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FAST FACTS: The Revised Corporation Code

By on Saturday, March 2, 2019

Republic Act 11232 was signed into law, amending the more than 38-year old Corporation Code of the Philippines. 

VoicePoints would like to give you a brief summary of amendments.

What’s New

Perpetual corporate term for existing and future corporations

Prior to the amendment, corporations were only initially granted a term of 50 years, subject to extension in accordance with the provisions of the old Code. The Code now provides that a corporation shall have perpetual existence unless its certificate of incorporation provides otherwise.

The new law allows corporations with expired registration papers to revive their businesses subject to the approval of the Securities and Exchange Commission (SEC).

No application for revival of certificate of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs), pawnshops, corporations engaged in money service business, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency.

A corporate term for a specific period may be extended or shortened by amending the articles of incorporation: Provided, that no extension may be made earlier than three (3) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Commission: Provided, further, That such extension of the corporate term shall take effect only on the day following the original or subsequent expiry date(s). (Section 11)

One Person Corporation

The old Code required at least 5 stockholders in the formation of corporations. The Revised Code allows for the formation of One Person Corporation (OPC), a corporation with a single stockholder and without a minimum authorized capital stock required. Only a natural person, trust or an estate may form an OPC. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations are not allowed incorporate as OPC. A natural person who is licensed to exercise a profession is not also allowed to organize as an OPC for the purpose of exercising such profession. The entire Chapter III primarily apply to OPC. Other provisions of the Code may apply. (Section 116-132)

Electronic filing, remote communication

The Code was also crafted to better suit the modern times. It mandates the SEC to develop and implement an electronic filing and monitoring system. (Section 13)

The Code also allows the use of videoconferencing, teleconferencing or other alternative modes of communication to allow directors/trustees or members/stockholders to attend or vote at board meetings. (Sections 23, 49, 52, 53, 88)

For notices to stockholders/members for the extension or shortening of corporate term, investment proposal, sale or other disposition of assets, and notice of time and place of stockholders/members’ meeting, these may be served through electronic means. (Sections 36, 37, 39, 41)

Independent directors

The boards of directors (BOD) of corporations vested with public interest (e.g. listed corporations, banks, quasi-banks) shall have independent directors constituting at least twenty percent (20%) of such board. (Section 22)

Independent audit of financial statements

The criteria for the requirement on the preparation and submission audited financial statements has been changed from the threshold of P50,000 paid-up capital of the corporation, to P600,000 total assets or total liabilities. (Section 74)

Corporate Name

The Code enumerated some examples of a corporation name which is considered as not distinguishable. In case of failure to comply, the SEC’s authority covers holding responsible directors and officers in contempt and/or administratively/civilly liable, or revoking the corporation’s registration. (Section 17)

Provisions or requirements that have been removed

The following requirements have been removed from the Revised Code:

  • Minimum number of incorporators in view of the new one person corporation. In the Revised Code, incorporators now include “any person, partnership, association or corporation.” Provided, that natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession shall not be allowed to organize as a corporation.
  • Minimum subscribed and paid-up capital stock upon incorporation.
  • Treasurer’s Affidavit which has been incorporated in the Articles of Incorporation.
  • A majority of the directors or trustees of all corporations organized must be residents of the Philippines.

Other amendments

Summary


Arbitration Agreement

An arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of the Code. (Section 13)

An arbitration agreement may be provided in the articles of incorporation or by-laws of an unlisted corporation. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or by-laws, or from intra-corporate relations, shall be referred to arbitration. A dispute shall be non-arbitrable when it involves criminal offenses and interests of third parties. 

  1. To be enforceable, the agreement should indicate the number of arbitrators and the procedure for their appointment. The power to appoint the arbitrators forming the arbitral tribunal shall be granted to a designated independent third party. Should the third party fail to appoint the arbitrators in the manner and within the period specified in the arbitration agreement, the parties may request the Commission to appoint the arbitrators. In any case, arbitrators must be accredited or must belong to organizations accredited by the Commission.  
  2. When an intra-corporate dispute is filed with a Regional Trial Court, the court shall dismiss the case before the termination of the pretrial conference, if it determines that an arbitration agreement is written in the corporation’s articles of incorporation, by-laws, or in a separate agreement. 
  3. The arbitral tribunal shall have the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.

A final arbitral award under the section shall be executory after the lapse of 15 days from receipt thereof by the parties and shall be stayed only by the filing of a bond or the issuance by the appellate court of an injunctive writ.  (Section 181)

Report on Non-Holding of Elections

In the past, only the election of the directors and officers was required to be reported by corporations to the SEC within 30 days from occurrence. Under the new Code, the non-holding of elections and the reasons therefor shall be reported to the SEC within 30 days from the date of the scheduled election. The report shall specify a new date for the election, which shall not be later than 60 days from the scheduled date. If no new date has been designated, or if the rescheduled election is likewise not held, the SEC upon application of a stockholder or director may summarily order the holding of elections and the issuance of the required notices as regards the place and time of the elections and designation of presiding officer, among others. (Section 25)

Report on Compensation and Performance

Corporations vested with public interest must also submit the following: 

  • A director or trustee compensation report; and 
  • A director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee. (Section 177)

Additional Prescribed Procedures and Documentation

Classification of Shares

The classification of shares, their corresponding rights, privileges, or restrictions, and their stated par value, if any, must be indicated in the articles of incorporation. Each share shall be equal in all respects to every other share, except as otherwise provided in the articles of incorporation and in the certificate of stock. (Section 6)

Compensation

Directors or trustee shall not participate in the determination of their own per diems or compensation. Corporations vested with public interest shall submit to its shareholders and the Commission, an annual report of the total compensation of each of its directors or trustees. (Section 29)

Material Contracts

In case of corporations vested with public interest, material contracts are approved by at least 2/3 of the entire membership of the board, with at least a majority of the independent directors voting to approve the material contract. (Section 31)

Stockholders or Members’ Meeting

At each regular meeting of stockholders or members, the board of directors or trustees shall endeavor to present to stockholders or members the following:

  • The minutes of the most recent regular meeting which shall include, among others: 
  1. A description of the voting and vote tabulation procedures used in the previous meeting;
  2. A description of the opportunity given to stockholders or members to ask questions and a record of the questions asked and answers given;
  3. The matters discussed and resolutions reached;
  4. A record of the voting results for each agenda item;
  5. A list of the directors or trustees, officers and stockholders or members who attended the meeting; and
  6. Such other items that the Commission may require in the interest of good corporate governance and the protection of minority stockholders.
  • A members’ list for non-stock corporations and, for stock corporations, material information on the current stockholders and their voting rights;
  • A detailed, descriptive, balanced and comprehensible assessment of the corporation’s performance which shall include information on any material change in the corporation’s business, strategy, and other affairs;
  • A financial report for the preceding year, which shall include financial statements duly signed and certified in accordance with the Code and the rules the Commission may prescribe,
    a statement on the adequacy of the corporation’s internal controls or risk management systems, and a statement of all external audit and non-audit fees;
  • An explanation of the dividend policy and the fact of payment of dividends or the reasons for nonpayment thereof;
  • Director or trustee profiles which shall include, among others, their qualifications and relevant experience, length of service in the corporation, trainings and continuing education attended, and their board representations in other corporations;
  • A director or trustee attendance report, indicating the attendance of each director or trustee at each of the meetings of the board and its committees and in regular or special stockholder meetings;
  • Appraisals and performance reports for the board and the criteria and procedure for assessment;
  • A director or trustee compensation report prepared in accordance with the Code and the rules the Commission may prescribe;
  • Director disclosures on self-dealings and related party transactions and/or;
  • The profiles of directors nominated or seeking election or re-election.

Each notice of meeting shall further be accompanied by the following:

  1. The agenda for the meeting;
  2. A proxy form which shall be submitted to the corporate secretary within a reasonable time prior to the meeting; 
  3. When attendance, participation and voting are allowed by remote communication or in absentia, the requirements and procedures to be followed when a stockholder or member elects either option; and
  4. When the meeting is for the election of directors or trustees, the requirements and procedure for nomination.   (Section 50)

Sale or Other Disposition of Assets

The determination of whether or not the sale involves all or substantially all of the corporation’s properties and assets must be computed based on its net asset value, as shown in its latest financial statements. (Section 39)

Additional information required in the Articles of Merger or Consolidation

  1. The carrying amounts and fair values of the assets and liabilities of the respective companies as of the agreed cut-off date; 
  2. The method to be used in the merger or consolidation of accounts of the companies;
  3. The provisional or pro forma values, as merged or consolidated, using the accounting method; and
  4. Such other information as may be prescribed by the Commission.  (Section 77)

Withdrawal of Request and Petition for Dissolution

A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator, director, trustee, shareholder, or member and signed by the same number of incorporators, directors, trustees, shareholders, or members necessary to request for a dissolution as set forth in the foregoing sections. The withdrawal shall be submitted no later than 15 days from receipt by the Commission of the request for dissolution. Upon receipt of a withdrawal of request for dissolution, the Commission shall withhold action on the request for dissolution and shall, after investigation: a) make a pronouncement that the request for dissolution is deemed withdrawn; b) direct a joint meeting of the board of directors or trustees and the stockholders or members for the purpose of ascertaining whether to proceed with dissolution; or c) issue such other orders as it may deem appropriate.   

A withdrawal of the petition for dissolution shall be in the form of a motion and similar in substance to a withdrawal of request for dissolution but shall be verified and filed prior to publication of the order setting the deadline for filing objections to the petition. (Section 137)

Involuntary Dissolution

A corporation may be dissolved by the SEC motu proprio or upon filing of a verified complaint by any interested party. The following may be grounds for dissolution of the corporation:

  • Non-use of corporate charter as provided under Section 21 of this Code;
  • Continuous inoperation of a corporation as provided under Section 21 of this Code;
  • Upon receipt of a lawful court order dissolving the corporation;
  • Upon finding by final judgment that the corporation procured its incorporation through fraud;
  • Upon finding by final judgment that the corporation:
  1. Was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
  2. Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders knew;
  3. Repeatedly and knowingly tolerated the Commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers, or employees.

If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in subparagraph (e), its assets, after payment of its liabilities shall, upon petition of the Commission with the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be without prejudice to the rights of innocent stockholders and employees for services rendered, and to the application of other penalty or sanction under this Code or other laws. (Section 138)

Increase in Security Deposit of Branch of Foreign Corporation

From the old P100,000 and P5 million respectively, security deposit at the time of issuance of the branch license amounting to at least P500,000 or such other amount that may be set by the Commission, and within 6 months after each fiscal year of the licensee, additional securities or financial instruments equivalent in actual market value to two percent (2%) of the amount by which the licensee’s gross income for that fiscal year exceeds P10 million. (Section 143)

Consequence of Violating the Code

  • Removal of a Director or Trustee. The Commission shall, motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to election. The removal of a disqualified director shall be without prejudice to other sanctions that the Commission may impose on the board of directors or trustees who, with knowledge of the disqualification, failed to remove such director or trustee.  (Section 27)
  • Place under Delinquent Status. The Commission may place the corporation under delinquent status in case of failure to submit the reportorial requirements three (3) times, consecutively or intermittently, within a period of five (5) years. The Commission shall give reasonable notice to and coordinate with the appropriate regulatory agency prior to placing on delinquent status companies under their special regulatory jurisdiction. (Section 177)
  • Public Censure. The Commission may publish its findings, orders, opinions, advisories, or information concerning any such violation, as may be relevant to the general public or to the parties concerned, subject to the provisions of “Data Privacy Act of 2012”, and other pertinent laws. (Section 154)
  • Cease and Desist Orders. The ex parte order shall be valid for a maximum period of 20 days, without prejudice to the order being made permanent after due notice and hearing.  (Section 156)
  • Contempt. Any person who, without justifiable cause, fails or refuses to comply with any lawful order, decision, or subpoena issued by the Commission shall, after due notice and hearing, be held in contempt and fined in an amount not exceeding P30,000.  When the refusal amounts to clear and open defiance of the Commission’s order, decision, or subpoena, the commission may impose   a daily fine of P1,000 until the order, decision, or subpoena is complied with. (Section 157)
  • Administrative Sanctions
  1. Imposition of a fine ranging from P5,000 to P2,000,000, and not more than P1,000 for each day of continuing violation but in no case to exceed P2,000,000;
  2. Issuance of a permanent cease and desist order;
  3. Suspension or revocation of the certificate of incorporation; and
  4. Dissolution of the corporation and forfeiture of its assets under the conditions in Title XIV of the Code.  (Section 158)
  • Unauthorized Use of Corporate Name. The unauthorized use of a corporate name shall be punished with a fine ranging from P10,000 to P200,000. (Section 159)
  • Violation of Disqualification Provision.  When, despite of the knowledge of existence of a ground for disqualification as provided in Section 26 of the Code, a director, trustee, or officer who willfully holds office or who willfully conceals such disqualification, shall be punished by a fine ranging from P10,000 to P200,000 at the discretion of the court, and shall be permanently disqualified from being a director, trustee or officer of any corporation. When the violation of this provision is injurious or detrimental to the public, the penalty shall be a fine ranging from P20,000 to P400,000.(Section 160)
  • Violation of Duty to Maintain Records, to Allow Their Inspection or Reproduction.
    The unjustified failure or refusal by the corporation, or by those responsible for keeping and maintaining corporate records, to comply with Sections 45, 73, 92, 128, 177 and other pertinent rules and provisions of the Code on inspection and reproduction of records shall be punished with a fine ranging from P10,000 to P200,000, at the discretion of the court, taking into consideration the seriousness of the violation and its implications.  When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from P20,000 to P400,000. (Section 161)
  • Willful Certification of Incomplete, Inaccurate, False, or Misleading Statements or Reports; Punishable with a fine ranging from P20,000 to P200,000. When the wrongful certification is injurious or detrimental to the public, the auditor or the responsible person may also be punished with a fine ranging from P40,000 to P400,000.  (Section 162)
  • Independent Auditor Collusion with the corporation’s directors or representatives.
    An independent auditor who certifies the corporation’s financial statements despite its incompleteness or inaccuracy, its failure to give a fair and accurate presentation of the corporation’s condition, or despite containing false or misleading statements, shall be punished with a fine ranging from P80,000 to P500,000. When the statement or report certified is fraudulent, or has the effect of causing injury to the general public, the auditor or responsible officer may be punished with a fine ranging from P100,000 to P600,000.  (Section 163)
  • Obtaining Corporate Registration Through Fraud. Punishable with a fine ranging from P200,000 to P2,000,000.  When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from P400,000 to P5,000,000. (Section 164)
  • Fraudulent Conduct of Business.  Punishable with a fine ranging from P200,000 to P2,000,000. When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from P400,000 to P5,000,000.  (Section 165)
  • Acting as Intermediaries for Graft and Corrupt Practices. A corporation shall be liable for a fine ranging from P100,000 to P5,000,000 when there is a finding that any of its directors, officers, employees, agents, or representatives are engaged in graft and corrupt practices, the corporation’s failure to install: a) safeguards for the transparent and lawful delivery of services; and b) policies, code of ethics, and procedures against graft and corruption, shall be prima facie evidence of corporate liability under the section. (Section 166)
  • Engaging Intermediaries for Graft and Corrupt Practices. A corporation that appoints an intermediary who engages in graft and corrupt practices for the corporation’s benefit or interest, shall be punished with a fine ranging from P100,000 to P1,000,000. (Section 167)
  • Tolerating Graft and Corrupt Practices. A director, trustee, or officer who knowingly fails to sanction, report or file the appropriate action with proper agencies, allows or tolerates the graft and corrupt practices or fraudulent acts committed by a corporation’s directors, trustees, officers, or employees, shall be punished with a fine ranging from P500,000 to P1,000,000.  (Section 168)
  • Retaliation Against Whistleblowers.  A whistleblower refers to any person who provides truthful information relating to the commission or possible commission of any offense or violation under the Code. Any person who, knowingly and with intent to retaliate, commits acts detrimental to a whistleblower such as interfering with the lawful employment or livelihood of the whistleblower, shall, at the discretion of the court, be punished with a fine ranging from P100,000 to P1,000,000.
    (Section 169)
  • Other Violations of the Code. Violations of any of the other provisions of the Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than P10,000 but not more than P1 million. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee, or officer of the corporation responsible for said violation: Provided, further, That nothing in the section shall be construed to repeal the other causes for dissolution of a corporation provided in the Code. Liability for any of the foregoing offenses shall be separate from any other administrative, civil, or criminal liability under the Code and other laws. (Section 170)

SEC

Authority to collect, retain and use fees, fines, and charges

It has been authorized to collect, retain, and use fees, fines, and other charges pursuant to the Code and its rules and regulations. The amount collected shall be deposited and maintained in a separate account which shall form a fund for its modernization and to augment its operational expenses such as, but not limited to, capital outlay, increase in compensation and benefits comparable with prevailing rates in the private sector, reasonable employee allowance, employee health care services and other insurance, employee career advancement and professionalization, legal assistance, seminars and other professional fees. (Section 175)

Visitorial Power and Confidential Nature of Examination Results

Should the corporation, without justifiable cause, refuse or obstruct the Commission’s exercise of its visitorial powers, the Commission may revoke its certificate of incorporation, without prejudice to the imposition of other penalties and sanctions under the Code. (Section 178)

Copy of the Revised Corporation Code


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