HISTORY AND DEVELOPMENT OF CORPORATIONS
Congress, the Philippine Commission entered upon the enactment of a
PHILIPPINE SETTING
Timeline:
1906 – The Corporation Law, Act No. 1459
1967 - An Act to Amend Act Numbered 1459, Otherwise Known as the
“Corporation Law” by Amending Subparagraph Five and Adding a New
Subparagraph Five-A, RA 5167
1980 – The Corporation Code, BP Blg. 68
2019 – The Revised Corporation Code, RA No. 11232
HISTORY
On January 1, 1906, by virtue of Philippine Commission Act No. 1123 of
April 1904, the official language of the Philippines became English. It was
used in court proceedings and no person was eligible for government service
who did not know the language.
It was the inauguration of the First Philippine Assembly in 1907 that paved
the way for the country’s independence from American rule as it provided the
Filipino legislators to have hands-on in the local political affairs. This event
was very significant in the history of Philippine politics while this event also
witnessed the first national election in our country through popular votes. The
Filipinos’ aspirations for greater political participation and their thirst for self-
rule were realized in the establishment of the Philippine legislature. This
glorious victory of the Filipinos was accompanied with enormous
responsibilities because they have to prove to the U.S Congress, the
international community, and to the Filipino nation that the Filipinos could
govern themselves properly and dutifully.
In consonance to the benevolent assimilation policy by President
McKinley was the American provisional government in the Philippines which
were manifested by the establishment of both military government and civil
government whose objective was to prepare the Filipino for self-government
in the ways of democracy once they proved their worthiness for
independence. Thus President McKinley stated: “The Philippines is ours, not
to exploit but develop, to civilize, to educate, to train in the science of self-
government.”
THE CORPORATION LAW
ACT NO. 1459
PHILIPPINE CORPORATE LAW
When the Philippine Islands passed to the sovereignty of the United States,
in the attention of the Philippine Commission was early drawn to the fact that
there is no entity in Spanish law exactly corresponding to the notion of the
corporation in English and American law; and in the Philippine Bill, approved
July 1, 1902, the Congress of the United States inserted certain provisions,
under the head of Franchises, which were intended to control the lawmaking
power in the Philippine Islands in the matter of granting of franchises,
privileges and concessions. These provisions are found in section 74 and 75
of the Act. The provisions of section 74 have been superseded by section 28
of the Act of Congress of August 29, 1916, but in section 75 there is a
provision referring to mining corporations, which still remains the law, as
amended. This provisions, in its original form, reads as follows: "... it shall be
unlawful for any member of a corporation engaged in agriculture or mining
and for any corporation organized for any purpose except irrigation to be in
any wise interested in any other corporation engaged in agriculture or in
mining."
Under the guidance of this and certain other provisions thus enacted by
general law authorizing the creation of corporations in the Philippine Islands.
This rather elaborate piece of legislation is embodied in what is called our
Corporation Law (Act No. 1459 of the Philippine Commission). The evident
purpose of the commission was to introduce the American corporation into
the Philippine Islands as the standard commercial entity and to hasten the
day when the sociedad anonima of the Spanish law would be obsolete. That
statute is a sort of codification of American corporate law.
The Corporation Law (Act No. 1459)
The first corporate statute, the Corporation Law became effective on 01 April
1906. It had piece-meal amendments during its 74-year history, but became
antiquated and not adapted to the changing times.
The Corporation Code (Batas Pambansa Bilang 68)
The Corporation Code of the Philippines took effect on 01 May 1980,
adopting various corporate doctrines enunciated by the Supreme Court under
the old Corporation Law; clarified the obligations of corporate directors and
officers; expressed in statutory language established principles and
doctrines; and provided for a chapter on close corporations.
Although we have a Corporation Code that provides for statutory principles,
since Philippine Corporate Law comes from the U.S. common law system,
Philippine Corporate Law is essentially, and continues to be, a common law
system and subject to developments in commercial developments, much of
which can be expected to happen in the world of commerce, and some
expressed jurisprudential rules that try to apply and adopt corporate
principles into the changing concepts and mechanism of the commercial
world.
It is consistent with the mandate under Section 16, Article XII of the
Constitution for Congress to prescribe all the criteria for the “formation,
organization, or regulation” of private corporations in a general law applicable
to all without discrimination.
AN OVERVIEW OF THE CHANGES TO THE CORPORATION CODE OF THE
PHILIPPINES
February 22, 2019
by Disini & Disini Law Office
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Even as laws have been enacted to address emerging markets in the Philippines, the
basic law on corporations – Batas Pambansa Blg. 68, or the Corporation Code – has
remained mostly intact since it went into effect in 1980. It had been noted that the
Corporation Code had numerous stringent incorporation and regulatory requirements
which discouraged investors and Filipino entrepreneurs to enter from entering the local
market. [1] These concerns have led to the enactment of the Revised Corporation Code
of the Philippines (Revised Code), signed into law as Republic Act No. 11232 in February
2019. It has been asserted that this landmark legislation will remove the barriers hindering
the entry of both small and large enterprises in the market, as well as strengthening and
simplifying corporate governance standards for a more streamlined business holding at least 100 shares of a class of its equity shares), banks and quasi-banks, non-

environment. [2] stock savings and loan associations, pawnshops, corporations engaged in money

service business, preneed, trust and insurance companies, and financial intermediaries.

Featured below are some of the key changes introduced by the Revised Code. The provision requires that at least 20% composition of the boards of these corporations

be independent directors. The SEC is also authorized to determine other corporations

FUNDAMENTAL CHANGES engaged in businesses vested with public interest, after taking into account relevant

factors which are germane to the objective and purpose of requiring the election of an

Many of the provisions in the Revised Code introduce dramatic changes that alter the independent director.

rules for establishing and maintaining corporations.

Removal of minimum capital stock requirement. The Revised Code does away with the

One-person corporations. The Revised Code removes the minimum number of minimum capital stock requirement for stock corporations, except as otherwise specifically

incorporators required to establish a corporation; the old Code had prescribed a minimum provided by special law. The change again works to the benefit of small to medium-sized

of five incorporators. The Revised Code goes as far as to permit an individual to form a enterprises by making it easier for them to incorporate. (Sec. 12)

one-person corporation. The allowance of one-person corporations make it easier for

small to medium-sized business owners to incorporate, thus providing a viable alternative Indefinite corporate lifespan. The old Code had prescribed a maximum corporate term of

for sole proprietors. (Sec. 10) 50 years and required corporations to amend their articles of incorporation (AOI) to extend

the corporate life for another fifty-year period. The new Code now provides that a

Arbitration agreements embedded in articles of incorporation or bylaws. The Revised corporation shall have perpetual existence unless its articles of incorporation provides

Code allows for an arbitration agreement to be provided in the articles of incorporation otherwise. Existing corporations are even presumed now to have perpetual existence

(AOI) or bylaws of a corporation. With such an agreement in place, disputes between the unless the stockholders vote to retain the original term provided in the AOI, (upon a vote

corporation, its stockholders or members that arise from the implementation of AOI or of the stockholders representing a majority of its outstanding capital stock) or a new

bylaws or from intracorporate relations shall now be referred to arbitration. Disputes specific period (upon a vote to amend the articles of incorporation by stockholders

involving criminal offenses or the interests of third parties remain non-arbitrable. (Sec. representing at least 2/3 of the outstanding capital stock. (Sec. 11)

181)

Revival of corporations whose term had already expired. The new Code expressly allows

Corporations vested with public interest. The Revised Code refers to corporations vested a corporation whose term has expired to apply with the SEC for a revival of its corporate

with public interest, which are subject to additional regulatory conditions that do not apply existence, together with all the rights and privileges under its certificate of incorporation.

to other corporations. Corporations vested with public interest are required to elect a Upon approval by the SEC, the corporation is deemed revived. The corporation is also

compliance officer upon organization. (Sec. 24) They are required to submit additional granted perpetual existence unless its application for revival specifies otherwise. (Sec. 11)

annual reports to the Securities and Exchange Commission (SEC), particularly a

director/trustee compensation report and a director/trustee appraisal or performance Extended period to commence corporate operations. Corporations are now allowed five

report. (Sec. 177) Stockholders in such corporations have the unequivocal right to vote to years from incorporation to commence operations; the old Code had only allowed two

elect directors or trustees during stockholders meetings through remote communications years. (Sec. 21)

or in absentia. (Sec. 23)

Delinquent corporations. A corporation that had commenced its business may now be

Section 22 of Revised Code identifies as corporations vested with public interest those placed by the SEC under delinquent status if it had become inoperative for a period of at

whose securities are registered with the SEC, those listed with an exchange, those with least five years; previously such inactivity was already cause for the revocation of the

assets of at least 50 Million Pesos and having 200 or more holders of shares (with each
certificate of incorporation. A delinquent corporation has two years to resume operations; Electronic filing and monitoring system. The Revised Code mandates the SEC to develop

failure to do so is cause for the SEC to revoke the certificate of incorporation. (Sec. 21) and implement an electronic filing and monitoring system. (Sec. 180) It should be noted

that the SEC already has an existing electronic Company Registration System (CRS) that

Lifting the ban on corporate donations for political parties or candidates. The Revised allows for the online pre-processing of corporations and partnerships, licensing of foreign

Code amends Section 36(9) of the Old Code, which stated that no corporation, domestic corporations, amendments of the articles of incorporation and other corporate applications

or foreign, shall give donations in aid of any political party or candidate or for purposes of requiring SEC approval. [5]

partisan political activity. The Revised Code now expressly bans only foreign corporations ___________________________

from giving such donations [1] http://www.senate.gov.ph/press_release/2018/1127_drilon1.asp

[2] Id.

TECHNOLOGY-ENABLED CHANGES [3] https://www.historyextra.com/period/20th-century/a-brave-new-world-the-1980s-

home-computer-boom/

The revision of the Corporation Code also integrates technological advances over the last [4] https://thenextweb.com/insider/2011/08/06/20-years-ago-today-the-world-wide-web-

four decades into the rules governing corporations. The old Code was enacted before the opened-to-the-public/

online age[3], or even the widespread use of the personal computer in the 1980s.[4] [5] http://www.sec.gov.ph/online-services/sec-company-registration-system/

Electronic Notices. The Revised Code allows written notices of regular stockholders

meetings to be sent to all stockholders or members of record through email or such other

manner as the SEC shall allow under guidelines it would prescribe. (Sec. 49) A

corporation is also allowed to specify in its bylaws the means of communications through

which meetings would be sent; these include regular or special stockholders meetings

(Sec. 50), meetings to increase or decrease capital stock (Sec. 37), to sell or dispose

assets (Sec. 39), or to invest corporate funds (Sec. 50)

Remote Participation. The Revised Code now allows members of the board of directors

or trustees of every corporation to participate in meetings through remote communication

such as videoconferencing, teleconferencing or other alternative modes of

communication that allow them reasonable opportunities to participate. (Sec. 52)

Stockholders or members may also be allowed to vote during stockholders meetings

through remote communication or in absentia, but only if the corporate bylaws authorize

voting through such means. (Sec. 49) The exception, as earlier mentioned, is in the case

of corporations vested with public interest, where stockholders and members are entitled

to vote to elect directors or trustees through remote communication or in absentia even

without a provision in the bylaws that authorizes voting through those means.

Section 49 of the Revised Code requires the SEC to issue the rules and regulations

governing participation and voting through remote communication or in absentia.