SEC issues draft rules for firms converting to one shareholder

By Denise A. Valdez, Reporter

THE Securities and Exchange Commission (SEC) has issued a draft memorandum circular on the guidelines for converting corporations to a one person corporation (OPC) or to an ordinary stock corporation.

The country’s corporate regulator uploaded on its website Monday its draft rules for the conversion process, which will be up for comment before its final approval.

“SEC will wait for the comments, then review the comments, finalize the guidelines, approve the guidelines,” SEC Commission Secretary Armando A. Pan, Jr. said in a text message yesterday.

This follows the introduction of single-stockholder corporations through Republic Act No. 11232 or the Revised Corporation Code of the Philippines, which took effect in February 2019.

The circular breaks down the rules in three parts: those that apply to ordinary stock corporations converting into OPCs, those that apply to OPCs converting into ordinary stock corporations, and those that apply to both.

For ordinary stock corporations converting into OPCs, the rules require that such companies submit to the SEC an affidavit of conversion discussing the sale of shares to a single stockholder, and an amended articles of incorporation, among others, to kickstart the application process for conversion.

Once the new articles of incorporation is approved through the issuance of a certificate by the SEC, the old articles of incorporation and bylaws of the company will be superseded. It may retain the same SEC company registration number, but will have an “OPC” prefix.

The single stockholder of the OPC will then be legally responsible for all outstanding liabilities of the ordinary stock corporation he/she acquired.

For OPCs converting into an ordinary stock corporation, among the documentary requirements are the notice of conversion detailing the transfer of shares to new stockholders, amended articles of incorporation and bylaws, and endorsement clearances from the SEC and other relevant government agencies.

The SEC requires that in such cases, the application for conversion must be filed within 60 days from the “occurrence of the circumstances leading to the conversion,” which it classified as the date when the shares are “actually transferred in the name of the transferees.”

Upon the SEC’s issuance of certificate of filing of amended articles of incorporation and bylaws, the OPC’s old articles of incorporation will be deemed superseded. The company will retain its SEC registration number, but will have a “CS” prefix.

Like in ordinary stock corporations converting into OPCs, OPCs that will convert into ordinary stock corporations will take all outstanding liabilities of the company it acquired.

The SEC previously said the introduction of OPCs will spur the growth of more businesses in the country as it makes the process simple for entrepreneurs to open a limited liability company.