Proposed amendments to the Corporation Code
The buzz on the amendments to the tax laws has not wavered since last year. However, another important proposed change to our laws which deserves to be highlighted is the amendment of the Corporation Code. Senate Bill No. 1280 (SB 1280) “An Act Amending Batas Pambansa Blg. 68 or the Corporation Code of the Philippines,” has hurdled third reading at the Senate.
Some of the significant amendment in the Corporation Code provided in SB 1280 are as follows:
a. One Person Corporation. Under SB 1280, a single shareholder, who is an individual, a trust or an estate may form a one-person corporation (OPC). Currently in order to form a corporation, there should be at least five incorporators.
There is no minimum authorized capital stock requirement for the OPC but at least 25% of the authorized capital stock must be subscribed and in no case shall the paid-up capital be less than five thousand pesos.
A one-person corporation must carry the letters “OPC” either below or at the end of its corporate name.
In so far as corporate actions are concerned, meetings are not required. A written resolution, signed and dated by the single stockholder and recorded in the minutes book, is valid for any corporate act of the OPC. b. Perpetual existence of corporations. Under SB 1280 a corporation shall have perpetual existence unless otherwise provided in the Certificate of Incorporation. This proposed amendment is a response to calls that a corporate term of 50 years under current rules is too short and runs counter to the belief that corporations are intended to survive beyond the lifetime of its incorporators.
One of the more significant amendments introduced by SB 1280 is the provision allowing applications for revival of the corporate existence. Under the proposed amendment, a corporation whose corporate life has expired is now allowed to apply for revival of corporate existence together with all the rights and privileges under its certificate of incorporation and subject to all the duties, debts and liabilities existing prior to the expiration of the term. This amendment is a response to numerous cases in the past where the SEC and the courts has consistently opined that corporation whose corporate term has expired can no longer be revived.
The executive and the judicial departments have both held that a corporation whose life has expired can no longer be revived even if the failure to amend the Articles of Incorporation to extend the corporate term was due to mere inadvertence or oversight. Thus, stakeholders have no other choice but to proceed to dissolution and liquidate the assets of the corporation.
In fact, the BIR recently issued Revenue Memorandum Circular No. 41-2018 stating that the TIN of a corporation whose corporate life has lapsed without being extended shall be used in the process of liquidation and winding up and even if the corporation re-registers with the SEC, a new TIN will be assigned to it. Hence, with the proposed amendment, the shareholders may now have the option to continue with their business and rectify the mistake without going directly to dissolution.
However, the provision of the Senate Bill does not specify the length of time since expiry for a company to qualify for revival. Does it mean that a corporation whose life has expired 10 years ago and has not liquidated may still apply for revival? c. Requirements on corporate
officers. Similar to current rules, a President, Treasurer and Corporate Secretary are required to be elected once the Board of Directors has formally organized. However, it is noted that under the proposed amendment the President and the Treasurer must now be both directors of the corporation and a residency requirement is now imposed on at least one of them. As of now, only the President is required to be a director with no residency requirement imposed. Moreover, as regards the qualification of the Corporate Secretary, under existing laws he must be a resident and citizen of the Philippines. However, under the proposed amendment, Filipino citizenship is no longer required. d. Disqualifications of directors,
trustees or officers. In the proposed
law, an additional disqualification for person to be a director, trustee or officer, is conviction by final judgment of violation of the Securities Regulation Code and of crimes of fraud or deceit whether by a local or foreign court, within five years prior to his election or appointment. e. Power of the SEC to call elections. Under SB 1280, the SEC may upon application of stockholder, member, or trustee and after verification of the failure to hold elections, summarily order the holding of elections. The SEC likewise has the power to issue orders on the time and date of the elections, designate a presiding officer, set a quorum requirement and designate record dates for the determination of the stockholders or members entitled to vote.
f. Emergency Board. In the event that a vacancy in the Board of Directors prevents the directors from constituting a quorum and immediate action is required to prevent grave substantial and irreparable loss or damage to the corporation, the remaining directors may fill up the vacancy from the existing officers of the Corporation. The term of the designated director shall cease upon the termination of the emergency or upon election of the replacement director, and his actions are limited to the necessary action needed due to the emergency. g. Securities deposit requirement for foreign corporations. A securities deposit is required by the Corporation Code to protect creditors of foreign entities in case of future insolvency. At present, branch offices of foreign corporation which are given license to do business in the Philippines are required to submit securities deposits within 60 days from the issuance of the license. Additional securities are required to be submitted in the amount of at least 2% of the of the amount by which the licensee’s gross income for the year exceeds five million pesos. In the event SB 1280 becomes a law, the minimum amount of securities deposit that will be required to be submitted to the SEC is P500,000, which increased from P100,000 under the previous law. Moreover, as regards the additional securities deposit, the threshold for gross income which a licensee’s gross income shall exceed is P10 million.
The above are just a few of the noted proposed changes in the law, but overall, SB 1280 may have introduced some meaningful changes to our Corporation Code. It bears stressing that these changes may play an important part in improving the way of doing business in the Philippines. Let’s hope that this helps make our country more attractive to foreign investors.