BM1905

POWERS OF A CORPORATION PT. 5

Code of Corporate Governance
Definition of Terms
a) Corporate governance – The system of stewardship and control to guide organizations in fulfilling their
long-term economic, moral, legal and social obligations towards their stakeholders.
It is a system of direction, feedback, and control using regulations, performance standards, and ethical
guidelines to hold the Board and senior management accountable for ensuring ethical behavior –
reconciling long-term customer satisfaction with shareholder value – to the benefit of all stakeholders and
society.
Its purpose is to maximize the organization’s long-term success, creating sustainable value for its
shareholders, stakeholders, and the nation.
b) Board of directors – The governing body elected by the stockholders that exercises the corporate powers
of a corporation, conducts all its business and controls its properties.
c) Exchange – An organized market place or facility that brings together buyers and sellers, and executes
trades of securities and/or commodities.
d) Management – The body given the authority by the Board of Directors to implement the policies it has laid
down in the conduct of the business of the corporation.
e) Independent director – A person who, apart from his fees and shareholdings, is independent of
management and free from any business or other relationship which could, or could reasonably be
perceived to, materially interfere with his exercise of independent judgment in carrying out his
responsibilities as a director.
f) Executive director – A director who is also the head of a department or unit of the corporation or performs
any work related to its operation.
g) Non-executive director – A director who is not the head of a department or unit of the corporation nor
performs any work related to its operation.
h) Non-audit work – The other services offered by an external auditor to a corporation that are not directly
related and relevant to its statutory audit functions, such as, accounting, payroll, bookkeeping,
reconciliation, compute project management, data processing, or information technology outsourcing
services, internal audit, and other services that may compromise the independence and objectivity of an
external auditor.
i) Internal control – The system established by the Board of Directors and Management for the
accomplishment of the corporation’s objectives, the efficient operation of its business, the reliability of its
financial reporting, and faithful compliance with applicable laws, regulations and internal rules.
j) Internal control system – The framework under which internal control is developed and implemented (alone
or in concert with other policies or procedures) to manage and control a particular risk or business activity,
or combination of risks or business activities, to which the corporation is exposed.
k) Internal audit – An independent and objective assurance activity designed to add value to and improve the
corporation’s operations, and help it accomplish its objectives by providing a systematic and disciplined
approach in the evaluation and improvement of the effectiveness of risk management, control, and
governance processes.
l) Internal audit department – A department or unit of the corporation and its consultants, if any, that provide
independent and objective assurance services in order to add value to and improve the corporation’s
operations.
m) Internal auditor – The highest position in the corporation responsible for internal audit activities. If internal
audit activities are performed by outside services providers, he is the person responsible for overseeing
the service contract, the overall quality of these activities, and follow-up of engagement results.

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The Board’s Governance Responsibilities

Principle 1: The company should be headed by a competent, working board to foster the long-term success of
the corporation, and to sustain its competitiveness and profitability in a manner consistent with its
corporate objectives and the long-term best interests of its shareholders and other stakeholders.
Principle 2: The fiduciary roles, responsibilities, and accountabilities of the Board as provided under the law, the
company’s articles and by-laws, and other legal pronouncements and guidelines should be clearly
made known to all directors as well as to stockholders and other stakeholders.
Principle 3: Board committees should be set up to the extent possible to support the effective performance of
the Board’s functions, particularly with respect to audit, risk management, related party
transactions, and other key corporate governance concerns, such as nomination and remuneration.
The composition, functions, and responsibilities of all committees established should be contained
in a publicly available Committee Charter.
Principle 4: To show full commitment to the company, the directors should devote the time and attention
necessary to properly and effectively perform their duties and responsibilities, including sufficient
time to be familiar with the corporation’s business.
Principle 5: The Board should endeavor to exercise objective and independent judgment on all corporate affairs.
Principle 6: The best measure of the Board’s effectiveness is through an assessment process. The Board should
regularly carry out evaluations to appraise its performance as a body, and assess whether it
possesses the right mix of backgrounds and competencies.
Principle 7: Members of the Board are duty-bound to apply high ethical standards, taking into account the
interests of all stakeholders.
Disclosure and Transparency
Principle 8: The company should establish corporate disclosure policies and procedures that are practical and
in accordance with best practices and regulatory expectations.
Principle 9: The company should establish standards for the appropriate selection of an external auditor, and
exercise effective oversight of the same to strengthen the external auditor’s independence and
enhance audit quality.
Principle 10: The company should ensure that material and reportable non-financial and sustainability issues
are disclosed.
Principle 11: The company should maintain a comprehensive and cost-efficient communication channel for
disseminating relevant information. This channel is crucial for informed decision-making by
investors, stakeholders, and other interested users.
Internal Control System and Risk Management Framework
Principle 12: To ensure the integrity, transparency, and proper governance in the conduct of its affairs, the
company should have a strong and effective internal control system and enterprise risk
management framework.
Cultivating a Synergic Relationship with Shareholders
Principle 13: The company should treat all shareholders fairly and equitably, and also recognize, protect, and
facilitate the exercise of their rights.
Duties to Stakeholders
Principle 14: The rights of stakeholders established by law, by contractual relations and through voluntary
commitments must be respected. Where stakeholders’ rights and/or interests are at stake,
stakeholders should have the opportunity to obtain prompt effective redress for the violation of
their rights.
Principle 15: A mechanism for employee participation should be developed to create a symbiotic environment,
realize the company’s goals, and participate in its corporate governance processes.

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Principle 16: The company should be socially responsible in all its dealings with the communities where it
operates. It should ensure that its interactions serve its environment and stakeholders in a positive
and progressive manner that is fully supportive of its comprehensive and balanced development.
SEC Circulars and Issuance
Filing of General Information Sheet (GIS)
(1) SEC collects from incorporators, stockholders, directors, trustees, officers, beneficial owners, external
auditor, notary public, personal information such as but not limited to full name, signature, nationality,
sex, address, accreditation number, roll of attorney number and taxpayer information number.
(2) SEC collects, uses, and/or processes personal information based on submitted and filed GIS forms and
related paper documents.
(3) SEC is mandated by the Corporation Code and the Securities Regulation Code to regulate the corporate
sector and the securities markets. The collected personal information will be utilized for regulatory
purposes pursuant to our statutory functions to ensure full and timely disclosure of material information,
protect the investors, and minimize if not eliminate fraudulent or manipulative devices and practices that
create distortion in a free market. Further, the SEC, as supervising authority, is mandated to assist the
Anti-Money Laundering Council (AMLC) in effectively implementing the provisions of the Anti-Money
Laundering Act, and to obtain, keep and make accessible information necessary to detect and prevent
money laundering and terrorist financing in the country.
SEC is also mandated by Executive Order No. 2 (2016) or the Freedom of Information (FOI) regulation,
to provide every Filipino access to information, official records, public records and to documents and
papers pertaining to official acts, transactions or decisions, as well as to government research data
used as basis for policy development. Thus, SEC treats the GIS as public record which is available to
the public.
SEC shares with and makes available the GIS to interested parties in order to fulfill the aforementioned
functions and mandate, for purposes such as:
a. Complying with court orders, subpoenas and/or other legal obligations;
b. Complying with requests from law enforcement agencies in the conduct of their investigations;
c. Complying with requests from regulatory and administrative agencies in the conduct of their
investigations, due diligence and policy and research studies;
d. Sharing of information with domestic and international organizations and other researchers for their
research initiatives;
e. Complying with requests from investing public, prospective business partners and clients in the
conduct of due diligence of companies and their stockholders and officers including their personal
and financial information to enable them to form an informed investment and business decision;
f. Determining the compliance of companies and their stockholders with foreign ownership limitations
in cases where the entities are engaged in fully or partially nationalized activities;
g. Monitoring the effect of the securities issue on ownership, on the mix of ownership, especially
foreign and local ownership;
h. Monitoring the companies’ implementation of good corporate governance practice of having board
diversity in terms of gender, age, ethnicity, culture, skills, competence and knowledge;
i. Complying with the requests from claimants against companies and their stockholders and officers
in the enforcement of their legal claims through the addresses provided in the gis;
j. Complying with the bureau of internal revenue requirement to reflect the valid taxpayer information
number of the companies and their stockholders and officers, and discourage and prevent the use
of fake and multiple tins in corporate and business transactions.
k. Complying with legal mandate to provide true, correct, timely and complete information such that
the filing is under oath.
(4) By indicating in the GIS the personal information of the incorporators, stockholders, directors, trustees,
officers, beneficial owners, external auditor, notary public and their agents, you attest that the
aforementioned persons authorize the SEC to: (1) Collect, process and store their personal information
through the GIS forms and related documents, for the period allowed under the applicable laws and
regulations; (2) Share with and make available the GIS to interested parties in order to pursue lawful
purposes and legitimate interests, and comply with legal mandate.

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Requirements:
(1) The number of copies to be submitted from five (5) to four (4) copies;
(2) The requirement of Tax Identification Number (TIN) for foreign nationals who are directors/trustees,
officers, stockholders/members and resident agents of both domestic and foreign corporations instead
of the passport in accordance with Memorandum Circular No. 1, series of 2013;
(3) Inclusion of “Gender/Sex” in the page for directors, trustees and officers in accordance with the
Commission’s Resolution No. 227, series of 2013; and
(4) Inclusion of page 1-A pursuant to Anti-Money Laundering Act, as amended.
Filing of Annual Audited Financial Statements (SEC Memorandum Circular No. 1, Series of 2019)
For companies whose fiscal year ends on December 31, 2018:
(1) All corporations, including branch offices, representative offices, regional headquarters, and regional
operating headquarters of foreign corporations, shall file their AFS depending on the last numerical digit
of their SEC registration or license number in accordance with the following schedule:
April 22, 23, 24, 25, 26 1 and 2
April 29, 30, May 2 & 3 3 and 4
May 6, 7, 8, 9, 10 5 and 6
May 20, 21, 22, 23, 24 7 and 8
May 27, 28, 29, 30, 31 9 and 0

(2) For Broker Dealer whose fiscal year ends on December 31, SEC Form 52-AR shall be filed with the
Commission depending on the last numerical digit of its registration number as prescribed by the
Commission.
(3) To those whose securities are listed on the Philippine Stock Exchange (PSE) and those whose
securities are registered but not listed in PSE and public companies. Covered under Sec. 17.2 of the
Securities Regulation Code (SRC). These entities shall continue to observe the due date of filing of their
AFS (within 105 calendar days after the end of fiscal year) as attachment to their Annual Reports (SEC
Form 17-A), in accordance with the Implementing Rules and Regulations of Securities Regulation Code.
(4) To those AFS are being audited by the Commission on Audit (COA) provided that the following
documents are attached to their AFS:
a. An affidavit signed by the President and Treasurer (or Chief Finance Officer, where applicable)
attesting to the fact that the company timely provided COA with the financial statements and
supporting documents and that the audit of COA has just been concluded; and
b. A letter from COA confirming the information provided in the above affidavit.
(5) Late filings or filing after respective due dates shall be accepted starting June 3, 2019 and shall be
subject to the prescribed penalties which shall be computed from the date of the last day of filing
schedule.
(6) The AFS, other than the consolidated financial statements, shall have the stamped “received by the
Bureau of Internal Revenue (BIR) or its authorized banks, unless the BIR allows an alternative proof of
submission for its authorized banks.”
(7) Failure to comply with any of the formal requirements shall be considered a sufficient ground for the
imposition of penalties by SEC. The acceptance and receipt by the Commission of the financial
statements shall be without prejudice to such penalties.
For companies whose fiscal year ends on a date other than December 31, 2018:
 These entities shall file their AFS within 120 calendar days from the end of their fiscal year.
 Broker Dealers whose fiscal year ends on date other than December 31 shall file SEC Form 52-AR,
110 calendar days after those the close of such fiscal year.
Filing of Articles of Incorporation, By-Laws, and its Amendments
 Articles of Incorporation and its Amendments
Requirements:
(1) Amended AI

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(2) Directors’ or trustees’ certificate notarized and signed by majority of the directors or trustees and the
corporate secretary indicating the following:
a. The amendment of the AI and indicate the amended provisions
b. The vote of the directors or trustees and stockholders or members
c. The date and place of the stockholders’ or members’ meeting
d. The tac identification of the signatories (to be placed below their names)
(3) Notarized secretary’s certificate indicating no pending cases of intracorporate dispute
(4) Compliance Monitoring Division (CMD) clearance and/or clearances from a similar department of the
Commission
 By-Laws
Requirements:
(1) Board of directors’ majority votes
(2) Votes of owners of outstanding capital stock (for stock corporations)
(3) Votes of members (for non-stock corporations)
(4) Must be filed with the SEC, attached to the original AI and original by-laws. The copy to be submitted
to the SEC must be certified by the corporate secretary and majority of the directors and trustees.
Fines and Penalties
For Stock Corporations
LEGAL BASIS/
SUBJECT VIOLATION FIRST OFFENSE SECOND OFFENSE THIRD OFFENSE
REPORT
The basis of the penalty Total fine plus 10% of the Total fine plus 15% of
is the “Total Assets” total fine computed the total fine computed
reported in the latest
Financial Statements
General
Information Sheets Up to P100,000: 500
and Late Filing 100,001 to 500,000:
Annual Financial 1,500
Statements 500,001 to 5,000,000:
2,500
5,000,001 to 10,000,000:
3,500
Above 10,000,000: 5,000
The basis of the penalty Total fine plus 10% of the Total fine plus 15% of
is the “Total Assets” total fine computed the total fine computed
reported in the latest
Financial Statements
General
Up to P100,000: 1,000
Information Sheets
100,001 to 500,000:
and Non-Filing
3,000
Annual Financial
500,001 to 5,000,000:
Statements
5,000
5,000,001 to 10,000,000:
7,000
Above 10,000,000:
10,000
The basis of the penalty The basis of the penalty is The basis of the penalty
is the “Total Assets” the “Total Assets” is the “Total Assets”
Annual Financial Material
reported in the latest reported in the latest reported in the latest
Statements Deficiency
Financial Statements Financial Statements Financial Statements

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LEGAL BASIS/
SUBJECT VIOLATION FIRST OFFENSE SECOND OFFENSE THIRD OFFENSE
REPORT
Up to P100,000: 500 Up to P100,000: 1,000 Up to P100,000: 2,000
100,001 to 500,000: 100,001 to 500,000: 2,000 100,001 to 500,000:
1,000 500,001 to 5,000,000: 4,000
500,001 to 5,000,000: 4,000 500,001 to 5,000,000:
2,000 5,000,001 to 10,000,000: 8,000
5,000,001 to 10,000,000: 6,000 5,000,001 to
3,000 Above 10,000,000: 8,000 10,000,000: 12,000
Above 10,000,000: 4,000 Above 10,000,000:
16,000
An amount based on the An amount based on the An amount based on
Material above scale or 1/10 of above scale or 2/10 of 1% the above scale or 4/10
Misstatement or 1% of the amount of of the amount of of 1% of the amount of
Misrepresentation misstatement, whichever misstatement, whichever misstatement,
is higher is higher whichever is higher
The basis of the penalty The basis of the penalty is The basis of the penalty
is the “Total Assets” the “Total Assets” is the “Total Assets”
reported in the latest reported in the latest reported in the latest
Financial Statements Financial Statements Financial Statements

Other Non- Up to P100,000: 200 Up to P100,000: 400 Up to P100,000: 800

Compliance with 100,001 to 500,000: 300 100,001 to 500,000: 600 100,001 to 500,000:
the Requirements 500,001 to 5,000,000: 500,001 to 5,000,000: 1,200
of SRC Rule 68 500 1,000 500,001 to 5,000,000:
5,000,001 to 10,000,000: 5,000,001 to 10,000,000: 2,000
1,000 2,000 5,000,001 to
Above 10,000,000: 2,000 Above 10,000,000: 4,000 10,000,000: 4,000
Above 10,000,000:
8,000

For Non-Stock Corporations

LEGAL BASIS/
SUBJECT VIOLATION FIRST OFFENSE SECOND OFFENSE THIRD OFFENSE
REPORT
The basis of the penalty Total fine plus 10% of the Total fine plus 15% of
is the “Total Assets” total fine computed the total fine computed
reported in the latest
Financial Statements
General
Information Sheets
Up to P100,000: 250
and Late Filing
100,001 to 500,000: 750
Annual Financial
500,001 to 5,000,000:
Statements
1,250
5,000,001 to 10,000,000:
1,750
Above 10,000,000: 2,500
The basis of the penalty Total fine plus 10% of the Total fine plus 15% of
General
is the “Total Assets” total fine computed the total fine computed
Information Sheets
reported in the latest
and Non-Filing
Financial Statements
Annual Financial
Statements
Up to P100,000: 500

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LEGAL BASIS/
SUBJECT VIOLATION FIRST OFFENSE SECOND OFFENSE THIRD OFFENSE
REPORT
100,001 to 500,000:
1,500
500,001 to 5,000,000:
2,500
5,000,001 to 10,000,000:
3,500
Above 10,000,000: 5,000
The basis of the penalty The basis of the penalty is The basis of the penalty
is the “Total Assets” the “Total Assets” is the “Total Assets”
reported in the latest reported in the latest reported in the latest
Financial Statements Financial Statements Financial Statements

Up to P100,000: 200 Up to P100,000: 400 Up to P100,000: 800

Annual Financial Material 100,001 to 500,000: 300
Statements Deficiency 500,001 to 5,000,000:
500
5,000,001 to 10,000,000:
1,000
Above 10,000,000: 2,000
An amount based on the
Material above scale or 1/10 of
Misstatement or 1% of the amount of
Misrepresentation misstatement, whichever
is higher
The basis of the penalty
is the “Total Assets”
reported in the latest
Financial Statements
100,001 to 500,000: 600
500,001 to 5,000,000:
1,000
5,000,001 to 10,000,000:
2,000
Above 10,000,000: 4,000
An amount based on the
above scale or 2/10 of 1%
of the amount of
misstatement, whichever
is higher
The basis of the penalty is
the “Total Assets”
reported in the latest
Financial Statements
100,001 to 500,000:
1,200
500,001 to 5,000,000:
2,000
5,000,001 to
10,000,000: 4,000
Above 10,000,000:
8,000
An amount based on
the above scale or 4/10
of 1% of the amount of
misstatement,
whichever is higher
The basis of the penalty
is the “Total Assets”
reported in the latest
Financial Statements

Other Non- Up to P100,000: 200 Up to P100,000: 400 Up to P100,000: 800

Compliance with 100,001 to 500,000: 300 100,001 to 500,000: 600 100,001 to 500,000:
the Requirements 500,001 to 5,000,000: 500,001 to 5,000,000: 1,200
of SRC Rule 68 500 1,000 500,001 to 5,000,000:
5,000,001 to 10,000,000: 5,000,001 to 10,000,000: 2,000
1,000 2,000 5,000,001 to
Above 10,000,000: 2,000 Above 10,000,000: 4,000 10,000,000: 4,000
Above 10,000,000:
8,000

REFERENCES:
Aquino, T.B. (2014). Philippine corporate law compendium. Quezon City: Rex Printing Company, Inc.
De Leon, H.S. & De Leon, H.M. (2013). The corporation code of the Philippines. Quezon City: Rex Printing Company, Inc.
How to amend articles of incorporation and by-laws. (2018). Retrieved July 9, 2019, from http://www.filepino.com/how-to-amend-articles-
of-incorporation-and-by-laws
Securities and Exchange Commission. (2016). Code of corporate governance for publicly-listed companies. Retrieved July 7, 2019, from
https://www.sec.gov.ph/wp-content/uploads/2016/12/2016_memo_circular_no.19.pdf
Securities and Exchange Commission. (n.d.). Consolidated scale of fines. Retrieved July 7, 2019, from http://www.sec.gov.ph/wp-
content/uploads/2015/11/CONSOLIDATED-SCALE-OF-FINES-05-Nov-2013-26-Nov-2013.pdf
Securities and Exchange Commission. (n.d.). general information sheet (GIS). (n.d.). Retrieved July 9, 2019, from
http://www.sec.gov.ph/general-information-sheet-gis
Securities and Exchange Commission. (2019). 2019 filing of annual financial statements and general information sheet. Retrieved July 7,
2019, from http://www.sec.gov.ph/wp-content/uploads/2019/04/2019MCNo01.pdf

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