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28 March 2019

Revised Corporation Code is Now in Effect

Recent Developments

On 20 February 2019, Philippine President Rodrigo Duterte signed into law Republic Act (RA) No. 11232
or the Revised Corporation Code of the Philippines (Revised Code). The Revised Code expressly repeals
Batas Pambansa Blg. 68 or the Corporation Code of the Philippines, and aims to improve the ease of
doing business in the country.

The Revised Code took effect on 23 February 2019.

What the regulation says

The Revised Code initiates significant changes to the legal framework for the registration and operation
of private corporations in the Philippines, including the following:

A. Simplifying Corporate Registration

The Revised Code simplifies the requirements to set-up and register a corporation with the SEC. The
provisions of the new law likewise expressly recognize the importance of technology and its use to
facilitate government and internal corporate processes.

1. Removal of minimum number of shareholders, directors, trustees, and minimum capitalization

requirements
The Revised Code no longer requires five shareholders to establish a new corporation. It has also
removed, subject to compliance with special laws, the minimum subscribed and paid-up capital
requirement for stock corporations.

2. One Person Corporation

The new law permits natural persons, trusts or estates to form One Person Corporations, with the single
shareholder becoming, by default, the sole director and president.

3. Perpetual existence

Under the Revised Code, a corporation shall have perpetual existence unless its articles of incorporation
provide otherwise. This new law repeals the prior 50 year maximum corporate term.

The new law grants perpetual existence to corporations whose corporate terms have not yet expired.
Corporations who intend to be bound by a specific corporate term must notify the SEC.

A corporation whose corporate term has expired may submit an application to the SEC for a revival of its
corporate existence, together 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.

4. Electronic Filing and Monitoring System

In line with the government's drive to eliminate red tape and streamline government procedures, the
Revised Code mandates the SEC to develop and implement a system to enable electronic submission of
applications, reports and other documents, as well as the sharing of pertinent information with other
government agencies.

5. Electronic notices and remote communication

Shareholders and directors are expressly allowed to participate in meetings through remote
communication.

To encourage efficient communication of notices to the shareholders, members, directors or trustees,

the Revised Code permits sending of notices by electronic means.

B. Strengthening Corporate Governance

The Revised Code also aims to improve corporate governance and protection of minority shareholders,
through the following provisions:

1. Appointment of Independent Directors and Compliance Officer

The new law requires a corporation vested with public interest[1] to have (i) a board with independent
directors occupying at least 20% of its board seats, and (ii) a compliance officer.

An independent director is one, who, apart from shareholdings and fees received from the corporation,
is independent of management and free from any business or relationship which could (or could
reasonably be perceived to) materially interfere with the exercise of independent judgment in carrying
out the responsibilities as a director.

2. Additional reporting requirements

Apart from the annual financial statements and general information sheets required for all corporations,
a corporation vested with public interest must also submit (i) a director compensation report; and (ii) a
director appraisal or performance report, which should include the standards or criteria used to assess
each director.
3. Emergency Board

In the event an emergency action is required to prevent grave, substantial and irreparable loss or
damage to the corporation, and the current number of directors is not enough to constitute a quorum,
the Revised Code permits the appointment of a temporary director to fill in the vacancy, by the
unanimous vote of the remaining directors.

The action by the temporary director shall be limited to the emergency action necessary, and his term
shall cease within a reasonable time from the termination of the emergency or upon election of the
replacement director, whichever comes earlier.

C. Other Important Provisions

Other notable amendments introduced by the new law include the following:

1. The corporate articles of incorporation and/or bylaws may include an arbitration agreement for intra-
corporate disputes. In order to be valid, the provision must specifically mention the number of
arbitrators and manner of their appointment.

2. The minimum amount of security deposit required for foreign corporations doing business in the
Philippines is increased from PhP 100,000 to PhP 500,000.

3. A person required to file a report with the SEC may redact confidential information from such report.
The confidential information shall be filed in a supplemental report labelled "confidential", together with
a request for confidential treatment of the report and the specific grounds for the grant thereof.

Actions to Consider

Clients are advised to (1) familiarize themselves with changes to the requirements and procedures
brought about by the Revised Code, and (2) consider how to incorporate the new arrangements initiated
by the Revised Code in their business model and operations. The Revised Code grants a grace period of
two years, from the Revised Code's effectivity, for existing corporations to comply with the new
requirements of the new law.

Quisumbing Torres may continue to assist you in understanding this new law, and how its provisions may
impact your business.

[1] (a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The
Securities Regulation Code", namely those whose securities are registered with the Commission,
corporations listed with an exchange or with assets of at least Fifty Million Pesos (PhP 50,000,000) and
having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a
class of its equity shares;

(b) Banks and quasi-banks, nonstock 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 the businesses vested with public interest similar to the above, as may
be determined by the Commission, after taking into account relevant factors which are germane to the
objective an purpose of requiring the election of an independent director, such as the extent of minority
ownership, type of financial products or securities issued or offered to investors, public interest involved
in the nature of business operations and other analogous factors.