingly, a corporation may be formed with one to not more than fifteen incorporators. (Sec. 10, RCC)
One person corporation. Since a corporation may now be formed with a single stockholder, there is now the One Person Corporation (OPC). The single stockholder shall be the sole director and president of the corporation and, will appoint a treasurer, corporate secretary, and other officers of the OPC. (Secs. 116, 120 to 122, RCC)
An OPC, like other corporations, shall have perpetual existence. Upon the death or incapacity of the sole stockholder, the nominee and alternate nominee shall take the place of the person as director and manage the OPC’s affairs. (Sec. 124, RCC)
Corporations vested with public interest
The RCC identifies corporations which are deemed to be vested with public interest and provides additional requirements for them such as the requirement to appoint independent directors, a compliance officer, and the submission of compensation and appraisal reports to the Securities and Exchange Commission (SEC). As an additional safeguard to stockholders of such corporations, the RCC provides that stockholders are allowed to vote in meetings through remote communications or in absentia in the elections of directors or trustees, regardless of whether the same is authorized or not in the by-laws. (Sec. 22, 24, 23, 177, RCC)
Use of Technology
While the pandemic and remote work ushered in the widespread adoption and acceptance of technology, the RCC had the foresight to include provisions incorporating technology as early as 2019.
Electronic filing and submission. The RCC provides that applications for incorporation and amendments as well as filing and monitoring, corporate name reservation, registration and submission of reports, notices and other documents may be filed electronically with the SEC, which shall issue and implement the proper rules and procedure. (Sec. 13 & 180, RCC)
Remote communication and voting in absentia. Written notices of regular meetings may be sent to all stockholders or members of record through electronic mail or such other manner as the SEC shall allow under its guidelines (sec. 49, RCC)
The RCC provides for voting through remote communication or in absentia for stockholders or members of corporations. There shall be rules governing the voting and the corporation must establish the proper procedures. (Sec. 49 & 57, RCC)
On the other hand, directors or trustees who cannot physically attend or vote at board meetings can participate and vote through remote communication such as videoconferencing, teleconferencing, or other alternative modes of communication that allow them reasonable opportunities to participate. However, directors or trustees cannot attend or vote by proxy at board meetings. (Sec. 52, RCC)
Inspection of corporate records
Corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation. While the inspection provision was already found in the old Corporation Code, the RCC has provided clearer guidelines on the parameters of requests, persons who may be liable for refusing the requests and acceptable defenses for refusing inspections. (Sec. 73, RCC)
Arbitration agreement
Recognizing that settlement of disputes through arbitration may be a quicker way to resolve disputes and, keeping in mind the clogged dockets of the Courts, the RCC has given Arbitration a special focus.
Infighting and disputes by stockholders in a corporation may be inevitable and the RCC provides that an Arbitration Agreement may be included in the charter of the corporation which shall be binding on the corporation, its directors, trustees, officers, and executives or managers. (Sec. 181, RCC)
An arbitration agreement may be included in the articles of incorporation or bylaws of an unlisted corporation and, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations, shall be referred to arbitration. A dispute shall be non-arbitrable when it involves criminal offenses and interests of third parties.
The SEC issued its Memorandum Circular No. 8 dated September 19, 2022 which provide the Guidelines on Arbitration of Intra- Corporate Disputes for Corporations.
Foreign corporations
The RCC provides that within sixty days from the issuance of the SEC license to transact business in the Philippines, the branch of the foreign corporation shall deposit with the SEC for the benefit of present and future creditors of the licensee in the Philippines, securities satisfactory to the SEC, with an actual market value of at least PhP500,000.
Aside from that, within six months after each fiscal year of the licensee, the SEC shall require the licensee to deposit additional securities or financial instruments equivalent in actual market value to two percent of the amount by which the licensee’s gross income for that fiscal year exceeds P10,000,000. The amounts have been increased by the RCC from P100,000 and P5,000,000, for the actual market value of the security and gross income threshold under the old Corporation Code. (Sec. 143, RCC)
Those corporations already existing upon the effectivity of the RCC who may be affected by its changes and new requirements have been given two years to comply. (Sec. 185, RCC)
(The author, Atty. John Philip C. Siao, is a practicing lawyer and Co-Managing Partner of Tiongco Siao Bello & Associates Law Offices, a Professor at the MLQU School of Law, and an Arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)
