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AN OVERVIEW OF THE CHANGES

TO THE CORPORATION CODE OF


THE PHILIPPINES
February 22, 2019
by Disini & Disini Law Office
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Even as laws have been enacted to address emerging markets in the Philippines, the basic law
on corporations – Batas Pambansa Blg. 68, or the Corporation Code – has remained mostly
intact since it went into effect in 1980. It had been noted that the Corporation Code had
numerous stringent incorporation and regulatory requirements which discouraged investors and
Filipino entrepreneurs to enter from entering the local market. [1] These concerns have led to
the enactment of the Revised Corporation Code of the Philippines (Revised Code), signed into
law as Republic Act No. 11232 in February 2019. It has been asserted that this landmark
legislation will remove the barriers hindering the entry of both small and large enterprises in the
market, as well as strengthening and simplifying corporate governance standards for a more
streamlined business environment. [2]

Featured below are some of the key changes introduced by the Revised Code.

FUNDAMENTAL CHANGES

Many of the provisions in the Revised Code introduce dramatic changes that alter the rules for
establishing and maintaining corporations.

One-person corporations. The Revised Code removes the minimum number of incorporators
required to establish a corporation; the old Code had prescribed a minimum of five
incorporators. The Revised Code goes as far as to permit an individual to form a one-person
corporation. The allowance of one-person corporations make it easier for small to medium-sized
business owners to incorporate, thus providing a viable alternative for sole proprietors. (Sec. 10)
Arbitration agreements embedded in articles of incorporation or bylaws. The Revised Code
allows for an arbitration agreement to be provided in the articles of incorporation (AOI) or bylaws
of a corporation. With such an agreement in place, disputes between the corporation, its
stockholders or members that arise from the implementation of AOI or bylaws or from
intracorporate relations shall now be referred to arbitration. Disputes involving criminal offenses
or the interests of third parties remain non-arbitrable. (Sec. 181)

Corporations vested with public interest. The Revised Code refers to corporations vested with
public interest, which are subject to additional regulatory conditions that do not apply to other
corporations. Corporations vested with public interest are required to elect a compliance officer
upon organization. (Sec. 24) They are required to submit additional annual reports to the
Securities and Exchange Commission (SEC), particularly a director/trustee compensation report
and a director/trustee appraisal or performance report. (Sec. 177) Stockholders in such
corporations have the unequivocal right to vote to elect directors or trustees during stockholders
meetings through remote communications or in absentia. (Sec. 23)

Section 22 of Revised Code identifies as corporations vested with public interest those whose
securities are registered with the SEC, those listed with an exchange, those with assets of at
least 50 Million Pesos and having 200 or more holders of shares (with each holding at least 100
shares of a class of its equity shares), banks and quasi-banks, non-stock savings and loan
associations, pawnshops, corporations engaged in money service business, preneed, trust and
insurance companies, and financial intermediaries. The provision requires that at least 20%
composition of the boards of these corporations be independent directors. The SEC is also
authorized to determine other corporations engaged in businesses vested with public interest,
after taking into account relevant factors which are germane to the objective and purpose of
requiring the election of an independent director.

Removal of minimum capital stock requirement. The Revised Code does away with the
minimum capital stock requirement for stock corporations, except as otherwise specifically
provided by special law. The change again works to the benefit of small to medium-sized
enterprises by making it easier for them to incorporate. (Sec. 12)
Indefinite corporate lifespan. The old Code had prescribed a maximum corporate term of 50
years and required corporations to amend their articles of incorporation (AOI) to extend the
corporate life for another fifty-year period. The new Code now provides that a corporation shall
have perpetual existence unless its articles of incorporation provides otherwise. Existing
corporations are even presumed now to have perpetual existence unless the stockholders vote
to retain the original term provided in the AOI, (upon a vote of the stockholders representing a
majority of its outstanding capital stock) or a new specific period (upon a vote to amend the
articles of incorporation by stockholders representing at least 2/3 of the outstanding capital
stock. (Sec. 11)

Revival of corporations whose term had already expired. The new Code expressly allows a
corporation whose term has expired to apply with the SEC for a revival of its corporate
existence, together with all the rights and privileges under its certificate of incorporation. Upon
approval by the SEC, the corporation is deemed revived. The corporation is also granted
perpetual existence unless its application for revival specifies otherwise. (Sec. 11)

Extended period to commence corporate operations. Corporations are now allowed five
years from incorporation to commence operations; the old Code had only allowed two years.
(Sec. 21)

Delinquent corporations. A corporation that had commenced its business may now be placed
by the SEC under delinquent status if it had become inoperative for a period of at least five
years; previously such inactivity was already cause for the revocation of the certificate of
incorporation. A delinquent corporation has two years to resume operations; failure to do so is
cause for the SEC to revoke the certificate of incorporation. (Sec. 21)

Lifting the ban on corporate donations for political parties or candidates. The Revised Code
amends Section 36(9) of the Old Code, which stated that no corporation, domestic or foreign,
shall give donations in aid of any political party or candidate or for purposes of partisan political
activity. The Revised Code now expressly bans only foreign corporations from giving such
donations
TECHNOLOGY-ENABLED CHANGES

The revision of the Corporation Code also integrates technological advances over the last four
decades into the rules governing corporations. The old Code was enacted before the online
age[3], or even the widespread use of the personal computer in the 1980s.[4]

Electronic Notices. The Revised Code allows written notices of regular stockholders meetings to
be sent to all stockholders or members of record through email or such other manner as the
SEC shall allow under guidelines it would prescribe. (Sec. 49) A corporation is also allowed to
specify in its bylaws the means of communications through which meetings would be sent;
these include regular or special stockholders meetings (Sec. 50), meetings to increase or
decrease capital stock (Sec. 37), to sell or dispose assets (Sec. 39), or to invest corporate funds
(Sec. 50)

Remote Participation. The Revised Code now allows members of the board of directors or
trustees of every corporation to participate in meetings through remote communication such as
videoconferencing, teleconferencing or other alternative modes of communication that allow
them reasonable opportunities to participate. (Sec. 52) Stockholders or members may also be
allowed to vote during stockholders meetings through remote communication or in absentia, but
only if the corporate bylaws authorize voting through such means. (Sec. 49) The exception, as
earlier mentioned, is in the case of corporations vested with public interest, where stockholders
and members are entitled to vote to elect directors or trustees through remote communication or
in absentia even without a provision in the bylaws that authorizes voting through those means.

Section 49 of the Revised Code requires the SEC to issue the rules and regulations governing
participation and voting through remote communication or in absentia.

Electronic filing and monitoring system. The Revised Code mandates the SEC to develop and
implement an electronic filing and monitoring system. (Sec. 180) It should be noted that the SEC
already has an existing electronic Company Registration System (CRS) that allows for the
online pre-processing of corporations and partnerships, licensing of foreign corporations,
amendments of the articles of incorporation and other corporate applications requiring SEC
approval. [5]
___________________________
[1] http://www.senate.gov.ph/press_release/2018/1127_drilon1.asp
[2] Id.
[3] https://www.historyextra.com/period/20th-century/a-brave-new-world-the-1980s-home-
computer-boom/
[4] https://thenextweb.com/insider/2011/08/06/20-years-ago-today-the-world-wide-web-opened-
to-the-public/
[5] http://www.sec.gov.ph/online-services/sec-company-registration-system/