KNOW THE NEW REVISED CORPORATION CODE
By: Euney Marie J. Mata-Perez on February 28, 2019
Finally, the Revised Corporation Code or Republic Act No. 112321 (RCC) was signed into law by the President on February 20, 2019 and published in the Official Gazette on Feb. 21, 2019. It will thus become effective on March 8, 2019.
The RCC is a very important piece of legislation affecting all corporations. It amended certain registration requirements, provided provisions on good governance, gave more protection clauses for minority stockholders, and most of all, defined more punishable offenses on corporations, directors and officers. The law emanated from a bill which was proposed by our regulators, and thus, was unavoidably influenced by the problems and issues they faced in regulating corporations.
We have written several articles on the proposed amendments, and we make a general summary once again. The RCC’s major amendments are as follows:
1. It grants corporations perpetual terms, unless otherwise stated in its certificate of incorporation. It also grants perpetual existence to corporations incorporated prior to the effectivity of the RCC, unless majority of its stockholders elects to retain its specific corporate term pursuant to its articles of incorporation.
2. It allows the revival of a corporation whose term has expired.
3. It allows the filing of the articles of incorporation and its amendments in electronic form.
4. It allows the voting by stockholders in absentia.
5. It provides that no corporate name shall be allowed if it is ’not distinguishable’ from that already reserved or registered for the use of another corporation, or if such name is already protected by law. In the old code, the standard used was that the name should not be identical, or deceptively or confusingly similar.
6. It added a new section on one-person corporation. (See our article on https://www.manilatimes.net/opc-an-alternative-business-vehicle/450624/)
7. It added more powers to the Securities and Exchange Commission (SEC) to prosecute and investigate offenses under the RCC. More importantly, it added offenses punishable with increased fines (which could be as high as P5 million), such as (a) concealment by a director of his or her disqualification, (b) willful certification of incomplete, inaccurate, false or misleading statements, (c) collusion by independent auditors, (d) violation of duty to keep records and allow their inspection, and (e) engaging in fraud, graft and corrupt practices. It also makes directors and officers of corporations jointly and severally liable for such offenses under the RCC. (See our article https://www.manilatimes.net/offenses-under-the-proposed-revised-corporation-code/435987/
On good governance, it requires corporations vested with ’public interest’ to:
1. Have independent directors comprising at least 20 pecent (but not less than two) of the entire board;
2. Have its material contracts approved by at least 2/3 of the entire membership of the board, with at least a majority of the independent directors approving the same;
3. Have a compliance officer; and
4. Submit to the SEC a directors’ compensation report, directors’ appraisal or performance report.
Corporations vested with public interest include banks, public utilities, insurance companies, hospitals, educational institutions, those whose securities are registered with the SEC pursuant to the Securities Regulations Code (SRC) and/or listed in the stock exchange, and public corporations (those with assets of at least P50 million and 200 or more shareholders, with at at least 100 shares of a class of its equity shares).
Other notable amendments introduced by the RCC include the following:
• Removal of the general requirement that directors should at least be five individuals (thus, there can be less than five) and the requirement that majority must be residents of the Philippines. Moreover, partnerships, associations and corporations are now allowed to become incorporators.
• Removal of the requirement that at least 25 percent of the authorized capital stock must be subscribed, and at least 25 percent of the subscribed shares must be paid-up.
• Empowering the SEC to remove a disqualified director or trustee motu proprio or upon verified complaint;
• Empowering the SEC (after a failure to constitute quorum in previous meetings and upon application by a member or stockholder) to summarily order the holding of a meeting for purposes of conducting an election. In such meeting, a quorum is ’deemed’ constituted despite the absence of the majority of the members or stockholders.
• Empowering the SEC to issue orders of inspection of corporate records after summary proceedings, if a member or stockholder is denied access to such records;
• Expressly prohibiting execution of voting trust agreements which may circumvent laws against anti-competitive agreements, abuse of dominant position, and anti-competitive mergers and acquisitions;
• Expanding the grounds for dissolution to include the following: a finding (by final judgment) of fraud; a finding that the corporation was used to commit, conceal or aid commission of crime, smuggling, tax evasion, money laundering, graft and corrupt practices, and/or violate the SRC; commission of fraudulent and illegal acts and/or repeated and willful misstatement of facts by directors, trustees, officers, or employees; and
• Allowing financial statements of corporations with paid-up capital of less than P600,000 to be certified only by the President and treasurer, and not audited by an independent CPA.
The RCC changed many rules to address good governance, minority protection and fraud. Stockholders, directors, and officers should be aware of these changes. Ignorance of the law is never an excuse.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and the president of the Asia-Oceana Tax Consultants Association. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at firstname.lastname@example.org or visit MTF website at www.mtfcounsel.com.
From the The Manila Times website on February 28, 2019