The amended Corporation Code allows the formation of a corporation by a single person and

grants a perpetual corporate term

MANILA, Philippines – Doing business in the Philippines is about to get easier, thanks to the
amendments made to the 38-year-old Corporation Code.

President Rodrigo Duterte signed on Wednesday, February 20, Republic Act No. 11232 or the
law which relaxes several procedures in setting up a business in the country.

One-person corporation

The new Corporation Code now allows the formation of a corporation by a single person or one
stockholder.

The old code required at least 5 stockholders in the formation of corporations.

It also removes the provision setting a minimum on the authorized capital stock.

The Securities and Exchange Commission (SEC) said this amendment allows more flexibility in
pursuing business because the lone stockholder can make decisions without having to seek board
consensus.

"It also affords greater protection to the stockholder by limiting liability to the corporate entity,"
the SEC said.

Perpetual corporate term

The amended law also grants a perpetual corporate term for existing and future corporations,
unless specified in their articles of incorporation.

The old code set a 50-year term.

The SEC said this amendment would eliminate the possibility of businesses prematurely closing
down because they failed to renew their registration.
Moreover, the new law allows corporations with expired registration papers to revive their
businesses.

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E-filing, remote communication

The new law was also crafted to better suit the modern times.

It mandates the SEC to implement an electronic filing and monitoring system.

"So far, the commission has implemented a fully automated and online company registration
system for the pre-processing of corporations and partnerships, licensing of foreign corporations,
amendments of the articles of incorporation and other corporate applications requiring its
approval," the SEC said.

The new law also allows the use of videoconferencing and teleconferencing during stockholder
meetings.

Stockholders may participate and vote in absentia or without being personally in the meeting.

Directors or trustees may also participate and vote in regular and special meetings through
remote communication. However, they cannot join or cast their votes by proxy at board
meetings.

Other features

The new also has a provision for an emergency board when a vacancy in a corporation's board of
directors prevents the remaining directors from constituting a quorum and consequently from
making emergency actions required to prevent grave, substantial, and irreparable loss or damage.

The vacancy may be temporarily filled from among the officers of the corporation by a
unanimous vote of the remaining directors or trustees.

The corporation must then notify the SEC within 3 days from the creation of the emergency
board.
Meanwhile, the amendments allow corporations to adopt alternative dispute resolution
mechanisms for intra-corporate issues except those involving criminal offenses and interests of
third parties.

"Collectively, the amendments are aimed at encouraging entrepreneurship and the formation of
new businesses, improving the ease of doing business in the country, promoting good corporate
governance, increasing protection afforded to corporations and stockholders, and deterring
corporate abuses and fraud," SEC Chairman Emilio Aquino said.

The Philippines lags in the ease of doing business worldwide ranking, currently at 124th out of
190 countries. (READ: Ease of doing business: Why is the PH rank plummeting?)

AN OVERVIEW OF THE CHANGES TO THE CORPORATION CODE OF THE

PHILIPPINES
February 22, 2019 by Disini & Disini Law Office 0 comments
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]

By: Roderick R.C. Salazar III

[Editor’s note: This is the second of a two-part article on the provisions of the
Revised Corp. Code of the Philippines (R. A. 11232).   The first part can be
read here .]
Corporate Governance
– introduced as a new concept and recurring theme; also strengthens minority
protection; Directors’ and officers’ accountability;
While the term “corporate governance” is not defined in the Revised Corp. Code, it
is used significantly and new provisions were added so that corporation can practice
good governance and in the process, protect minority stockholders. Directed at
corporations vested with public interest such as listed companies, banks, quasi-
banks, pawnshops, money service business, preneed, trust and insurance companies,
and other financial intermediaries.
SEC Memorandum Circular No. 9, s. 2014 – defined corporate governance as: “the
framework of rules, systems and processes in the corporation that governs the
performance of the Board of Directors and management of their respective duties
and responsibilities to stockholders and other stakeholders which include, among
others, customers, employees, suppliers, financiers, government and community in
which it operates.”
1. SEC Mandate – The SEC is granted the authority to promote corporate
governance and the protection of minority investors through, among others, the
issuance of rules and regulations consistent with international best
practices – 179
2. Independent Directors – required for corporations vested with public
interest – 22
3. Duties of Directors – The directors or trustees elected shall perform their
duties as prescribed by law, rules of good corporate governance, and by-laws of
the corporation – 23
4. Voting by shareholders through remote communication or  in absentia – is
now allowed – 23 and Sec. 49.
5. Compliance officer – required for corporations vested with public
interest – 24
6. Adds grounds for disqualification of Directors/Trustees/Officers  – (a) for
violating Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”; (b) found administratively liable for any offense involving
fraud acts; and (c) by a foreign court or equivalent foreign regulatory authority
for similar acts, violations or misconduct resulting in conviction by final
judgment. 26
7. Total compensation of each director  – of corporations vested with public
interest are required to be disclosed –  29.
8. Compensation of Directors  – Directors are prohibited from participating in
the determination of their own per diems or compensation –  29.
9. The rule on self-dealing Directors  – is expanded to cover contracts of the
corporation with spouses and relatives within the fourth civil degree of
consanguinity or affinity of a director of officer –  31; A director who has
potential interest in any related party transaction must recuse from voting on the
approval of the related party transaction –  Sec. 52
10. Higher voting threshold – including the vote of a majority of the
independent directors, is required for certain contracts of directors or officers
in a corporation vested with public interest –  31 (d)
11. Foreign corporations are not allowed to give donations in aid of any political
party or candidate or for purposes of partisan political activity –  35 (i)
12. Reference is made to the required  approval of the Philippine Competition
Commission for sale or disposition of corporate assets –  39; increase or
decrease in capital or incurring or increasing any bonded indebtedness –  Sec.
37; or merger or consolidation, of corporations –  Sec. 78 – threshold of P5.2B
for Party Size and P2.2B for Transaction Size.
13. The bylaws may provide matters – necessary for the promotion of good
governance and anti-graft and corruption measures –  46 (k).
14. Expanded Information to be provided by directors/trustees to stockholders
at their regular meetings – minutes of stockholders meeting should now include
additional information; items in the interest of good corporate governance and
the protection of minority stockholders; list of stockholders/members with
voting rights; assessment of corporation’s performance; financial report;
dividend policy; directors/trustees profiles; directors/trustees attendance
report; appraisal and performance reports for the board; compensation report;
self-dealing directors and transactions  – 49
15. The notice of stockholders’ meeting –  is required to be accompanied by: (i)
the agenda for the meeting; (ii) a proxy form; (iii) the requirement and
procedures to be followed by a stockholder who elects to participate by remote
communication or in absentia, if such is allowed; (iv) the requirements and
procedure for nomination and election, if the meeting is for election of
directors – 50
16. Chairman as Presiding Officer , unless the bylaws provide otherwise – 53
– previously, it was the President that was recognized by the old Corp. Code.
17. Right of Inspection Expanded – 73 – (a) AOI, By-laws and amendments; (b)
Current ownership structure and voting rights of the corporation, including
lists of stockholders or members, group structures, intra-group relations,
ownership data, and beneficial ownership; (c) Names and Addresses of the
board of directors or trustees and the executive officers; (d) A record of all
business transactions; (e) A record of the board and stockholders resolutions;
(f) Copies of the latest reportorial requirements submitted to the SEC; and (g)
The minutes of all meetings of stockholders or members, or of the board of
directors or trustees – with more details required.  The inspecting or
reproducing party shall remain bound by confidentiality rules for trade secrets
or processes under R.A. No. 8293 – the “Intellectual Property Code of the
Philippines”, as amended, R.A. No. 10173 – the “Data Privacy Act of 2012”,
R.A. No. 8799, otherwise known as “The Securities Regulation Code”, and the
Rules of Court. Right of Inspection is NOT open to a non-stockholder or non-
member, or a competitor, director, officer, controlling stockholder or otherwise
represents the interests of a competitor.
18. Identifies and penalizes new offenses
1. Unauthorized use of corporate name – 159
2. Violation of disqualification provision –  160
3. Violation of duty to maintain records –  161
4. Willful certification of incomplete, inaccurate, false or misleading
statements or reports – 161
5. Collusion of an independent auditor – 163
6. Obtaining corporate registration through fraud –  Sec. 164
7. Fraudulent conduct of business – Sec. 165
8. Acting as intermediaries for graft and corrupt practices –  Sec. 166
9. Engaging intermediaries for graft and corrupt practices –  167
10. Tolerating graft and corrupt practices-  168
2. Retaliation against whistleblowers  – 169 – persons who provide truthful
information relating to the commission or possible commission of any offense
or violation of the Revised Corp. Code – a person who retaliates against a
whistleblower by interfering with his livelihood, etc. may be penalized with fine
from P100,000 to P1,000,000 – Sec. 169
3. The deposit for issuance of license to a foreign corporation  is increased to
P 500,000 and in subsequent fiscal years, 2% of the amount by which the
licensee’s gross income for that fiscal year exceeds P 10 Million –  143 – from
P100,000 and P5 Million
4. Increased fine as a penalty for violation of other provisions of the Revised
Corp. to a minimum of P 10,000 to a maximum of P 1,000,000. It was a
minimum of P 1,000 and a maximum of P 10,000 under the old Code –  170 and
Sec. 144
5. Imprisonment as a penalty was removed . The corporation may be dissolved
in a proceedings before the SEC, as part of the penalty.
6. Corporation as Offender – penalty may be imposed upon such corporation
and/or upon its directors, stockholders, officers or employees responsible for
the violation or indispensable to its commission, at the discretion of the court
– 171
7. Anyone who shall aid, abet, counsel, command, induce, or cause any
violation of the Revised Corp. Code, or any rule, regulation, or order of the
SEC shall be punished with a fine not exceeding that imposed on the principal
offenders, at the discretion of the court, after taking into account their
participation in the offense – 172
8. A judgment finding that the corporation: (i) was created for committing,
concealing or aiding the commission of, or (ii) with the knowledge of its
stockholders had committed or aided in the commission of: securities violation,
smuggling, tax evasion, money laundering, or graft and corrupt practices; or
(iii) repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts of its directors, officers, or
employees, are grounds for dissolution of the corporation . In such case its
assets shall be forfeited in favor of the national government –  138
9. Reportorial Requirements – Annual Submission – now specifically stated
– Sec. 177
1.  Audited Financial Statements
2. General Information Sheet – new form use is suspended until June 30, 2019
1. if corporation is vested with public interest – need for
2. a director compensation report; and
3. a director appraisal or performance report
4. delinquent status – if reports are not submitted 3 times
consecutively or intermittently within a period of 5 years.
5. Confidential information may be redacted
SEC jurisdiction and authority expansion
1. Visitorial powers over all corporations  – examine and inspect records,
regulate and supervise activities; enforce compliance; and impose sanctions;
may revoke certificates of incorporation if a corporation refuses or obstructs the
SEC, without justifiable cause.
2. Authority over certain intra-corporate disputes
1. Summary order to hold an election of directors if the election is not held
unjustifiably. The SEC may issue orders directing the issuance of a notice
stating the time and place of the election, designated presiding officer, and
record date or dates for determination of stockholders entitled to vote –  25
2. After notice and hearing, removal of a director elected despite a
disqualification – 27
3. Disputes pertaining to a denial of the right of inspection or reproduction of
corporate records – 73
4. Motu proprio or upon verified complaint, dissolution of a corporation on
grounds provided in Section 138 of the Revised Corp. Code.
5. Alleged violation of the Revised Corporation Code, or of its rule, regulation
or order – 154 – subpoena powers – Sec. 155; and contempt powers – Sec.
157 issuance of a permanent cease and desist order, suspension or
revocation of the certificate of incorporation; and dissolution of the
 corporation and forfeiture of its assets – for violations of Revised Corp.
Code, rules or regulations, or any of SEC’s orders –  Sec. 159
2. Transmittal of evidence to the Department of Justice  for preliminary
investigation or criminal prosecution and/or initiate criminal prosecution for
any violation of the Revised Corp. Code, rule, or regulation –  156
3. SEC Fiscal Autonomy under the Revised Corp. Code . Collected fees, fines
and other charges shall form part of its modernization, and will augment its
operational expenses – 175.
4. No court below the Court of Appeals shall have jurisdiction to issue a
restraining order, preliminary injunction , preliminary mandatory injunction
in any case, dispute, or controversy what directly interferes with the exercise of
the powers, duties and responsibilities of the SEC that falls exclusively within
its jurisdiction – 179.

REVISED CORPORATION CODE OF THE PHILIPPINES: SALIENT

PROVISIONS

Salient Provisions of the Revised Corporation Code of the Philippines

On February 20, 2019, President Rodrigo Duterte signed into law the Republic Act (RA) 11232
or the Revised Corporation Code of the Philippines effectively repealing Batas Pambansa (BP)
68 or the Corporation Code of the Philippines. RA 11232 law took effect on February 23, 2019.
RA 11232 introduced many provisions drastically changing the process of organizing
corporations, day to day activities, and compliance with regulatory requirements. The more
distinct revisions made by the new law are the following:

First, there is no minimum number of incorporators unlike, BP 68 which mandated that the
numbers of incorporators should not be less than five (5) [Section 10].
Second, the removal of the minimum number of incorporators also means that a one (1) person
corporation can now be organized. In a one-person corporation, the said person/estate/trust
who/which organized the same shall be the sole director and president. The impact of this new
provision is apparent for people who want to form their own corporation on their own terms
without thinking and cooperating with other stockholders.
Third, a corporation organized under the RA 11232 shall now have a perpetual existence
(Section 11). BP 68 previously mandated that a corporation shall have a maximum period of only
fifty (50) years. This amendment will be a great relief to corporations since they would be no
longer in danger of being shut down by the SEC because of the failure to renew their
registrations.
Fourth, the participation of stockholders and board of directors remotely in meetings and in
absentia through teleconferencing and videoconferencing are now supported in RA 11232. To
mention a few of the instances where remote or electronic notices are allowed by RA 11232.
1. Notice to stockholders regarding extending or shortening the corporate term.
2. Notice to stockholders regarding increasing or decreasing capital stock.
3. Notice to stockholders for a meeting regarding the sale of assets.
4. Notice to stockholders for a meeting regarding the investment of corporate funds in
another business.
5. Notice to stockholders regarding regular meetings.
Fifth, RA 11232 allows electronic filing and monitoring systems. Currently, the SEC has a
system in place for online registration of corporations, partnerships, and trust. Now, the RA
11232 also mandates that the SEC must develop an electronic system where monitoring of
registered entities may be done. This amendment is in line with the new technological
developments, particularly, the increased in internet use in the Philippines. As a result, the ease
of doing business in the Philippines will be further upgraded by this new and convenient way of
establishing and maintaining a corporation.
Sixth, RA 11232 has a provision on electing an emergency director to prevent grave, substantial,
and irreparable loss or damage to the corporation in case of a vacancy and the remaining board
of directors could not constitute a quorum. This new provision is important to alleviate the
difficulty faced by many corporations in cases of a sudden vacancy in the board and a pressing
issue involving the corporation needs to be addressed promptly. (Sec. 28)