AN OVERVIEW OF THE CHANGES TO THE CORPORATION CODE OF THE PHILIPPINES

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]

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 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)

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 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]

One-person corporation

The new Corporation Code now allows the formation of a corporation by a single person or one
stockholder.

The old code required at least 5 stockholders in the formation of corporations.

It also removes the provision setting a minimum on the authorized capital stock.
The Securities and Exchange Commission (SEC) said this amendment allows more flexibility in
pursuing business because the lone stockholder can make decisions without having to seek board
consensus.

"It also affords greater protection to the stockholder by limiting liability to the corporate entity," the
SEC said.

Perpetual corporate term

The amended law also grants a perpetual corporate term for existing and future corporations, unless
specified in their articles of incorporation.

The old code set a 50-year term.

The SEC said this amendment would eliminate the possibility of businesses prematurely closing
down because they failed to renew their registration.

Moreover, the new law allows corporations with expired registration papers to revive their businesses.

E-filing, remote communication

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The new law was also crafted to better suit the modern times.

It mandates the SEC to implement an electronic filing and monitoring system.

"So far, the commission has implemented a fully automated and online company registration system
for the pre-processing of corporations and partnerships, licensing of foreign corporations,
amendments of the articles of incorporation and other corporate applications requiring its approval,"
the SEC said.

The new law also allows the use of videoconferencing and teleconferencing during stockholder
meetings.
Stockholders may participate and vote in absentia or without being personally in the meeting.

Directors or trustees may also participate and vote in regular and special meetings through remote
communication. However, they cannot join or cast their votes by proxy at board meetings.

Other features

The new also has a provision for an emergency board when a vacancy in a corporation's board of
directors prevents the remaining directors from constituting a quorum and consequently from making
emergency actions required to prevent grave, substantial, and irreparable loss or damage.

The vacancy may be temporarily filled from among the officers of the corporation by a unanimous
vote of the remaining directors or trustees.

The corporation must then notify the SEC within 3 days from the creation of the emergency board.

Meanwhile, the amendments allow corporations to adopt alternative dispute resolution mechanisms
for intra-corporate issues except those involving criminal offenses and interests of third parties.

"Collectively, the amendments are aimed at encouraging entrepreneurship and the formation of new
businesses, improving the ease of doing business in the country, promoting good corporate
governance, increasing protection afforded to corporations and stockholders, and deterring corporate
abuses and fraud," SEC Chairman Emilio Aquino said.

The Philippines lags in the ease of doing business worldwide ranking, currently at 124th out of 190
countries. (READ: Ease of doing business: Why is the PH rank plummeting?)

"The passage into law of this measure is critical in our bid to improve the country's business climate
and make our economy more competitive with the rest of the world," said Senate Minority Leader
Franklin Drilon, who pushed for the measure. – Rappler.com