Salient Changes under the Revised Corporation Code

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

March 7, 2019

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

1/5
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

2/5
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).

3/5
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

4/5
(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).

5/5