The Revised Corporation Code of the Philippines Changes and Developments in Corporation Law by NBV

The Revised Corporation Code of the Philippines: Changes and Developments in Corporation Law by Atty. Nico B. Valderrama Valderrama,, CPA, MPM Posted on February 22, 2019

The long-anticipated revision and update of the corporation law have now been realized. With the passage of the Revised Corporation Code of the Philippines (RCC) or RA 11232, the rules governing corporations may now address the current concerns of corporations and would-be corporations. It aims to further ease the formation of corporations corporation s and filing of applications and reports which have frustrated those who deal with the bureaucracy. It empowers the SEC to fully enforce the new law. It also introduced new rules that align with developments in technology and new laws that came after the old Corporat Corporation ion Code or BP 68 like the Philippine Deposit Insurance Corporation Charter or RA 3591, the New Central Bank Act or RA 7653, the Rules of Court, the Intellectual Property Code or RA 8293, the Securities Regulation Code or RA 8799, the Data Privacy Act or RA 10173, and the Philippine Competition Act or RA 10667. Some established rules and practices of the SEC have been institutionalized by their incorporation in the RCC. The updates on corporation law presented herein are divided into two categories: (i) Changes and (ii) Innovations. Changes shall refer to those rules already existing under the old Corporation Code (OCC), but later refined or amended by RCC. Innovations shall refer to those rules not provided under the OCC which are first introduced by RCC. At the latter portion, items retained by the RCC are likewise listed. The corresponding sections in the RCC are provided at the end of each item for easy reference. CHANGES: revision (reference revision (reference in the RCC; provision in the OCC amended) 1.

2.

3.

4.

The terms and conditions for the issuance of redeemable shares must not only be stated st ated in the articles of incorporation but in the certificate of stock as stock  as well. (Section 7 of the RCC; Section 8 of the OCC) Juridical persons  persons  such as partnerships, associations, and corporation may now incorporate a corporation. There is no more minimum   number of incorporators, but the minimum maximum number remains at 15. (Section 10; Section 10) A corporation with a single stockholder  stockholder  may now be formed and shall be considered a One Person Corporation (OPC). (Section 10; Section 10) As a general rule, corporations shall have perpetual existence, existence, unless its articles of incorporation provide for a specific term. Corporations formed prior to RCC shall automatically have perpetual existence without prejudice to its right to elect to retain its specific corporate term through a majority vote of its stockholders. (Section 11; Section 11)

5.

Amendment on the corporate term may now be made within 3 years prior years prior to the expiration of the corporate term. (Section 11; Section 11)

6.

The number of trustees indicated in the articles of incorporation may now be more than 15. 15. (Section 13; Section 14)

7.

Filing of the articles of incorporation and amendments thereto may now be filed electronically.. (Section 13; Section 14) electronically

8.

The authorized capital stock no longer needs to be at least 25% subscribed. subscribed. (Section 14; Sections 13 and 15)

9.

The Treasurer’s Affidavit is no longer required   since the certification concerning the required amount of capital subscribed and/or paid is already included in the articles of incorporation. (Section 14; Section 14)

10.

There is no more minimum paid-up  paid-up  capital. (Section 14; Section 14)

11.

False certification  certification  concerning the amount of capital subscribed and/or paid is a new ground to disapprove articles of incorporation or amendments thereto. (Section 16; Section 17)

THE REVISED CORPORATION CODE: CHANGES AND DEVELOPMENTS IN CORPORATION LAW by NICO B. VALDERRAMA V ALDERRAMA | 1

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12.

13.

Failure of a corporation to formally organize and commence its business within 5 years from the date of its incorporation shall be render the certificate of incorporation deemed revoked as of the day following the end of the 5-year period.. (Section 21; Section 22) period Trustees elected shall have a term not exceeding 3 years. years. (Section 22; Section 23)

14.

A treasurer to be elected must be a resident resident of  of the Philippines. (Section 24; Section 25)

15.

The duties of elected officers may be provided not only in the bylaws, but also as resolved by the board of directors. directors. (Section 24; Section 25)

16.

The death, resignation, resignati on, or cessation to hold office of any director, trustee, or officer shall be reported in writing to the SEC within 7 days from days from knowledge thereof. (Section 25; Section 26)

17.

Disqualification of directors, trustees, or officers Disqualification for violations of the RCC and Securities Regulation Code or RA 8799, now clearly requires conviction by final judgment. judgment. It also adds two additional disqualifications: disqualifications: finding of administrative liability for any offense involving fraudulent acts and judgment or finding of a foreign court or equivalent foreign regulatory for acts similar to the aforementioned grounds. The SEC and the Philippine Competition Commission or PCC may impose additional qualifications or other disqualifications. (Section 26; Section 27)

18.

Elections to fill vacancies in directorships and trusteeships due to term expiration must be held no later than the day of such expiration. expiration . In case of removal, vacancy may be filled during the same meeting. In all other cases, it must be filled no later than 45 days from the time the vacancy arose. arose. (Section 28; Section 29)

19.

Dealings of directors, trustees, or officers now include their spouses and relatives  relatives  within the th 4   civil degree of consanguinity or affinity. (Section 31; Section 32)

20.

The prohibition on domestic corporations against giving donations for political

now be given to the stockholders and members electronically.. (Section 36; Section 37) electronically 22.

Notice about the meeting on the proposed increase or decrease of capital stock or increase of bonded indebtedness may now be given to the stockholders electronically electronically.. (Section 37; Section 38)

23.

The certificate executed in case of increase or decrease of capital stock or increase of bonded indebtedness need not set forth the actual indebtedness   of the corporation on the day of indebtedness the meeting. (Section 37; Section 38)

24.

The application for increase or decrease of capital stock or increase of bonded indebtedness indebtednes s shall be filed with the SEC within 6 months from months from the date of approval of the board of directors and stockholders, which may be extended for justifiable reasons. (Section 37; Section 38)

25.

The treasurer’s sworn statement accompanying the application for increase of capital stock now clearly provides that the required 25% subscription is of the “increase in capital stock” instead of “increased capital stock”. The new rule is consistent with the current policy of the SEC. (Section 37; Section 38)

26.

Notice about the meeting on the proposed sale or other disposition of all or substantially all of the corporate assets may now be given to the stockholders electronically electronically.. (Section 39; Section 40)

27.

Notice about the meeting on the proposed investment of corporate funds in another corporation may now be given to the stockholders electronically electronically.. (Section 41; Section 42)

28.

Bylaws must now be filed together  together  with the articles of incorporation. It can no longer be filed within one month from notice of issuance of the certificate of incorporation. (Section 45; Section 46)

29.

Bylaws may provide other matters for the proper

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date after April 15 of 15 of every year as determined by the board provided that a written notice shall be sent to all stockholders or members at least 21 days prior to prior to the meeting, unless a different period is required. Notice of regular meetings may now be sent electronically. (Section 49; Section 50) 31.

32.

33.

34.

35.

36.

38.

Pledgors and mortgagors are now identified as secured creditors  creditors  to include other persons granted with security interest over the shares. (Section 54; Section 55)

39.

No voting trust agreement shall be entered into which are anti-competitive and violative of nationality and capital requirements in addition to for purposes for the perpetuation of fraud. (Section 58; Section 59)

40.

Additional consideratio consideration n for stocks: shares of stock in another corporation and other generally accepted form of consideration. (Section 61; Section 62)

41.

Notice of the sale of delinquent stocks may be sent through other means  means  provided in the bylaws. (Section 67; Section 68)

42.

Metro Cebu, Metro Davao, and other Metropolitan areas Metropolitan  areas (in addition to Metro Manila) are now considered a city or municipality for purposes of places where stockholders’ or members’ meetings may be held. (Section 50)

There is an exhaustive list  list  of corporate books and records that must be preserved at the principal office and made available to the stockholders or members. (Section 73; Section 74)

43.

Notices of stockholders’ or members’ meetings me etings now require certain information and accompanying proxy forms. forms. (Section 50; Section 51)

The financial statements furnished to the requesting stockholder or member shall be in the form and substance of the financial reporting required by the SEC. SEC. (Section 74; Section 75)

44.

If the total assets or total liabilities of the corporation are less than P600,000  P600,000   or such other amount as may be determined by the Department of Finance, the financial fi nancial statements required to be presented to the stockholders or members may be certified under oath by the treasurer and the president. (Section 74; Section 75)

45.

The notice required for meetings to approve merger or consolidation  consolidation  shall be given in the same manner as giving notice of regular or special meetings. (Section 76; Section 77)

46.

There are four additional items that items that must be set forth in the articles of merger or consolidation. (Section 77; Section 78)

47.

There is appraisal right in case of investment of

There is an exhaustive list of matters  matters  (which may be expanded through proposal) required to be presented at each regular meeting of stockholders or members. (Section 49; Section 50) General waivers  waivers  of notice in the articles of incorporation or the bylaws shall not be allowed. Attendance at a meeting shall not constitute a waiver of notice of such meeting when the express purpose of attendance is to object to the transaction of any business because the meeting is not lawfully called or convened. (Section 49; Section 50)

All proceedings and any business transacted at the stockholders’ or members’ meetings shall be valid even if improperly held or called, provided that no one of the present stockholders or members expressly states stat es at the beginning of the meeting that the express purpose of attendance is to object to the transaction of any business  business  because the meeting is not lawfully called or convened. (Section 50; Section 51) Notice of board meetings must be sent to every director or trustee at least l east 2 days prior  prior  to the scheduled meeting, unless a longer period is provided in the bylaws. (Section 52; Section 53)

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years for the other 1/3, and 3 years for the rest). (Section 91; Section 92) 49.

50.

51.

Incorporation of educational institutions no longer require the favourable recommendation   of the Department of recommendation Education, Culture, and Sports. (Section 107 of OCC was not reproduced in RCC) The voting requirement in case of voluntary dissolution where no creditors are affected now only requires majority vote of the board and affirmative vote of stockholders owning at least majority   of the outstanding capital stock or majority majority of the members. (Section 134; Section 118) Notice on the meeting to vote on the voluntary dissolution must be given to each stockholder or member at least 20 days prior to prior to the meeting. Notice may now be given electronically electronically.. (Section 134; Section 118)

52.

A verified request for voluntary dissolution shall be filed with the SEC containing required information and accompanied by required documents.. (Section 134; Section 118) documents

53.

The SEC must approve the request f or f or dissolution within 15 days  days  from receipt and issue the certificate of dissolution. (Section 134; Section 118)

54.

For corporations regulated by government agencies, applications for dissolution must be favourably recommended by the appropriate government agency. agency. (Section 134; Section 118)

55.

In case of voluntary dissolutions where creditors are affected, the petition must contain certain information and accompanied by required documents.. (Section 135; Section 119) documents

56.

It is now clearly provided that voluntary dissolution shall take effect only upon the issuance by the SEC of a certificate of dissolution.. (Sections 134 and 135; Sections dissolution 118 and 119)

57.

In case of expiration of corporate term, dissolution shall automatically take effect on the day following the last day of the corporate term   stated in the articles of incorporation term without need for the issuance of the certificate of dissolution. (Section 136; Section 120)

58.

The grounds for involuntary dissolution  dissolution  are now listed down. (Section 138; Section 121)

59.

Banks  are excluded from the provision on Banks  corporate liquidation. (Section 139, Section 122)

60.

Upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated in favour of the national government.. (Section 139; Section 122) government

61.

The threshold for bonds or securities required for foreign corporations applying for license to do business in the Philippines has been adjusted P100,000 to P500,000 P500,000   (as initial bond or security) and P5,000,000 to P10,000,000 (licensee’s gross income for the fiscal year that will require additional securities). (Section 143; Section 126)

62.

If a domestic corporation is appointed as a resident agent of a foreign corporation, it must be of sound financial standing and must show proof that it in good standing as standing as certified by the SEC. (Section 144; Section 127)

63.

Administrative sanctions such as fines for the violations of the RCC or of a rule, regulation, or order of the SEC have been increased. Aside from fines, the SEC may issue permanent cease and desist orders, orders, or suspend or revoke certificates of incorporation, or dissolve corporations corporation s and forfeit its assets. (Section 158; Sections 143 and 144)

64.

Reportorial requiremen requirements ts for  for every corporation are now listed down, with a right to redact confidential information. (Section 177; Section 141)

65.

The powers, functions, and jurisdiction of jurisdiction of the SEC are now listed down. (Section 179; Section

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INNOVATIONS: 1.

Revival of corporations  corporations  whose terms have expired is now allowed subject to all of its duties, debts, and liabilities existing prior to its revival. (Section 11 of the RCC)

2.

An arbitration agreement may agreement may now be provided in the articles of incorporation. (Section 13)

3.

One Person Corporations must bear “ OPC OPC”” at end of its corporate name. (Section 14)

12.

The form of articles of incorporation now includes the undertaking und ertaking to change the name of the corporation when there exists a prior right or if it is contrary to law, public morals, good customs, or public policy. (Section 14)

Directors and trustees elected are now required to observe the rules of good corporate governance.. (Section 23) governance

13.

Corporations vested with public interest are required to elect a compliance officer. officer. (Section 24)

14.

Non-holding of elections and the reasons therefor shall be reported to the SEC within 30 days from date of the scheduled election. The new date of the election must not be later than 60 days from the scheduled date. If no new date has been designed or if the rescheduled date is not held, the SEC may summarily order the holding of an election upon application of a stockholder, member, director, or trustee. (Section 25)

15.

The SEC has now the authority to order the removal of a disqualified director or trustee motu proprio or upon verified complaint, without prejudice to the sanctions that the SEC may impose on directors or trustees who knew of the disqualification but failed to remove such director or trustee. (Section 27)

16.

“Emergency board”: board”: When a vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled among the officers of the corporation by unanimous vote of the remaining directors or trustees. 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

4.

5.

Rules on distinguishability of corporate names are names  are provided. (Section 17)

6.

SEC now has the authority to cause the removal   of all visible signages, marks, removal advertisements, labels, prints, and other effects bearing a disallowed corporate name. (Section 17)

7.

Failure to comply with SEC’s order related to disallowed corporate name may hold the corporation and its responsible directors or officers in contempt contempt   and/or hold them administratively, civilly, and/or criminally liable and/or revoke the registration of the corporation. (Section 17)

8.

Verification of intended corporate name prior name prior to registration is now expressly provided. (Section 18)

9.

After commencing its business, failure of the corporation to operate for at least 5 consecutive years may be placed under delinquent status by SEC after due notice and hearing. A delinquent corporation shall have 2 years to resume operations and comply with all SECprescribed requirements. Failure to comply shall be a cause for revocation of the certificate of incorporation. (Section 21)

10.

Corporations vested with public interest shall interest  shall have independent directors  directors  constituting 20%

authorized in the bylaws or by a majority of the board. Such modes are available to corporations vested with public interest, even in the absence of a provision in the bylaws. Stockholders or members who participate through remote communication or in absentia shall be deemed present for purposes of quorum. (Section 23)

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17.

18.

19.

20.

Directors or trustees shall not participate in participate in the determination of their own per diems or compensation. (Section 29)

28.

An arbitration agreement may agreement may now be provided in the bylaws. (Article 46)

29.

A stockholder or member may now propose the holding   of a special meeting and items to be holding included in the agenda. (Section 46)

30.

The stock and transfer book or membership book shall be closed at least 20 days for regular meetings and 7 days for special meetings before the scheduled date  date  of the meeting, unless the bylaws provide for a longer period. (Section 49)

31.

In case of postponeme postponement nt of stockholders’ or members’ regular meetings, meetings, written notice shall be sent 2 weeks prior to the date of the meeting, unless a different period is required. (Section 49)

32.

The right to vote of stockholders and members may now be exercised through remote communication or in absentia  absentia   when so authorized in the bylaws. The SEC shall issue rules governing such participation participation.. (Sections 49, 57, and 88)

33.

The articles of incorporation or bylaws may provide for a greater majority to majority to determine the quorum during board meetings. (Section 52)

34.

A director or trustee who has a potential interest in any related party transaction must transaction must recuse from voting on the approval of the related party transaction. (Section 52)

35.

The determination of whether or not the sale involves all or substantially all of the corporation’s properties and assets as sets must be computed based on its net asset value, value, as shown in its latest financial statements. (Section 39)

The SEC may require corporation whose securities are traded in trading markets and which can reasonably demonstrate their capability to do so to issue their securities or shares of stocks in uncertificate uncertificated d or scripless form.. (Section 62) form

36.

Management contracts shall be entered into for a period not longer than 5 years  years   for any one term. (Section 43)

The inspecting or reproducing party of corporate books or records shall remain bound by confidentiality rules. rules. (Section 73)

37.

A requesting party who is not a stockholder or member of record, or is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor shall competitor  shall

Corporations vested with public interest shall submit to their shareholders and the SEC an annual report of the total compensation of each of the directors or trustees. (Section 29) Validity of dealings of directors, trustees, or officers with corporations vested with public interest require interest  require approval by at least 2/3 of the entire membership of the board, with at least a majority of the independent directors voting to approve the material contract. (Section 31) The board is now empowered to create special committees of temporary or permanent nature and determine the members’ term, composition, compensation, powers, and responsibilities. responsib ilities. (Section 34)

21.

Corporations have now the express power to enter into a partnership or joint venture with venture  with any person. (Section 35)

22.

The sale or other disposition of assets of a corporation is now subject to the Philippine Competition Act or RA 10667. 10667 . (Section 39)

23.

24.

25.

26.

In non-stock corporations where there ar e no members with voting rights, rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction involving sale or other disposition of corporate assets. (Section 39)

The modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes  votes  must now be provided in the

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39.

If the corporation denies or does not act on a demand for inspection and/or reproduction of corporate records, the aggrieved party may report such denial or inaction to the SEC. SEC . The SEC may issue an order directing the inspection or reproduction of the requested records after a summary investigation conducted within 5 days from receipt of such report. (Section 73)

h.

The treasurer, corporate secretary, and other officers shall be appointed within 15 days from issuance of the certificate of incorporation. The single stockholder may not be appointed as the corporate secretary. The single stockholder may be appointed as treasurer but must give a bond to the SEC. (Section 122)

40.

The SEC may require stock corporations which transfer and/or trade stocks in secondary markets to have an independent transfer agent.. (Section 73) agent

i.

The corporate secretary of an OPC has special functions. (Section 123)

 j.

The single stockholder is designate a nominee and nominee who shall take the single stockholder in case incapacity. (Section 124)

k.

The term of the nominee and alternate nominee shall only be temporary until the heirs have been lawfully determined or the estate becomes the single stockholder. (Section 125)

l.

The nominee or alternate nominee may be changed by submitting the names of the new nominees and their corresponding consent to the SEC without need of amending the OPC’s articles of incorporation. (Section 126)

m.

All actions, decisions, and resolutions taken by the OPC shall be contained in a minutes book. (Section 127)

n.

Actions of the OPC may be recorded in the minutes book in lieu of meetings. (Section 128)

o.

OPCs are required to submit reportorial

41.

42.

43.

Independent trustees  trustees  of non-stock corporations vested with public interest need not be a member of the non-stock corporation. (Section 91) A non-stock corporation shall, at all times, keep a list of its members and their proxies  proxies  in the form the SEC may require. The list shall be updated to reflect the members and proxies of record 20 days prior to any scheduled election. (Section 92) Allowing One Person Corporations (OPCs): Corporations (OPCs): a.

OPCs may be formed by a natural person , trust, or an estate. (Section 116)

b.

Banks, quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, non-chartered GOCCs, and natural persons licensed to exercise a profession, except when allowed under special laws, may not incorporate as OPCs. (Section 116)

c.

There is no minimum authorized capital stock

required to an alternate place of the of death or

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46.

a rule, regulation, or order of the SEC. (Section 154)

i.

Engaging intermediaries for graft and corrupt practices

The SEC, through its designated officer, has subpoena powers. subpoena  powers. (Section 155)

 j.

Tolerating graft and corrupt practices

k.

Retaliation against whistleblower whistleblowers s

47.

The SEC may issue cease and desist orders (even ex parte) to persons reasonable believed to have violated or about to violate the RCC, or a rule, regulation, or order of the SEC. (Section 156)

48.

The SEC has contempt powers subject powers subject to due notice and hearing. (Section 157)

49.

Specific acts  acts  are punishable with corresponding fine: (Sections 159 to 169)

50.

There exists a liability for all directors, trustees, officers, and other employees, including aiders and abettors  abettors  who commits any violation of the RCC, any rule, regulation, or order of the SEC. (Sections 171 and 172)

51.

The amount collected by the SEC shall be deposited and maintained in a separate account to fund its modernization  modernization   and to augment its operational expenses. (Section 175)

52.

The SEC shall exercise visitorial powers  powers  over all corporations. (Section 178)

53.

The SEC shall develop and implement an electronic filing and monitoring system. system. (Section 180)

54.

An arbitration procedure is procedure is laid down to govern arbitration agreements agreements provided in the articles of incorporation incorporat ion or bylaws. (Section 181)

55.

Jurisdiction over party-list organizations  organizations  are transferred to the Commission on Elections or COMELEC. (Section 182)

56.

Corporations affected  by affected  the new requirements are given 2 years from the effectivity of the RCC within which to comply.

8.

Rules on quorum in stockholders’ and members’ meetings and who shall preside (Sections (Sectio ns 51 and

a

a.

Unauthorized use of corporate name

b.

Violation of disqualificat disqualification ion provision

c.

Violation of duty to maintain records and to allow their inspection or reproduction

d.

Willful certification of incomplete, inaccurate, false, or misleading statements statements or reports

e.

Independent auditor collusion

f.

Obtaining corporate registration through fraud

g.

Fraudulent conduct of business

h.

Acting as intermediaries for graft and corrupt practices

RETENTIONS: 1.

Definition and classes of corporations, corporations created by special laws,

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12.

Definition and purposes of non-stock corporations and non-transferability and termination of membership (Sections 86 to 87 and 89 to 90)

17.

Rule on application for a license to do business by foreign corporations (Section 142)

18.

Rules on applicable laws to foreign corporations, corporations, amendments to its articles of incorporation and bylaws, amendment of license, merger or consolidation, doing business without a license, revocation of license, issuance of certificate of revocation, and withdrawal (Sections 146 to 153)

13.

Rules in distribution of assets in non-stock corporations (Sections 93 and 94)

14.

Rules governing close corporations (Sections 95 to 104)

15.

Rules governing religious corporation corporations s (Sections 107 to 114)

19.

Definition of outstanding capital stock (Section 173)

16.

Definition and rights of foreign corporation (Section 140)

20.

Rule on designation of governing boards (Section 174)

The RCC becomes effective upon complete publication in the Official Gazette or in at least 2 newspapers of general circulation. The official copy of RCC is now available for download in the website of the Official Gazette.

DISCLAIMER: This is for general information only. This shall not serve as a substitute for professional advice DISCLAIMER: which depends on specific facts and circumstances. If this would be used for academic or other informational  purposes, securing the author’s express express permission permission is required. required.  All rights reserved. ABOUT THE AUTHOR: AUTHOR:  Atty. Nico B. Valderrama, CPA, MPM is a corporate legal counsel for a group of companies engaged in manufacturing, transportation, and real estate development. He also provides legal counselling to various clients engaged in hospital business, real estate brokerage, and commercial leasing. He  is a junior reviewer in the Review School of Account Accountancy ancy (ReSA) and teaches Regulatory Framewo Framework rk for Business Transactions (RFBT) which covers several civil and commercial laws. He also teaches civil and commer commercial cial laws  in the Arellano University School of Law (AUSL). He is likewise licensed to practice practice law in the State of New York, York, USA.