9/2/2019 AN OVERVIEW OF THE CHANGES TO THE CORPORATION CODE OF THE PHILIPPINES | eLegal Philippines

FEATURED

AN OVERVIEW OF THE
CHANGES TO THE
CORPORATION CODE OF THE
PHILIPPINES
a February 22, 2019  by Disini & Disini Law Office  0 comments
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 environment. [2]

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Featured below are some of the key changes introduced by the Revised Code.
 
FUNDAMENTAL CHANGES
 
Many of the provisions in the Revised Code introduce dramatic changes that alter the
rules for establishing and maintaining corporations.
 
One-person corporations. The Revised Code removes the minimum number of
incorporators required to establish a corporation; the old Code had prescribed a
minimum of five incorporators. The Revised Code goes as far as to permit an
individual to form a 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 for sole proprietors. (Sec. 10)
 
Arbitration agreements embedded in articles of incorporation or bylaws. The Revised
Code allows for an arbitration agreement to be provided in the articles of
incorporation (AOI) or bylaws of a corporation. With such an agreement in place,
disputes between the corporation, its stockholders or members that arise from the
implementation of AOI or bylaws or from intracorporate relations shall now be
referred to arbitration. Disputes involving criminal offenses or the interests of third
parties remain non-arbitrable. (Sec. 181)
 
Corporations vested with public interest. The Revised Code refers to corporations
vested with public interest, which are subject to additional regulatory conditions that
do not apply to other corporations. Corporations vested with public interest are
required to elect a compliance officer upon organization. (Sec. 24) They are required
to submit additional annual reports to the Securities and Exchange Commission
(SEC), particularly a director/trustee compensation report and a director/trustee
appraisal or performance report. (Sec. 177) Stockholders in such corporations have
the unequivocal right to vote to elect directors or trustees during stockholders
meetings through remote communications or in absentia. (Sec. 23)
 
Section 22 of  Revised Code identifies as corporations vested with public interest
those whose securities are registered with the SEC, those listed with an exchange,
those with assets of at least 50 Million Pesos and having 200 or more holders of

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shares (with each holding at least 100 shares of a class of its equity shares), banks
and quasi-banks, non-stock savings and loan associations, pawnshops, corporations
engaged in money service business, preneed, trust and insurance companies, and
financial intermediaries. 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 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 independent director.
 
Removal of minimum capital stock requirement. The Revised Code does away with
the minimum capital stock requirement for stock corporations, except as otherwise
specifically provided by special law. The change again works to the benefit of small to
medium-sized enterprises by making it easier for them to incorporate. (Sec. 12)
 
Indefinite corporate lifespan. The old Code had prescribed a maximum corporate term
of 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 corporation shall have perpetual existence unless its articles of incorporation
provides otherwise. Existing corporations are even presumed now to have perpetual
existence unless the stockholders vote to retain the original term provided in the AOI,
(upon a vote of the stockholders representing a majority of its outstanding capital
stock) or a new specific period (upon a vote to amend the articles of incorporation by
stockholders representing at least 2/3 of the outstanding capital stock.  (Sec. 11)
 
Revival of corporations whose term had already expired. The new Code expressly
allows a corporation whose term has expired to apply with the SEC for a revival of its
corporate existence, together with all the rights and privileges under its certificate of
incorporation. Upon approval by the SEC, the corporation is deemed revived. The
corporation is also granted perpetual existence unless its application for revival
specifies otherwise. (Sec. 11)
 
Extended period to commence corporate operations. Corporations are now allowed
five years  from incorporation to commence operations; the old Code had only
allowed two years. (Sec. 21)
 

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Delinquent corporations. A corporation that had commenced its business may now
be placed by the SEC under delinquent status if it had become inoperative for a period
of at least five years; previously such inactivity was already cause for the revocation
of the certificate of incorporation. A delinquent corporation has two years to resume
operations; failure to do so is cause for the SEC to revoke the certificate of
incorporation. (Sec. 21)
 
Lifting the ban on corporate  donations for political parties or candidates. The Revised
Code amends Section 36(9) of the Old Code, which stated that no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or
for purposes of partisan political activity. The Revised Code now expressly bans only
foreign corporations from giving such donations
 
TECHNOLOGY-ENABLED CHANGES
 
The revision of the Corporation Code also integrates technological advances over the
last four decades into the rules governing corporations. The old Code was enacted
before the online age[3], or even the widespread use of the personal computer in the
1980s.[4]  
 
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

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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.  
 
Electronic filing and monitoring system. The Revised Code mandates the SEC to
develop 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 allows for the online pre-processing of corporations
and partnerships, licensing of foreign corporations, amendments of the articles of
incorporation and other corporate applications requiring SEC approval. [5]
___________________________
[1] http://www.senate.gov.ph/press_release/2018/1127_drilon1.asp
[2] Id.
[3] https://www.historyextra.com/period/20th-century/a-brave-new-world-the-1980s-
home-computer-boom/
[4] https://thenextweb.com/insider/2011/08/06/20-years-ago-today-the-world-wide-
web-opened-to-the-public/
[5] http://www.sec.gov.ph/online-services/sec-company-registration-system/
 

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