CORPORATE WATCH

The bicameral conference committee in Congress has approved the reconciled version amending the 38-year-old Corporation Code of the Philippines to improve the country’s business climate for large and small businesses and to make it easier for investors to set up businesses (The Philippine Star, Nov. 28, 2018).

“Doing business in the country still presents many complexities, as reflected in the World Bank ‘Ease of Doing Business 2017 survey’ where the Philippines dropped seven spots from 164th to 171th in the ‘Starting a Business’ aspect,” Senate Minority Leader Franklin Drilon, author and sponsor of SB 1280, said after its unanimous approval at the Senate (senate.gov.ph, Aug. 7, 2018). “We must provide an environment conducive not just to big businesses, but make the corporate vehicle an appealing prospect for startups and entrepreneurs,” Drilon stressed (Ibid.).

“Our laws have not been updated…The old law, which set numerous and stringent incorporation requirements, discouraged individuals from setting up a business,” according to the lawmaker (Philstar, op. cit.). To make it easier to do business especially for small operations, the “One Person Corporation” is now to be allowed under the Revised Corporation Code (RCC).

What is this One Person Corporation — “OPC”?

Regulation and monitoring of the OPC would seem to be more difficult, as the OPC would be a one-person operational efficiency and compliance machine, expected to be guided by a conscience for good governance and corporate ethics.

In the final draft of the RCC, Chapter III is added on Special Corporations, defining the oneperson corporation as “a corporation with only a single stockholder who is a natural person or a juridical person.” Section 10 of the (old) Code was changed, removing the five-person minimum number of incorporators (maximum number is still 15) and the requirement that the incorporators shall be of legal age (https://www2.deloitte.com summary-corporation-code). Sec. 120 stipulates that the minimum amount of authorized capital stock for a one-person corporation is P1 million, to be paid by the one person stockholder in one lump sum at the time of incorporation and physically separated from the personal funds of the single stockholder.

Sec. 23 now defines that “the one-person corporation shall have only one director or trustee” (Ibid.). In the final draft of the RCC, Sec. 124, “the single stockholder shall be the sole director, president (or chief executive officer) and treasurer (or chief finance officer) of the one person corporation.” But there should be a corporate secretary other than the single stockholder (Sec. 125). Obviously, board and management meetings are not required.

It is the single stockholder/ director who should “maintain a minutes-book in which shall be entered in writing all actions, decisions, resolutions taken by the one-person corporation, signed by the single stockholder/ director, at the time the action, decision or resolution is made” (Sec. 131). But the corp sec would “manage the files” (including the minutes-book) and take care of compliance submissions as well as adherence to the articles of incorporation (no by-laws required). He/she also takes care of the transition of the OPC to a regular (multi-owned) corporation or dissolution in case of the single owner’s death, and the preestablished nominee/s to replace the single owner (Sec. 125).

Sec. 132 warns that there shall be no co-mingling of property. “Where the single stockholder cannot prove that the property of the one person corporation is independent of his own property, he shall assume the joint and several liability for the debts and liabilities of the one person corporation.” It is this section in the final draft that calls on the doctrine of “piercing the corporate veil” — how and how difficult would it be to now distinguish the natural person or juridical person from the separate and detached identity that is the OPC?

It would be most convenient for the single-person incorporator/stockholder to claim that separateness and distinguishability of the OPC and him/herself, where it is precisely the motivation for forming the OPC, in the first place. As with a regular (severally-owned) corporation, creditors, suppliers and other publics (including inheritance lines) would be limited to claim indebtedness and contractual obligations only on the assets and capital pledged and committed to the OPC by the single owner, separate from the single owners own unpledged other assets and obligations. In other jurisdictions where the OPC is established (like in the US), these are guided by common law rules on Limited Liability Corporations (LLCs), and in fact distinctions blur in favor of the one owner who may have committed transgressions in dealings with the public and with government (e.g., taxes).

So withered and tired is the old Single-proprietorship mold of a single owner doing straightforward business, risking all personal assets for honest returns. Who will still register as Single Proprietor? Are even the motivations of Partnerships aligning for

shared profits from shared personal liabilities to be now more carefully discerned? The virgin OPC in the Philippines dons the corporate veil.

Regulation and monitoring of the OPC would seem to be more difficult, as the OPC would be a oneperson operational efficiency and compliance machine, expected to be guided by a conscience for good governance and corporate ethics. At least in multiple-owned corporations, individual consciences and talents might provide for healthy differences in opinion and style that would install natural checks and balances within the corporation. And for the publics that the OPC would deal with, these banks and other lenders, suppliers, buyers etc., would have less confidence and more risk, lacking the internal audit and the devolution of roles and responsibilities in the various operators a regular corporation would have. A heightened “Buyer beware” reaction might dampen interests of investors and lenders. Ease of doing business might increase for the OPC with its new-found powers, but would it be easy for the “other side,” with the increased due diligence that must be done on OPCs and their limited assurances?

In the chart of changes set up by Deloitte Philippines just objectively comparing the final draft with the old Code, there was a Section 122 in the draft RCC, that “any person, trust, estate or account may only incorporate and maintain one one-person corporation at any given instance. A one-person corporation may not incorporate a new one person corporation.” This has been revised further in the bicameral draft RCC