Privacy

(https://cruzmarcelo.com)

Salient Changes under the Revised

Corporation Code
(https://cruzmarcelo.com/2019/03/12/pcc-
(https://cruzmarcelo.com/2019/01/18/sec-
clari es-the-coverage-of-compulsory-
revises-general-information-sheet/)
noti cation-in-land-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 ve (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 a rmatively showing that
the corporation was adequately nanced (Sec. 115, 116, 130, 131).

Stock corporations are still not required to have a minimum capital stock, unless
speci cally 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 speci c 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 certi cate 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 certi cate 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 certi cate 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 certi cate of incorporation (Sec. 21). 

2. New Classi cations 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 classi ed 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 nancial 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 quali cation 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).
q ( )

The RCC empowers the SEC, unilaterally or upon a veri ed complaint, and after due notice
and hearing, to remove members of the Board of Directors/Trustees who are determined
to be disquali ed to be elected to or to hold such position (Sec. 27).

When there is a vacancy in the O ce 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 ll the vacancy from among the o cers of the corporation, thereby
constituting an emergency board, subject to certain requirements (Sec. 28).

4. Corporate O cers

The RCC mandates a corporation vested with public interest to appoint a Compliance
O cer, 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 o cers 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 xed 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 con dentiality rules
d ili l (S 73)
under prevailing laws (Sec. 73).

With regard to the nancial 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 nancial statements may be
certi ed under oath by the President and the Treasurer, and need not be certi ed by an
independent certi ed 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 o ce 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 bene t of present and future creditors of the licensee. In addition, within 6 months
after the scal year of the licensee, the SEC may require the licensee to deposit additional
securities or nancial 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 nancial standing and must show proof that it is in good standing as certi ed 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 speci c 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 Disquali cation Provision (Sec. 160);
c. Violation of Duty to Maintain Records, to Allow Inspection or Reproduction (Sec. 161);
d. Willful Certi cation 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 led with the SEC in the form of electronic documents, in
accordance with the rules on electronic ling that the SEC will promulgate (Sec. 13). The
SEC is further mandated to implement an electronic ling and monitoring system to
expedite corporate name reservation and registration, incorporation, submission of
i dd i d b h RCC (S 180)
reports, notices and documents required by the RCC (Sec. 180).

Copyright © 2018. All Rights Reserved.

Cruz Marcelo & Tenefrancia