The Revised Corporation Code
(Republic Act No. 11232, February 20, 2019)
This Tax Alert is issued to inform all concerned on the salient provisions of the Act providing for the Revised Corporation Code (RCC) of the Philippines signed by the President on February 20, 2019.
- Introduction of a new corporate vehicle – the one-person corporation (OPC). Under the new law, a single shareholder, who may be an individual, a trust or an estate may form an OPC. The single stockholder becomes the sole director and president of the OPC. However, banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and –controlled corporations may not incorporate as an OPC.
- Requirement for incorporators. RCC now allows one (1) person to register a business as a corporation by oneself, thus, removing the requirement of minimum 5 incorporators. Moreover, while the old Corporation Code required incorporators to be natural persons, the RCC provides that incorporators may be any person, partnership, association or corporation.
- Removal of the maximum 50-year corporate term. Corporations shall now have perpetual existence unless their Articles of Incorporation provide otherwise. Even corporations existing prior to the effectivity of the RCC shall have perpetual existence, unless majority of the stockholders elect to retain the specific corporate term in their articles of incorporation.
- Revival of existence. A corporation whose term has expired may apply for revival of corporate existence. Upon approval by the SEC, the corporation shall be deemed revived and shall also be deemed to have perpetual existence, unless its application for revival provides otherwise.
- Issuance of no-par value shares of stocks. The corporations not allowed to issue no-par value shares now include preneed corporations and other corporations authorized to obtain or access funds from the public. The restriction applies to the covered corporations, whether publicly listed or not.
- Removal of subscribed and paid-up capital requirements. The RCC removed the requirement of 25%-25% subscription and paid-up capitalization requirement, except as specifically provided in special laws.
- Right to vote by stockholders/members. The stockholders or members may now exercise their right to vote via remote communication or in absentia (previously through presence or representative only). A stockholder or member who participates via remote communication or in absentia shall be deemed present for purposes of quorum. Rules and regulations governing this shall be issued by SEC.
- Officers. The RCC now requires the treasurer to be a resident of the Philippines. While corporations vested with public interest must elect a compliance officer.
- Board of Directors/Trustees. Corporations vested with public interest are now required to have independent directors constituting at least twenty percent (20%) of the board. Trustees shall be elected for a term not exceeding three (3) years.
- Disqualification of Directors, Trustees or Officers. The RCC provided additional grounds for disqualification of directors, trustees, and officers of a corporation: violating RA 8799, otherwise known as “The Securities Regulation Code”; being found administratively liable for any offenses involving fraudulent acts; and being found liable by foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) of the new Section 26. The five-year limit on the violation of the Corporation Code has been removed. The SEC or the Philippine Competition Commission may also provide additional qualification and disqualification of directors, trustees and officers.
- Removal of Directors. A disqualified director or trustee can be removed by the SEC motu propio (on its own initiative) or upon a verified complaint, and after due notice and hearing. The SEC may also impose sanctions on directors or trustees who failed to remove the disqualified director or trustee despite their knowledge of the disqualification.
- Emergency boards. When vacancy prevents the remaining directors from constituting a quorum and there is a need for emergency action to prevent damage to the corporation, the remaining directors may fill up the vacancy from among the officers of the corporation by unanimous vote of the remaining directors or trustees. However, the action by the designated director or trustee shall be limited to the emergency action necessary, and the term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement, whichever comes earlier. A notification for the creation of emergency board must be done with SEC within 3 days from creation of the emergency board.
- Compensation of Directors/Trustees. The RCC now requires the submission to the shareholders and SEC of an annual report on the total compensation of each director or trustees.
- Dealings of Directors, Trustees or Officers with the Corporation. Limitation on the dealings of directors, trustees or officers with the corporation now includes contracts with the corporation of their spouses and relatives within the fourth civil degree of consanguinity or affinity. Such contracts are voidable unless all the requirements and conditions set forth in Sec. 31 of the Revised Corporation Code are complied.
- Donations to Political Party/Activity. Domestic corporations are now allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity. Under the RCC, only foreign corporations are not allowed to give political donations.
- Mode of Notices to Stockholders. Electronic sending of notices for stockholder’s meetings is now allowed provided the same is provided in the by-laws and in accordance with SEC’s rules on the use of electronic messages.
- Regular and special meetings of stockholders/members. If date for the annual stockholders’ meeting is not fixed, it may be held on any date after April 15 of every year (previously any date in April only). Written notices must be sent to stockholders not later than 21 days prior to the meeting.
- Consideration for Stocks. Shares of stock in another corporation and other generally accepted form of consideration are now considered acceptable consideration for the issuance of stocks.
- Financial Statements. Financial statements of corporations with total assets or total liabilities amounting to less than P600,000 or such other amount as may be determined by DOF, is now not required to be certified by an independent auditor. It may just be certified under oath by the treasurer and the president of the corporation.
- Merger or Consolidation. Additional information such as the carrying amounts and fair values of the assets and liabilities of the parties to the merger or consolidation as of the agreed cut-off date, method of merger or consolidation of accounts, and provisional or pro-forma values as merged or consolidated, are now required to be included in the articles of merger or consolidation.
- Trustees. Non-stock corporations vested with public interest are now required to have independent trustees who are not members of the non-stock corporation.
- Dissolution. For voluntary dissolutions where no creditors are affected, the RCC now requires only a majority vote of the board of directors and the vote of the stockholders owning at least majority of the outstanding capital stock. Previously, affirmative votes of stockholders owning 2/3 of the outstanding capital stock are required.
However, the RCC added strict requirements for dissolution such as the need for a verified request for dissolution, stating: the reason for the dissolution; the form, manner, and time when notices were given; names of those stockholders and directors who approved the dissolution; date, place and time of the meeting in which the vote was made; and the details of publication.
- Securities deposit of branches. The required initial minimum actual market value of securities deposit of branches was increased from P100,000 to P500,000. Also, under the RCC, within six months from the close of the fiscal year of the branch, it is required to deposit additional securities equivalent in actual market value to two percent (2%) of the amount by which the branch’s gross income for the fiscal year exceeds P10 million (previously P5 million). Deductions from gross income in accordance with SEC rules, shall be allowed in computing the securities deposit amount.
- Penal Provisions. While the old Corporation Code only has one penal provision (Section 144), the RCC added an entire title on “Investigations, Offenses and Penalties”. The title provides penal provisions for violations of the RCC.