On Feb.

20, Republic Act 11232 was signed into law, amending the more than 38-year old Corporation
Code of the Philippines. This comes at an opportune time, in the midst of an active government
campaign towards the promotion of the ease of doing business in the Philippines. In 2018, the Ease of
Doing Business Act was passed and a more liberal Foreign Investments Negative List was issued.
Hopefully, the changes brought about by the amendments in the Code can complement these laws in
pursuing the ultimate goal — to improve the Philippines’ competitiveness as an investment destination.

One of the most notable changes under the new Code is the grant of perpetual existence to all current
corporations. Prior to the amendment, corporations were only initially granted a term of 50 years,
subject to extension in accordance with the provisions of the old Code. Corporations with fixed
corporate terms may now file for extension via amendment of their Articles of Incorporation (AoI) not
earlier than three years prior to original or subsequent expiry date, unless earlier extension is justified.
Once approved, the extension shall take effect on the day following the original or subsequent expiry
date/s. As for those with expired terms, they are allowed to apply for revival of corporate existence
subject to the approval of the Securities and Exchange Commission (SEC).

The new Code imposes stricter rules on the use of corporate names by granting the SEC the power to
summarily order a corporation to immediately cease and desist from using a name found to be not
distinguishable, already protected by law, or contrary to law, as well as to cause the removal of all
visible signage bearing such name. In case of failure to comply, the SEC’s authority covers holding
responsible directors and officers in contempt and/or administratively/civilly liable, or revoking the
corporation’s registration.

Another significant change is the removal of the minimum subscribed and paid-in capital. Previously, at
least 25% of the authorized capital stock must be subscribed and at least 25% of the subscribed capital
should be paid at the time of incorporation. However, the “25% subscribed and 25% paid” requirement
was retained in case of an increase in capital stock. Moreover, the application for increase or decrease
of capital stock and creation/increase of any bonded indebtedness should now be filed with the SEC
within six months from the date of approval of the board of directors and stockholders, subject to
extension for justifiable reasons.

Incorporators now include “any person, partnership, association or corporation,” consistent with the
introduction of the One Person Corporation (OPC) which is governed by its own Chapter in the new
Code (the OPC will be covered in the next installment of this two-part article). The minimum required
number for incorporators has also been removed, while keeping the same maximum number. It thus
went from being “at least five but not more than fifteen” to merely “any number not exceeding fifteen.”

Next, the period of non-use of charter has been extended from two to five years. Thus, the certificate of
incorporation of those which failed to formally organize and commence business shall now be deemed
revoked “as of the day following the end of the said five-year period.” For those that commenced
business but have become inoperative for at least five consecutive years, the SEC may place them first
under delinquent status after due notice and hearing. Delinquent corporations shall have two years
within which to resume operations and comply with the SEC’s requirements to lift the delinquency
status. Otherwise, their registrations may eventually be revoked.

As regards the directors, the requirement that majority of them must be Philippine residents has been
lifted. Corollary to this, directors may now be elected via stockholders’ vote given through remote
communication or in absentia, provided such manners of voting are allowed under the by-laws or
approved by majority of the directors. Discussions on other changes on the by-laws shall be covered
next week in the second part of this article.

In addition, the boards of directors of corporations vested with public interest (such as listed
corporations, banks, quasi-banks, pawnshops, etc.) are now required to have independent directors
which must constitute at least 20% of such boards.

With regard to mandatory officers, the Code now requires that the treasurer be a resident of the
Philippines. Additionally, corporations vested with public interest are now required to elect a
compliance officer.

In the past, only the election of the directors and officers was required to be reported by corporations to
the SEC within 30 days from occurrence. Under the new Code, within the same period, a report should
be made in case of a change in shareholding and in the event of non-holding of elections together with
the reasons therefor and the new date of elections which should not be later than 60 days from the
scheduled date. In the absence of a new date, or unjustifiable failure to hold elections on the new date,
the SEC upon application of a stockholder or director may summarily order the holding of elections and
the issuance of the required notices as regards the place and time of the elections and designation of
presiding officer, among others.

Should a director, trustee or officer die, resign, or in any manner cease to hold office, the period within
which to file a notice to the SEC has now been fixed at seven days from knowledge thereof.

The SEC is now also vested with the powers to order on its own instance (motu propio) or upon verified
complaint, the removal of a director elected despite a disqualification, or whose disqualification arose or
is discovered subsequent to election. This is without prejudice to sanctions that the SEC may impose on
other members who, despite their knowledge of such disqualification, failed to remove such director.

When a quorum is still present, filling up vacancies in the board of directors should now be made no
later than 45 days from the vacancy, or not later than the day of expiration at a meeting called for that
purpose in case of term expiration, or during the same meeting when removal was authorized, as the
case may be. However, in the absence of quorum and when emergency action is necessary, the vacancy
may be temporarily filled from among the officers by unanimous vote of the remaining directors. The
authority shall only be limited to the necessary emergency action and should cease upon termination of
the emergency or election of replacement, whichever comes earlier. The SEC should be notified as well
within three days from the emergency designation.

New additions also include the option to incorporate an arbitration agreement in the AoI and the
limitation on the management contract to a maximum of five years for any one term.

To be continued…

Source: https://www.pwc.com/ph/en/tax/tax-publications/taxwise-or-otherwise/2019-taxwise-or-
otherwise/decoding-the-revised-corporation-code-part-1.html
Go to these sites and read

https://www.sec.gov.ph/wp-content/uploads/2019/11/2019RCC_BrieferonRevisedCorporationCode.pdf

https://www.sec.gov.ph/wp-content/uploads/2019/11/2019Legislation_Revised-Corporation-Code-
Comparative-Matrix_as-of-March-22-2019.pdf

Salient Changes under the Revised Corporation Code

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).

Source: https://cruzmarcelo.com/salient-changes-under-the-revised-corporation-code/