Salient Changes under the Revised Corporation Code

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Republic Act No. 11232, otherwise known as the
“Revised Corporation Code of the Philippines” or “RCC”, was signed
into law by President Rodrigo Duterte on 20 February 2019. The RCC
took effect on 23 February 2019, following the completion of its
publication in the Manila Bulletin and the Business Mirror. The new
law updates the almost 39-year old Corporation Code of the
Philippines with the aim of improving the ease of doing business in
the country. Existing corporations affected by the new requirements
of the RCC are given a period of two (2) years to comply (Sec. 185).
Some of the salient amendments to the Corporation Code
include:

1. Organization of Corporations
The RCC removed the absolute requirement of having a minimum of
five (5) individuals in the formation of corporations.
The RCC removed the absolute requirement of having a minimum of
5 individuals in the formation of corporations (Sec. 10). The law now
allows the establishment of a One-Person Corporation (OPC)
composed of a single shareholder, who may be a natural person, a
trust or an estate. A shareholder may acquire all the stocks of an
ordinary stock corporation and apply for the conversion thereof into
an OPC. In terms of liability, the single shareholder claiming limited
liability has the burden of affirmatively showing that the corporation
was adequately financed (Sec. 115, 116, 130, 131).
Stock corporations are still not required to have a minimum
capital stock, unless specifically provided by special law. Notably, in
the revised form of the Articles of Incorporation (AOI), it is no longer
required that the capitalization be in “lawful money of the
Philippines” (Sec. 14). Moreover, the RCC removed the requirement
that 25% of the authorized capital stock be subscribed and that 25%
of the subscribed capital stock be paid for purposes of incorporation
as previously mandated under Section 13 of the Corporation Code,
which was deleted in its entirety (Sec. 12). However, the 25%-25%
requirement was retained for any increase in the authorized capital
stock (Sec. 27).
 The corporate term limit of 50 years has been removed such
that a corporation can now enjoy perpetual existence unless
expressly limited by its AOI. Such perpetual corporate term shall
also apply to corporations incorporated prior to the RCC, unless said
corporations elect to retain a specific corporate term. The new law
also states that a corporation whose term has expired can apply with
the Securities and Exchange Commission (SEC) for the revival of its
corporate existence, 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. Upon the SEC’s approval, the
corporation shall be deemed revived and a certificate of revival of
corporate existence shall be issued giving it perpetual existence,
unless its application for revival provides otherwise (Sec. 11). The
RCC also extends the allowable period for non-use of corporate
charter from 2 years to 5 years from the date of incorporation.  The
certificate of incorporation shall be deemed revoked as of the day
following the end of the 5-year period.  Meanwhile, a corporation
which has commenced its business but subsequently becomes
inoperative for a period of at least 5 years may be deemed a
delinquent corporation and shall have a period of 2 years to resume
operations. Failure to resume operations within the period given by
the SEC shall cause the revocation of its certificate of incorporation
(Sec. 21). 
2. New Classifications of “Corporations Vested with Public
Interest”
In lieu of the expansion of application of the system of Independent
Directors under the Securities Regulation Code (SRC), the RCC has
classified the following corporations vested with public interest,
whose board shall have independent directors constituting at least
20% of such board:
a. Publicly-held corporations under the SRC whose securities are
registered with the SEC, corporations listed with an exchange or with
assets of at least P50,000,000.00 and having 200 or more holders of
shares, each holding at least 100 shares of a class of its equity shares;
b. Banks and quasi-banks, non-stock 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 businesses vested with public
interest similar to the above, as may be determined by the SEC.

3. Board of Directors/Trustees
With the introduction of the OPC, the minimum number of directors
to incorporate is reduced from 5 to 1, while the maximum is retained
at 15 directors. For trustees, however, the RCC has removed the
maximum number which can be elected.  Some of the changes in the
qualification and term of the board of director or trustees include the
removal of the residency requirement for a majority of the board and
the extension of the term of trustees from 1 year to 3 years (Sec. 22).
The new law allows stockholders or members, when authorized by
the By-Laws or by a majority of the board of directors, to vote
through remote communication methods or inabsentia. A
stockholder or member who participates through remote
communication or inabsentia will still be considered present for
purposes of determining the existence of a quorum (Sec. 23).
The RCC empowers the SEC, unilaterally or upon a verified
complaint, and after due notice and hearing, to remove members of
the Board of Directors/Trustees who are determined to be
disqualified to be elected to or to hold such position (Sec. 27).
When there is a vacancy in the Office of the Director/Trustee which
prevents the remaining directors from constituting a quorum and
emergency action is required to prevent irreparable loss or damage
to the corporation, the remaining directors are allowed to
temporarily fill the vacancy from among the officers of the
corporation, thereby constituting an emergency board, subject to
certain requirements (Sec. 28).
4. Corporate Officers
The RCC mandates a corporation vested with public interest to
appoint a Compliance Officer, in addition to the mandatory positions
of President, Treasurer and Corporate Secretary. The law now also
expressly requires that the Treasurer be a resident of the Philippines
(Sec. 24).
The election or non-holding of election of the directors, trustees and
officers of the corporation is required to be reported to the SEC,
which is empowered under certain conditions to summarily order
that an election be held (Sec. 25).
5. Corporate Powers
Under Section 35 of the RCC, additional powers are expressly granted
to corporations, namely: the power to enter into a partnership, joint
venture or any other commercial agreement with a natural person or
another corporation [Sec. 35 (h)]; and, for domestic corporations, the
power to donate to a political party or candidate or for purposes of
partisan political activity [Sec. 35 (j)].
6. Shareholder Actions
The RCC now provides that if the date of the regular meeting of the
stockholders or members is not fixed in the By-Laws, the same shall
be held on any date after April 15 of every year as determined by the
Board of Directors/Trustees. Written notices of regular meetings
may now be sent to stockholders and members through electronic
mail and such other means as may be allowed by the SEC. The right of
stockholders or members to vote may now also be exercised through
remote communication or in absentia, under rules and regulations
to be issued by the SEC governing participation and voting through
remote communication or in absentia, taking into account the
company’s scale, number of shareholders or members, structure, and
other factors consistent with the protection and promotion of
shareholders’ or members’ meetings (Sec. 49 and 57).
The law also allows an arbitration agreement to be included in the
AOI or By-Laws of a corporation (Sec. 181).
7. Corporate Books and Records
If the corporation denies or does not act on a demand for inspection
and/or reproduction of corporate records, the aggrieved stockholder
or member may report such denial or inaction to the SEC, which
shall, within 5 days from receipt of such report, conduct a summary
investigation and issue an order directing the inspection or
reproduction of the requested records. This right to inspect is
expressly made subject to confidentiality rules under prevailing laws
(Sec. 73).
With regard to the financial statements of a corporation, the RCC
provides that if the paid-up capital of the corporation is less than
P600,000.00 or such other amount as may be determined
appropriate by the Department of Finance, the financial statements
may be certified under oath by the President and the Treasurer, and
need not be certified by an independent certified public accountant
(Sec. 74).
8. Foreign Corporations
The new law provides that within 60 days from issuance by the SEC
of a license to transact business to a branch office of a foreign
corporation, said branch must deposit acceptable securities to the
SEC with an actual market value of at least P500,000.00 for the
benefit of present and future creditors of the licensee. In addition,
within 6 months after the fiscal year of the licensee, the SEC may
require the licensee to deposit additional securities or financial
instruments equivalent in market value to 2% of the amount by
which the licensee’s gross income exceeds P10,000,000.00 (Sec.
143).
A domestic corporation who acts as a resident agent of a foreign
corporation must be of sound financial standing and must show
proof that it is in good standing as certified by the SEC (Sec. 144).
9.Investigations, Offenses and Penalties
Under the new law, jurisdiction over party-list organizations is
transferred from the SEC to the Commission on Elections
(COMELEC), subject to the implementing rules to be jointly
promulgated by the SEC and the COMELEC (Sec. 182).
The RCC also enumerates the various specific offenses and their
corresponding penalties, with special emphasis on fraud and graft
and corrupt practices:
a. Unauthorized Use of Corporate Name (Sec. 159);
b. Violation of Disqualification Provision (Sec. 160);
c. Violation of Duty to Maintain Records, to Allow Inspection or
Reproduction (Sec. 161);
d. Willful Certification of Incomplete, Inaccurate, False or Misleading
Statements or Reports (Sec. 162);
e. Independent Auditor Collusion (Sec. 163);
f. Obtaining Corporate Registration Through Fraud (Sec. 164);
g. Fraudulent Conduct of Business (Sec. 165);
h. Acting as Intermediaries for Graft and Corrupt Practices (Sec. 166);
i. Engaging Intermediaries for Graft and Corrupt Practices (Sec. 167);
j. Tolerating Graft and Corrupt Practices (Sec. 168);
k. Retaliation Against Whistleblowers (Sec. 169); and
l. Other Violations of the Code (Sec. 170).
10. Technological Updates
Aside from recognizing stockholder or member votes cast in
absentia via remote communication methods, the new law also
allows the AOI and applications for amendments thereto to be filed
with the SEC in the form of electronic documents, in accordance with
the rules on electronic filing that the SEC will promulgate (Sec. 13).
The SEC is further mandated to implement an electronic filing and
monitoring system to expedite corporate name reservation and
registration, incorporation, submission of reports, notices and
documents required by the RCC (Sec. 180).

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