AN OVERVIEW OF THE CHANGES TO THE CORPORATION CODE OF THE PHILIPPINES
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]
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[1] http://www.senate.gov.ph/press_release/2018/1127_drilon1.asp
[2] Id.
[3] https://www.historyextra.com/period/20th-century/a-brave-new-world-the-1980s-home-computer-boom/
[5] http://www.sec.gov.ph/online-services/sec-company-registration-system/