Perpetually yours
The wait is over. And, if I may add, #MayForever. That is, at least, in the case of corporations that have now been granted perpetual corporate term under the Revised Corporation Code of the Philippines.
On 20 February 2019, President Rodrigo Duterte signed into law Republic Act No. 11232, or the Revised Corporation Code of the Philippines, finally amending the 38-year-old Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines. The act is consistent with the President’s 10-point economic agenda, which includes simplifying and relaxing several procedures in doing business in the country that will enable corporations and other juridical entities to thrive.
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Here are some of the fundamental changes under the revised corporation code.
Perpetual corporate term
The new code grants perpetual corporate term to corporations, both existing and new, unless provided otherwise in the articles of incorporation (AoI). The new code also allows the revival of corporate existence of those with expired terms, subject to the approval of the Securities and Exchange Commission (SEC). The old code limited the corporate term to 50 years, subject to extension for a maximum of another 50 years following the provisions of the old code.
According to the SEC, the grant of perpetual corporate term would eliminate the possibility of businesses prematurely closing down and will foster a sense of longevity that can translate to long-term and sustainable investments.
One-person corporation
The new code removed the minimum required number of incorporators, while keeping the same maximum number of 15. The new code permits an individual to form a one-person corporation, allowing more flexibility in pursuing business.
The allowance of one-person corporations makes it easier for small- to medium-sized business owners to incorporate, thus providing a practicable alternative for sole proprietors.
Removal of minimum capital stock requirement
Under the new code, stock corporations shall not be required to have minimum capital stock, unless specifically provided under special law. Prior to the amendment, at least 25 percent of the authorized capital stock must be subscribed and at least 25 percent of the subscribed capital should be paid at the time of incorporation.
The change will greatly benefit small- to medium-sized enterprises by making it easier for them to incorporate.
Extended period to commence business operation
The period of non-use of charter has been extended to five years under the new code; the old code allowed for only two years.
For corporations that commenced business but have become inoperative for a period of at least five consecutive years, the SEC may place them under delinquent status after due notice and hearing.
Thereafter, they have two years within which to resume operations. Otherwise, their certificate of incorporation may eventually be revoked.
Lifting the ban on corporate donations for political parties or candidates
The new code expressly bans only foreign corporations from giving donations in aid of any political party or candidate or for purposes of partisan political activity.
The statement went from being “no corporation, domestic or foreign” under the old code, to “no foreign corporation” under the new code.
Emergency board
The new code has a provision for an emergency board when a vacancy in a corporation’s board of directors prevents the remaining directors from constituting a quorum and, consequently, from taking emergency actions.
The officers of the corporation, by a unanimous vote of the remaining directors or trustees, may temporarily fill the vacancy. The corporation must then notify the SEC within three days from the creation of the emergency board. It is to be stressed that the designation of the director or trustee shall be limited to the emergency action only.
Alternative dispute resolution
An arbitration agreement may now be provided in the articles of incorporation or bylaws of a corporation.
With such an agreement in place, alternative dispute resolution mechanisms for intra-corporate issues may be referred to arbitration, except those involving criminal offenses and interests of third parties.
Participation via remote communication, in absentia
Use of remote communication, such as videoconferencing and teleconferencing, during stockholder meetings as well as participation and voting in absentia are now permitted under the new code.
To ensure optimal stockholder participation, the SEC shall issue the guidelines governing participation and voting through remote communication or in absentia.
Electronic filing and monitoring system
The new law mandates the SEC to implement an electronic filing and monitoring system to better suit the modern times. This will facilitate and expedite various processes, including corporate name reservation and registration, incorporation, submission of reports, notices, and sharing of pertinent information with other government agencies.
As per the SEC, it has implemented a fully automated and online company registration system for the pre-processing of corporations and partnerships, licensing of foreign corporations, amendments of the articles of incorporation and other corporate applications requiring the commission’s approval.
Collectively, these developments are meant to encourage entrepreneurship and the formation of new businesses, to improve the ease of doing business in the country, to provide more protection to corporations and stockholders, to promote good corporate governance, and to improve the economy’s competitiveness.
A welcome development, indeed.
The author is a Senior Manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
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