(Last of five parts)
The conversion of an Ordinary Stock Corporation to a One Person Corporation (OPC) is explained in Section 131.
Under Section 131, when all the shares of record of an ordinary stock corporation are acquired by a single stockholder (who must be a natural person):
1.) He/she “may apply for conversion into” an OPC, and subject to the submission of such documents as the SEC (Securities and Exchange Commission) may require; and
2.) If the application for conversion is approved, the SEC shall issue a Certificate of Filing of Amended Articles of Incorporation reflecting the conversion.
3.) Rule on Succession of Liabilities: The OPC converted from an ordinary stock corporation shall succeed the latter and be legally responsible for all the latter’s outstanding liabilities as of the date of conversion.
Under the draft SEC Guidelines on the Conversion of an Ordinary Stock Corporation into a One Person Corporation, it is provided that:
(i) Only domestic corporations organized as a stock corporation may be converted into an OPC;
(ii) After a natural person of legal age, a trust, or an estate has acquired all of the outstanding capital stocks of an ordinary stock corporation may the latter apply for its conversion into an OPC;
(iii) Applications for conversion to an OPC will be processed as an amendment of the AOI/Bylaws to comply with the requirements as to corporate name, one director, indication of the Nominee and Alternate Nominee, and removal of such other provisions that are distinctive to ordinary stock corporations, etc.;
(iv) Conversion to OPC shall take effect upon SEC’s approval of the amended AOI through the issuance of a Certificate of Filing of Amended Articles of Incorporation, with the OPC retaining the SEC Company Registration Number with the addition of “OPC” at the end thereof; and
(v) The OPC shall succeed to all the outstanding liabilities and obligations of the converted ordinary stock corporation as of the date of approval of the conversion.
It is clear from the permissive language of Section 131 (“may apply for conversion”) that it is within the rights of the single stockholder of an ordinary stock corporation not to apply with the SEC for the conversion of the corporation into an OPC.
Since the Revised Corporation Code (RCC) seems to tolerate the existence of an ordinary stock corporation with a single natural-person-stockholder, this would show that the rule under the last paragraph of Section 10 (Number and Qualifications of Incorporators) that “A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code,” is clearly a “rule of incorporation” and not a default rule that would set all corporations with a single natural-person-stockholder to all being governed by Chapter III of Title XIII of the RCC. In other words, if at the point of incorporation of a stock corporation it is provided that it shall only have one natural-person-stockholder, there is no choice but to incorporate it as an OPC.
In a situation where all of the shares of stock of an ordinary stock corporation are acquired by a single natural-person-stockholder, would the SEC allow a formal amendment of the AOI, not to convert into an OPC, but rather to reduce the number of Board members to just one? Under such a scenario, the single natural-person-stockholder would be the sole Director and the President of the corporation, while the Corporate Secretary and the Treasurer would be officers who need not be members of the Board.
If such a scenario would be allowed, then there would be no impetus for the single natural-person-stockholder to formally convert into an OPC which is saddled with the burden of showing that is adequately financed to be able to apply the doctrine of limited liability.
It is our expectation that the Supreme Court will eventually develop a unifying doctrine on the application of the doctrine of limited liability for both the OPC and an ordinary stock corporation with a single natural-person stockholder.
CONVERSION FROM OPC TO AN ORDINARY STOCK CORPORATION
Under Section 132 of the RCC, an OPC may be converted into an ordinary stock corporation by:
1.) Due notice to be filed with SEC, within 60 days from the occurrence of the circumstances leading to the conversion into an ordinary stock corporation;
2.) Compliance with all other requirements for stock corporations; and,
3.) When all requirements have been complied with, SEC shall issue a certificate of filing of amended articles of incorporation reflecting the conversion.
4.) Succession of Liabilities: The ordinary stock corporation converted from an OPC shall succeed the latter and be legally responsible for all the latter’s liabilities as of the date of conversion.
Since the language of the first paragraph of Section 31 is permissive (an OPC “may be converted into an ordinary stock corporation”), is it within the statutory intent that even when an OPC has become constituted of more than one natural-person-stockholder (e.g. the Single Stockholder sells some of his shares to other individuals), it remains governed by Chapter III of Title XIII of the RCC?
Since indication that a corporation is an “OPC” is a clear requirement under the RCC, it seems that even when an OPC becomes constituted of several stockholders, it remains bound by the provisions of Chapter III of Title XIII for the protection of its creditors. It may be the reason why when an OPC becomes constituted of several stockholders, there is every commercial reason to formally convert into an ordinary stock corporation; otherwise, the registered stockholders run the risk of being unlimited liable for the debts and other liabilities of the corporation.
CONVERSION/DISSOLUTION OF AN OPC IN CASE OF DEATH OF THE SINGLE STOCKHOLDER
Under the second paragraph of Section 132, in case of death of the Single Stockholder:
1.) Within seven days from the receipt of either: (i) An Affidavit of Heirship or Self-Adjudication executed by a sole heir; or (ii) Any other legal document declaring the legal heirs of the Single Stockholder; the Nominee or Alternate Nominee shall transfer the shares to the duly designated legal heir or estate and notify SEC of the transfer;
2.) Within 60 days from the transfer of the shares, the legal heirs shall notify the SEC of their decision to either: (i) Wind-up and dissolve the OPC; or (ii) Convert it into an ordinary stock corporation.
The language of the second paragraph of Section 132 seems mandatory in character. When the Single Stockholder dies, it is mandatory for the Nominee (Alternate Nominee) to transfer the shares of the OPC to the sole heir or the estate (if there are several heirs), and to notify the SEC.
It seems from the language of Section 132, that if there is only one heir, the OPC can remain subsisting with the only sole heir as the new Single Stockholder. But even when there are several heirs, and the shares are transferred to the estate of the decedent, can the OPC not continue to subsists with the “estate” (i.e., the administrator of the estate) as the Single Stockholder?
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP
Cesar L. Villanueva is Chair of the MAP Corporate Governance Committee, the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs (GCG).