Decoding the revised Corporation Code (Part II)

In the first part of this article on the revised Corporation Code of the Philippines, I mentioned that directors may now be elected by stockholders through remote communication and in absentia if allowed in the by-laws or approved by majority of the board of directors. The Securities and Exchange Commission (SEC) will issue rules and regulations to govern the manner of participation through these means. In consonance with this, the by-laws should now mention the allowable modes by which stockholders and directors may attend meetings. In addition, the by-laws should also provide guidelines for setting a director’s compensation, the maximum number of independent directors (which should not exceed the limit under the Code), and the arbitration agreement, if any.
Under the new Code, stockholders are now allowed to vote via remote communication, in absentia or through the traditional proxy. As for the schedule of the regular stockholders’ meeting, if the date is not fixed in the by-laws, it should now be on any date after April 15 of every year, as determined by the board. The period within which to serve the notice has also been changed from two weeks to 21 days prior to the meeting, unless the by-laws provide a specific notice period. Service may now be made electronically or in any manner the SEC may allow.
As for the venue, if holding the meeting at the principal office is not practicable, it may now be held elsewhere within the same city/municipality. Moreover, unless the by-laws provide a longer period, the stock and transfer book should be closed at least 20 days prior to the regular meeting and seven days before a special meeting.
With respect to directors’ regular meetings, notice should now be served within two days instead of only a day prior to the meeting, unless otherwise fixed in the by-laws. Directors may now participate and vote through remote communication such as videoconferencing, teleconferencing, or other alternative modes of communication that will reasonably allow participation, but they still cannot attend or vote through proxy.
In case of mergers and consolidations, the following are now specifically required to be reflected in the Articles of Merger: a) carrying amounts and fair value of the assets and liabilities of the respective corporations as of an agreed cut-off date, b) method to be used in the merging/consolidating the accounts of the companies, c) provisional or pro-formal values, as merged or consolidated, using the applicable accounting method, and d) such other information the SEC may prescribe.
Appraisal right may now be exercised in case the stockholder dissents to the proposed investment of corporate funds for any purpose other than the company’s primary purpose.
The rules on stock corporations and the corresponding changes shall apply to non-stock corporations insofar as stated in the Code. As for the term of the trustees, they shall now all hold office for three years until their successors are elected and qualified. Except for independent trustees of non-stock corporations vested with public interest, only a member can be elected as a trustee of non-stock corporations. Also, a record should now be kept of the list of members and their proxies as may be required by the SEC, and this should be updated 20 days prior to any election.
A distinctive addition under the new Code is the One Person Corporation (OPC). It is worth noting that only a natural person, trust or estate may form an OPC. However, natural persons cannot set up an OPC for the purpose of exercising a profession, except if allowed under special laws. Moreover, banks, quasi-banks, pre-need, trust, insurance, public, publicly-listed and non-chartered government owned and controlled corporations cannot incorporate an OPC.
The OPC has no minimum required capital stock except as provided otherwise by special laws. Its Articles of Incorporation shall be filed similarly to that of a regular stock corporation but the letters “OPC” must be indicated either below or at the end its corporate name. For obvious reasons, it is not required to file by-laws.
The single stockholder (SH) shall be the sole director and president of the OPC. Within 15 days from incorporation, the SH should appoint a treasurer, a corporate secretary (who should be another person), and any other officer he deems necessary. Notice should be filed with the SEC within five days of their appointment. If the SH will also be the treasurer, the SEC will require the submission of a bond and an undertaking to faithfully administer the OPC’s funds. The bond is renewable every two years or as often required.
The SH should also appoint a nominee and an alternative nominee whose details and extent of authority must be stated in the AOI and whose written consent must be attached to the SEC application. The nominee or alternative nominee shall assume and manage the OPC in case of the SH’s death or incapacity. In the event of the SH’s death, the alternate shall transfer the shares to the heirs within seven days from receipt of legal documents from the heirs and notify the SEC, and the heirs should notify the SEC within sixty days after, of their decision either to wind up and dissolve the OPC or to convert it into an ordinary stock corporation. In case of a sole heir, he should be allowed to continue the OPC, if he wishes to.
As regards the liability, upon failure to provide proof that the property of the OPC is independent of the SH’s property, the SH shall be solidarity liable for the debts and liabilities of the OPC. The principle of piercing the corporate veil shall equally apply to the OPC.
An OPC may be converted into an ordinary corporation and vice versa, subject to compliance with the rules that the SEC may promulgate.
The OPC may be dissolved voluntarily upon a duly filed petition by the SH, or by the SEC motu propio or upon verified complaint on the grounds of non-use, in operation, fraud on procuring registration, final judgment of crimes such as tax evasion, smuggling, graft and corrupt practices, among others, as enumerated in the Code. Also, the OPC may be placed under delinquent status upon failure to file three reports to the SEC consecutively or intermittently.
For foreign corporations, the amount of the initial security deposit applicable to branch offices has been raised from P100,000 to P500,000, or such amount that the SEC may fix. The threshold for the additional security deposit has also been increased to 2% of the gross income for the year exceeding P10,000,000 (formerly P5,000,000 only). Moreover, domestic corporations appointed as resident agent should be of sound financial condition and must show proof of its good standing as certified by the SEC.
As to the reports, the annual financial statements of corporations with total assets or liabilities not exceeding P600,000 may merely be certified under oath by the corporation’s treasurer or chief financial officer. In all other cases, the financial statements must be audited by an independent certified public accountant.
The Code also further defined the coverage of the SEC’s power and authority with respect to supervision and regulation of corporations and mandated the development and implementation of an electronic filing and monitoring system which the SEC has already started.
Although it can be said that the much is still left to be done, the significant changes under the Code, such as the introduction of the OPC, removal of minimum paid-in capital, or the grant of perpetual existence to corporations, among others, indicate that deliberate steps are being taken to ease doing business in the Philippines.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Aimee Rose DG. dela Cruz is a senior manager with the Tax Services Group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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aimee.rose.d.dela.cruz@ph.pwc.com