THE Securities and Exchange Commission (SEC) is now allowing companies to apply for conversion from an ordinary stock corporation to a one person corporation, and vice versa.

The regulator signed Memorandum Circular No. 27 on Aug. 25, which outlines the guidelines to convert to either ordinary stock or one person corporation. It was posted on the SEC website on Wednesday.

The circular puts into action Republic Act No. 11232 or the Revised Corporation Code of the Philippines, which was enacted last year to allow the creation of one person corporations and encourage company formation in the country.

Based on the guidelines, an ordinary stock corporation whose outstanding capital stocks are all held by a single stockholder may apply for conversion into a one person corporation.

In doing so, the articles of incorporation of the company will be amended, and all its outstanding liabilities will fall under the one person corporation. The company may retain its SEC registration number with an “OPC” suffix to indicate its one-person nature.

On the other hand, when the shares in a one person corporation is no longer held by a single stockholder, it must apply to be an ordinary stock corporation. Its articles of incorporation will be amended and its liabilities will be transferred to the ordinary stock corporation.

The company’s SEC registration number will be retained, but will lose its “OPC” suffix to indicate it is no longer a one-person firm.

The rules are set to take effect after the circular is published in a newspaper of general circulation, which the SEC intends to do this week.

The regulator has previously said that allowing one-person corporations will open opportunities for entrepreneurs to open a limited liability company. Based on 2018 data from the Department of Trade and Industry, 99.52% of businesses in the Philippines are micro-, small-, and medium-sized enterprises.

The initiative of the SEC is seen to benefit business owners as this will allow them to benefit from corporate perks such as those under the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The bill aims to reduce the corporate income tax rate to 25% from the current 30%, until it reaches 20% by 2027.

“Allowing the conversion of ordinary stock corporations to one person corporations, and vice versa, would allow greater leeway on the part of the business owner/s to adapt to their respective peculiar business situations in terms of flexibility on the preferred ownership structure and the requirements that come along with either forms of corporations,” Mr. Ricafort said in an email to BusinessWorld.

“At the same time, this allows the business owner/s to enjoy the benefits of continuously having a corporation as a juridical entity/form of business, especially in terms of having limited liability only up to the extent of the shareholdings/equity of the owner/s in the corporation, unlike in other forms of ownership such as sole proprietorships and partnerships where the liability extends to the personal capacity/assets of the business owner/s,” he added. — Denise A. Valdez