21 March 2019

Revised Philippine Corporation Code Signed Into Law

President Duterte has signed the Revised Corporation Code of the Philippines that amends the 38-year old Corporation Code. One of the main objectives of the Revised Corporation Code is to improve ease of doing business which would eventually make the Philippines an attractive investment destination. Once published, the Revised Corporation Code will take effect and will supersede the old Corporation Code.

Salient provisions and key changes

The following are the salient provisions of the Revised Corporation Code vis-à-vis the provisions of the old Corporation Code.

Amendments under the Revised Corporation CodeProvisions of the old Corporation CodeComments
One Person Corporation (“OPC”)

A single person (an individual, trust, or estate), may form a One Person Corporation. The said single incorporator/shareholder shall also be the sole director and president of the OPC.

However, banks, quasi-banks, preneed, trust, insurance, public and publicly-listed companies may not incorporate OPCs.

An ordinary corporation may apply for conversion into OPC when a single stockholder acquires all the stocks of the ordinary corporation. Conversely, an OPC may be converted into an ordinary corporation.

Ordinary stock corporations should be formed by 5-15 incorporators who must be natural persons and majority of which must be residents of the Philippines.

In addition, there should 5-15 members of the board of directors who must likewise be natural persons and majority of which must be residents of the Philippines.

The number and residency requirement for incorporators and members of the board of directors are the most common concerns of foreign companies seeking to establish a business presence in the Philippines. With the Revised Corporation Code, a single incorporator may set up a corporation. The residency requirement was also deleted.

However, it is yet to be seen how the OPC concept will be applied to enterprises subject to foreign equity restrictions under the Philippine Constitution and other special laws.

Change in number and qualifications of incorporators

Any person, partnership, association or corporation, singly or jointly with others but not more than 15 in number, may form a corporation for any lawful purpose or purposes provided that natural persons who are licensed to practice a profession, and partnerships or associations established for the purpose of practicing a profession, shall not be allowed to form a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation.

Any number of natural persons not less than 5 but not more than 15, all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one share of the capital stock of the corporation.Under the Revised Corporation Code, a juridical entity can be an incorporator. The residency requirement was also removed.

The foregoing amendments will make it easier to establish a corporation in the Philippines.

Perpetual existence

A corporation shall have perpetual term unless its Articles of Incorporation provides otherwise.

Corporate life is for a maximum of 50 years only but may be extended for periods not exceeding 50 years in any single instance by an amendment of the articles of incorporation.

Independent director requirement

The following are required to have independent directors constituting at least 20% of the board (i.e., 1-3 independent directors):

  • Public companies – corporations whose securities are registered with the Commission, corporations listed with an exchange or with assets of at PHP50M and having 200 or more shareholders, each holding at least 100 shares;
  • 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
  • Other corporations engaged in businesses vested with public interest similar to the above, as may be determined by the Commission.

The independent directors shall be elected by the shareholders during the election of the board.

No counterpart provision.Previously, only public companies are required to have independent directors under the Philippine Securities Regulation Code. Under the Revised Corporation Code, banks, quasi-banks and other companies are now also required to have independent directors.

Residency requirement for the treasurer

Under the Revised Corporation Code, the treasurer must be a resident of the Philippines.

Under the old Corporation Code, there is no residency requirement for the treasurer; only the corporate secretary is required to be a resident and a citizen of the Philippines.With this new requirement, offshore entities setting up businesses in the Philippines are no longer allowed to appoint non-Philippine residents as treasurer (and Treasurer-in-Trust for Treasurer-in-Trust-For bank account opening). In addition, under the Philippine Anti-Dummy Law, the treasurer of a corporation subject to foreign equity limit must be a Philippine citizen.
Power of the Securities and Exchange Commission (“Commission”) to remove a director/trustee

The Commission has now the power to remove a director/trustee who is disqualified or who becomes disqualified from being such.

Under the old Corporation Code, a director may be removed by the vote of at least 2/3 of the outstanding shares or members.
Rule on self-dealing directors extended to family members

A contract of the corporation with one or more of its directors or trustees or officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity is voidable, at the option of such corporation, unless certain conditions are present (e.g., the presence of such director is not necessary to constitute a quorum and that his/her vote was not necessary for the approval of the contract.)

The old provision does not cover the spouse and relatives.The amendment introduced under the Revised Corporation Code expands the scope of the provision on self-dealing directors.
Mandatory closing of the Stock and Transfer  Book (“STB”) prior to the scheduled meeting

Unless the By Laws of the corporation provide for a longer period, the stock and transfer book or membership book shall be closed at least 20 days for regular meetings and seven days for special meetings before the scheduled date of the meeting.

No specific time period requirement to close the STB.
Voluntary dissolution

The required vote of the shareholders, in addition to the majority vote of the board, was lowered from 2/3 to a simple majority.

Voluntary dissolution of a corporation where no creditors are affected may be effected through a majority vote of the board with the concurrence of at least 2/3 vote of the shareholders.The required majority shareholder votes can be attained easier than the previous 2/3 requirement.
Increase in amount of required securities deposit for foreign corporations from PHP100,000 (approximately USD1,923) to PHP500,000 approximately USD9,615)

Within 60 days after the issuance of the license to transact business in the Philippines, the foreign corporation, except foreign banking or insurance corporations, shall deposit with the Commission securities with an actual market value of at least PHP500,000 or such other amount that may be set by the Commission.

Within 6 months after each fiscal year of the licensee, the Commission shall require the licensee to deposit additional securities or financial instruments equivalent in actual market value to 2% of the amount by which the licensee’s gross income for that fiscal year exceeds PHP10 million.

Under the old Corporation Code, the securities deposit is set at PHP100,000 while the threshold for requiring additional securities deposit is 2% of the amount by which the licensee’s gross income for that fiscal year exceeds PHP5 Million.Foreign corporations applying for a license to do business in the Philippines (e.g., a branch office) will now be required to have PHP500,000 worth of securities deposit with the Commission. This is five times more than the requirement under the old Corporation Code.
Arbitration for Corporations

The Articles of Incorporation or By-Laws may provide for an arbitration agreement. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporaterelations, shall be referred to arbitration. A dispute shall be non-arbitrable when it involves criminal offenses and interests of third parties.

To be enforceable, the arbitration agreement should indicate the number of arbitrators and the procedure for their appointment.

No counterpart provision. Intra-corporate disputes are under the jurisdiction of the Regional Trial Courts (“RTC”) as special commercial courts.Under the Revised Corporation Code, an inter-corporate dispute may now be the subject of an arbitration. Thus, where there is a valid arbitration agreement in the Articles of Incorporation, By-Laws, or a separate agreement, the Revised Corporation Code provides that said intra-corporate dispute filed directly with the RTC shall be dismissed.

Arbitration, as an alternative mode of dispute resolution, can generally be speedier and less costly than judicial proceedings.

Notices may now be sent/served electronically.No counterpart provisions.The Revised Corporation Code has effectively adopted the Philippine E-Commerce Act.

If you have any questions or require any additional information, please contact Felix Sy or Aubbrey Lim of Insights Philippines Legal Advisors.

This alert is for general information only and is not a substitute for legal advice.