Salient Changes under the Revised Corporation Code - Cruz Marcelo & Tenefrancia 3/3/20, 13:16

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Salient Changes under the Revised

Corporation Code
(https://cruzmarcelo.com/2019/03/12/pcc-
(https://cruzmarcelo.com/2019/01/18/sec- clariUes-the-coverage-of-compulsory-notiUcation-in-land-
revises-general-information-sheet/) acquisition/)

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 Uve (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 aXrmatively
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In terms of liability, the single shareholder claiming limited liability has the burden of aXrmatively
showing that the corporation was adequately Unanced (Sec. 115, 116, 130, 131).

Stock corporations are still not required to have a minimum capital stock, unless speciUcally 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 speciUc 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 certiUcate 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
certiUcate 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 certiUcate 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 certiUcate of incorporation (Sec. 21).

2. New Classi3cations 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 classiUed 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 Unancial 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 qualiUcation 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 veriUed complaint, and after due notice and hearing,
to remove members of the Board of Directors/Trustees who are determined to be disqualiUed to be
elected to or to hold such position (Sec. 27).

When there is a vacancy in the OXce 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 Ull the vacancy from among the
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the corporation, the remaining directors are allowed to temporarily Ull the vacancy from among the
oXcers of the corporation, thereby constituting an emergency board, subject to certain requirements
(Sec. 28).

4. Corporate OBcers

The RCC mandates a corporation vested with public interest to appoint a Compliance OXcer, 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 oXcers 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
Uxed 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 conUdentiality rules under prevailing laws (Sec. 73).

With regard to the Unancial 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 Unancial statements may be certiUed under oath by the President and the
Treasurer, and need not be certiUed by an independent certiUed 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 oXce 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 beneUt of present and future creditors of the
licensee. In addition, within 6 months after the Uscal year of the licensee, the SEC may require the
licensee to deposit additional securities or Unancial 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
Unancial standing and must show proof that it is in good standing as certiUed 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).

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The RCC also enumerates the various speciUc 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 DisqualiUcation Provision (Sec. 160);
c. Violation of Duty to Maintain Records, to Allow Inspection or Reproduction (Sec. 161);
d. Willful CertiUcation 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 Uled with the
SEC in the form of electronic documents, in accordance with the rules on electronic Uling that the SEC
will promulgate (Sec. 13). The SEC is further mandated to implement an electronic Uling and monitoring
system to expedite corporate name reservation and registration, incorporation, submission of reports,
notices and documents required by the RCC (Sec. 180).

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