A moral lesson can be gleaned from the circumstances surrounding the childhood of the greatest man who walked the earth, Jesus. This vital lesson also helps investors thrive in their business transactions, especially amidst fast-changing times.
After Jesus was born in Bethlehem, Jehovah’s angel appeared to Joseph in a dream, telling him to take the young Jesus and Mary and flee to Egypt. Joseph, Mary, and their son immediately made their escape in the night. This immediate response ultimately saved the life of the young Jesus from Herod’s order to kill all the boys two years of age and under in Bethlehem and the surrounding areas. The family’s readiness to adjust their gears, so to speak, as manifested by their loyal obedience to divine instruction, was crucial to the young Messiah’s survival.
In a business perspective, compliance to existing rules and regulations is essential to achieving commercial milestones. Focus must be given to new issuances, so that appropriate action can be adapted in due course.
One of the most patrolled enactments under the present administration is the 2019 Revised Corporation Code (RCC) of the Philippines. After it took effect on Feb. 23, the government’s corporate regulators issued various opinions applying and interpreting the RCC provisions. Keeping abreast of the views and opinions of the Securities and Exchange Commission (SEC) will help companies readily adjust their corporate wheels, ensuring timely compliance.
For the benefit of our avid readers, we have undertaken the exciting work of reviewing the recent opinions issued by the SEC – Office of the General Counsel (OGC). Below are some of our notes:
1. As long as the foreign corporation still exists legally in the place of incorporation, its license to do business in the Philippines remains valid, unless sooner surrendered, revoked, suspended, or annulled in the accordance with the RCC or other special laws. The SEC noted that Section 126 of the then (1980) Corporation Code has been reproduced under Section 143 of the RCC (SEC – OGC Opinion No. 19-33).
2. While Section 13 of the 1980 Corporation Code no longer appears in the RCC, because the minimum paid-up capital is no longer required upon incorporation, the term and concept “paid-up capital” survives and is still applicable under the fourth paragraph of Section 37 of the RCC on the increase of capital stock. The SEC mentioned that paid-up capital differs from paid-in capital, such that the former refers to shares actually subscribed for and paid, while the latter is the sum of the amount paid for shares of stock issued, plus additional paid-in capital (APIC), or the excess or premium paid over the par value of such shares (SEC – OGC Opinion No. 19-40).
3. Under Section 11 of the RCC, the corporate term of a corporation existing prior to and which continues to exist upon the effectivity of the RCC shall be automatically deemed perpetual without any further action on the part of the corporation. Since the automatic conversion of the corporate term to perpetual existence does not require an amendment of the articles of incorporation (AoI), the two-thirds affirmative vote of the outstanding shares to amend to AoI would no longer be required (SEC – OGC Opinion No. 19-28).
4. Based on Section 42 of the RCC, it is not mandatory for a corporation to seek prior SEC approval/advice to declare cash and stock dividends, provided that the requirements are complied with. For cash dividend declarations, the board of directors must approve such dividend declaration and there must be sufficient unrestricted retained earnings as of the last fiscal or calendar year. In addition to these requirements, the approval of the stockholders representing at least two-thirds of the outstanding capital and sufficient portion of the present authorized capital must be obtained in case of stock dividend declaration (SEC – OGC Opinion No. 19-23).
5. Section 139 of the RCC provides that a corporation whose corporate existence is terminated shall continue as body corporate for three years for the purpose of liquidation to enable it to settle and close its affairs, dispose of and convey its property, and distribute its assets. Hence, within a period of three years after the expiration of its corporate term, an entity may legally sell and transfer its remaining assets to complete the liquidation (SEC – OGC Opinion No. 19-34).
Since the law is in its infancy stage, we expect the SEC to be faced with more issues on applying and interpreting the RCC provisions.
For example, the statute does not require a minimum capital stock requirement for stock corporations, except as otherwise specifically provided by special law. Investors are granted leniency to register their desired businesses with the SEC giving birth to the juridical personalities of such corporate vehicles. Thereafter, companies will have the legal personality to freely enter into commercial dealings and transactions with the public.
For this, the SEC, being the government’s arm to implement the RCC, may consider looking at the minimum capital stock requirement of certain companies to ensure that the public will only invest in entities with sufficient funding and the ability to comply with agreed commercial terms. Otherwise, this leniency may be used to hide fraudulent transactions to the detriment of the investing market. The public relies heavily on the SEC’s expertise and experience concerning this matter.
Undoubtedly, it is crucial for all juridical entities to be updated with the views that the SEC will take. The willingness to adjust the gears of corporate vehicles will pave the way to economic success.
“Change is coming” was the introductory slogan of this current administration, and efforts are in place to achieve this goal. Consequently, public and private stakeholders should keep an eye on the changes and revisions being introduced in the system “for the scene of this world is changing.” – I Corinthians 7:31.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Renato R. Balisacan, Jr. is a manager of Tax Advisory & Compliance division of P&A Grant Thornton