The Revised Corporation Code of the Philippines (RCC) is a landmark legislation that aims to modernize and streamline the rules and regulations governing corporations in the country. It was signed into law by President Rodrigo Duterte on February 20, 2019, and took effect on March 1, 2019.
The RCC introduces several reforms and innovations that are expected to benefit both existing and aspiring corporations, especially small and medium enterprises (SMEs). It also incorporates technology into the corporate processes, allowing for more convenience and efficiency.
Here are some of the salient features of the RCC that you should know:
One Person Corporation (OPC)
One of the most significant changes in the RCC is the creation of a new type of corporation: the One Person Corporation (OPC). As the name suggests, an OPC is a corporation that can be formed by a single individual, without the need for at least five incorporators as required by the old Corporation Code.
An OPC has several advantages over a sole proprietorship, such as:
• Limited liability: The OPC owner is only liable to the extent of his or her investment in the corporation, and his or her personal assets are protected from the debts and obligations of the business.
• Perpetual existence: The OPC can continue to exist even after the death or incapacity of the owner, as long as a nominee and an alternate nominee are appointed in the articles of incorporation.
• Tax benefits: The OPC may enjoy lower income tax rates and other incentives depending on its classification and registration with relevant agencies.
To register an OPC, the owner must use the suffix “OPC” in the corporate name, appoint a treasurer who may or may not be the owner, and file the articles of incorporation with the Securities and Exchange Commission (SEC). An OPC cannot engage in certain activities, such as banking, insurance, public utilities, securities brokerage, investment houses, and trust funds.
Corporate Perpetuity
Another major reform in the RCC is the removal of the 50-year limit on the corporate term. Under the old Corporation Code, corporations had to renew their existence every 50 years or face dissolution. This posed a risk for many businesses that had long-term plans and investments.
Under the RCC, corporations can now exist in perpetuity, unless their articles of incorporation provide otherwise. This allows corporations to create more value and stability for their shareholders, employees, customers, and other stakeholders. Existing corporations with expired or expiring terms can apply for revival or extension with the SEC.
Online Registration System
The RCC also recognizes the importance of technology in facilitating and enhancing the corporate processes. It mandates the SEC to establish an online registration system that will allow for faster and easier incorporation and compliance. The online system will enable applicants to:
• Reserve or register their corporate name;
• Submit their articles of incorporation and other documents;
• Pay their registration fees;
• Receive their certificates of incorporation; and
• File their reports and other requirements.
The online system will also allow the SEC to monitor and verify the information submitted by corporations, as well as to issue notices and orders electronically. The SEC is expected to implement this system within three years from the effectivity of the RCC.
Remote Participation and Voting in Absentia
Another way that technology is integrated into the RCC is through allowing remote participation and voting in absentia for corporate meetings. Under the old Corporation Code, stockholders and members had to be physically present or represented by proxies in order to vote on corporate matters. This posed a challenge for those who were unable to attend due to distance, time, or other reasons.
Under the RCC, stockholders and members can now participate and vote through remote communication devices, such as video conferencing or electronic mail, as long as they are authorized by
the bylaws or approved by majority vote. This allows for more convenience and inclusivity for corporate decision-making.
Increased Security Deposit for Foreign Branch Offices
The RCC also introduces some changes that affect foreign corporations doing business in
the Philippines. One of these changes is the increase in the minimum security deposit required for foreign branch offices from Php 100,000 to Php 500,000. This deposit serves as a guarantee for claims against
the branch office arising from its operations in
the country.
The RCC also provides that if at any time during its operation in
the Philippines, any amount is withdrawn from this deposit,
the branch office must replenish it within 30 days from such withdrawal.
Failure to do so will result in suspension or revocation of its license
to do business.
Corporations Vested with Public Interest
The RCC also defines a new category of corporations: those vested with public interest. These are corporations that:
• Have assets of at least Php 50 million and have 200 or more
holders of shares, each holding at least 100 shares of a class of its equity shares;
• Have a secondary license from the SEC, such as those engaged in
securities brokerage, investment houses, financing companies, lending companies, insurance companies, public utilities, educational institutions, and other similar businesses; or
• Are registered with the SEC as publicly-listed companies or are subject to its reporting and disclosure rules.
Corporations vested with public interest are subject to higher standards of corporate governance and accountability. They are required to have independent directors comprising at least 20% of their board, as well as an internal audit office and a compliance officer. They are also required to submit annual reports and other disclosures to the SEC and the public.
No-Minimum Capital Stock Requirement
The RCC also removes the minimum capital stock requirement for stock corporations, except when specifically provided by law. Under the old Corporation Code, stock corporations had to have an authorized capital stock of at least Php 5,000 divided into no less than 200 shares.
Under the RCC, stock corporations can have any amount of authorized capital stock divided into any number of shares, as long as at least 25% of the authorized capital stock is subscribed and at least 25% of the total subscription is paid. This allows more flexibility and affordability for entrepreneurs who want to form a corporation.
Emergency Board
The RCC also provides 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 to the corporation.
Under the RCC, the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors. The action by the designated director shall be limited to the emergency action necessary, and the term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement director, whichever comes earlier.
The corporation must notify the SEC within three days from the creation of the emergency board, stating therein the reason for its creation.
Electronic Filing and Monitoring System
The RCC also mandates that all corporations shall file their annual financial statements (AFS), general information sheet (GIS) and other annual reports through an electronic filing and monitoring system (EFMS) that will be developed and implemented by the SEC.
The EFMS will allow corporations to submit their reports online using a secure platform that will ensure accuracy, completeness and timeliness. The EFMS will also enable the SEC to monitor and verify the compliance of corporations with their reporting obligations, as well as to share pertinent information with other government agencies.
The EFMS is expected to be operational within three years from the effectivity of the RCC.
These are just some of the salient features of the RCC that aim to improve the corporate environment in the Philippines. The RCC is a welcome development that reflects the changing needs and demands of the business sector and the society at large. It is hoped that with the RCC, more corporations will be formed and sustained, contributing to the economic growth and development of the country.
