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PIERCING THE VEIL OF OPC’s

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By: Euney Marie J. Mata-Perez on May 30, 2019

A corporation is an artificial person with a juridical personality separate from its stockholders, directors, and officers. With this personality, corporations enjoy the benefits of succession, limited liability protection, centralized management and generally free-transferability of shares.

However, this separate personality can be pierced or disregarded under the doctrine of piercing the veil of corporate fiction. This occurs when the fiction (of separate personality) is used as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, circumvention of statues, perpetration of knavery or a crime.

The separate juridical personality benefit is extended to one person corporations (OPCs) under the Revised Corporation Code (Republic Act No. 11232) which became effective on Feb. 23, 2019. An OPC thus acquires a juridical personality separate from the individual establishing it, who can enjoy the limited liability protection, among others.

The principles of piercing the corporate veil, however, applies with equal force to OPCs as with other corporations. In this regard, the RCC provides an added condition: a sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation was adequately financed. And where the single corporation cannot prove that the property of the OPC is independent of the stockholders’ personal property, the stockholder shall be jointly and severally liable for the debts and other liabilities of the OPC. (RCC, sec. 130)

The above RCC provisions in effect added the condition for the individual establishing an OPC to prove “adequate financing” and “independence” of the stockholders’ personal property. Otherwise, the sole stockholder cannot enjoy the limited liability protection.

The RCC does not define what is “adequate financing” though. Thus, this term will be open to various interpretations. For instance, does this mean adequate capitalization? Will this mean then that OPCs will be subject to higher capital requirements? It should be noted that the RCC removed the minimum capitalization requirement and the requirement of requiring 25 percent of the capital stock to be subscribed and 25 percent of the subscribed capital to be paid-up.

When is the reckoning point of “adequate financing”? Will it just be at the point of establishment of an OPC? What if the OPC subsequently incurs losses, and thus, have capital deficit? Will it then be considered inadequately financed at that time?

The Securities and Exchange Commission (SEC) has released the rules on registering OPCs. However, it has not addressed the issue of “adequate financing” or defined such term. We hope that the SEC will issue regulations in this regard to provide guidance to those who want to establish OPCs.

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. She is 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 info@mtfcounsel.com or visit MTF Counsel’s website at www.mtfcounsel.com

From the The Manila Times website on May 30, 2019

Piercing the veil of OPCs

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