axwise Or Otherwise

By Aimee Rose DG. dela Cruz

On Feb. 20, Republic Act 11232 was signed into law, amending the more than
38-year old Corporation Code of the Philippines. This comes at an opportune
time, in the midst of an active government campaign towards the promotion of
the ease of doing business in the Philippines. In 2018, the Ease of Doing
Business Act was passed and a more liberal Foreign Investments Negative
List was issued. Hopefully, the changes brought about by the amendments in
the Code can complement these laws in pursuing the ultimate goal — to
improve the Philippines’ competitiveness as an investment destination.

One of the most notable changes under the new Code is the grant of
perpetual existence to all current 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. Corporations
with fixed corporate terms may now file for extension via amendment of their
Articles of Incorporation (AoI) not earlier than three years prior to original or
subsequent expiry date, unless earlier extension is justified. Once approved,
the extension shall take effect on the day following the original or subsequent
expiry date/s. As for those with expired terms, they are allowed to apply for
revival of corporate existence subject to the approval of the Securities and
Exchange Commission (SEC).

The new Code imposes stricter rules on the use of corporate names by
granting the SEC the power to summarily order a corporation to immediately
cease and desist from using a name found to be not distinguishable, already
protected by law, or contrary to law, as well as to cause the removal of all
visible signage bearing such name. 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.
Another significant change is the removal of the minimum subscribed and
paid-in capital. Previously, at least 25% of the authorized capital stock must
be subscribed and at least 25% of the subscribed capital should be paid at the
time of incorporation. However, the “25% subscribed and 25% paid”
requirement was retained in case of an increase in capital stock. Moreover,
the application for increase or decrease of capital stock and creation/increase
of any bonded indebtedness should now be filed with the SEC within six
months from the date of approval of the board of directors and stockholders,
subject to extension for justifiable reasons.

Incorporators now include “any person, partnership, association or

corporation,” consistent with the introduction of the One Person Corporation
(OPC) which is governed by its own Chapter in the new Code (the OPC will
be covered in the next installment of this two-part article). The minimum
required number for incorporators has also been removed, while keeping the
same maximum number. It thus went from being “at least five but not more
than fifteen” to merely “any number not exceeding fifteen.”

Next, the period of non-use of charter has been extended from two to five
years. Thus, the certificate of incorporation of those which failed to formally
organize and commence business shall now be deemed revoked “as of the
day following the end of the said five-year period.” For those that commenced
business but have become inoperative for at least five consecutive years, the
SEC may place them first under delinquent status after due notice and
hearing. Delinquent corporations shall have two years within which to resume
operations and comply with the SEC’s requirements to lift the delinquency
status. Otherwise, their registrations may eventually be revoked.

As regards the directors, the requirement that majority of them must be

Philippine residents has been lifted. Corollary to this, directors may now be
elected via stockholders’ vote given through remote communication or in
absentia, provided such manners of voting are allowed under the by-laws or
approved by majority of the directors. Discussions on other changes on the
by-laws shall be covered next week in the second part of this article.

In addition, the boards of directors of corporations vested with public interest

(such as listed corporations, banks, quasi-banks, pawnshops, etc.) are now
required to have independent directors which must constitute at least 20% of
such boards.

With regard to mandatory officers, the Code now requires that the treasurer
be a resident of the Philippines. Additionally, corporations vested with public
interest are now required to elect a compliance officer.

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, within the same period, a report should be made in case of a
change in shareholding and in the event of non-holding of elections together
with the reasons therefor and the new date of elections which should not be
later than 60 days from the scheduled date. In the absence of a new date, or
unjustifiable failure to hold elections on the new date, 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.

Should a director, trustee or officer die, resign, or in any manner cease to hold
office, the period within which to file a notice to the SEC has now been fixed at
seven days from knowledge thereof.

The SEC is now also vested with the powers to order on its own instance
(motu propio) or upon verified complaint, the removal of a director elected
despite a disqualification, or whose disqualification arose or is discovered
subsequent to election. This is without prejudice to sanctions that the SEC
may impose on other members who, despite their knowledge of such
disqualification, failed to remove such director.

When a quorum is still present, filling up vacancies in the board of directors

should now be made no later than 45 days from the vacancy, or not later than
the day of expiration at a meeting called for that purpose in case of term
expiration, or during the same meeting when removal was authorized, as the
case may be. However, in the absence of quorum and when emergency
action is necessary, the vacancy may be temporarily filled from among the
officers by unanimous vote of the remaining directors. The authority shall only
be limited to the necessary emergency action and should cease upon
termination of the emergency or election of replacement, whichever comes
earlier. The SEC should be notified as well within three days from the
emergency designation.

New additions also include the option to incorporate an arbitration agreement

in the AoI and the limitation on the management contract to a maximum of five
years for any one term.

To be continued….

The views or opinions expressed in this article are solely those of the author
and do not necessarily represent those of Isla Lipana & Co. The content is for
general information purposes only, and should not be used as a substitute for
specific advice.