By: Elreen Joy O. De Guzman on October 11, 2018

Under Senate Bill (SB) No. 1280, the proposed Revised Corporation Code of the Philippines, a single natural person, trust, or estate can form a one-person corporation (OPC).

Unlike a sole proprietorship, an OPC will have a juridical personality separate from the individual stockholder.
The OPC concept exists in several jurisdictions, such as in the USA and UK, among others.

According to the author of SB No. 1280, an advantage of forming an OPC is to address the “common stumbling block” of requiring at least five natural persons to form and manage a corporation under the current Corporation Code.

The privilege of setting up an OPC though is not given to banks, quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and controlled corporations, as well as to natural persons licensed to exercise a profession with respect to the practice of such profession.

An OPC is created by the filing of articles of incorporation with the Securities and Exchange Commission (SEC). However, unlike ordinary corporations, an OPC is not required to file by-laws. It is required to indicate the letters “OPC” either below or at the end of its corporate name.

There is no required minimum capital stock for OPC, except that it has to have a paid-up capital of at least P5,000.00, and that at least 25 percent of the subscribed capital stock must be paid-up.

The single stockholder automatically becomes the sole director and president of the OPC. The OPC may appoint a treasurer, a corporate secretary and other officers he or she may deem necessary. The single stockholder may also be the treasurer, but the single stockholder cannot be the corporate secretary. If the single stockholder becomes the treasurer, he or she is required to give a bond to the SEC in such sum as may be required upon the condition that he or she will faithfully administer the OPC’s funds.

The separate juridical personality of the OPC is not extinguished upon the death of the stockholder. To ensure continuity of the corporation, the single stockholder is required to designate a nominee and an alternate nominee who will manage the corporate affairs once such stockholder dies or becomes incapacitated. This hold-over position will continue until the legal heirs of the single stockholder have been determined and the heirs have designated or agreed as to who will be the single stockholder.

Part of the corporate secretary’s function is to notify the SEC, as well as the heirs of the single stockholder, of the death of such stockholder.

Unlike in a regular corporation, meetings are not required in an OPC. Instead, it is sufficient to prepare and record the written resolutions in the minutes books of the OPC. The minutes books shall contain all actions, decisions and resolutions of the OPC.

One key difference between a single stockholder in an OPC and a proprietor in a sole proprietorship is that an OPC is given a juridical personality that is distinct from the single stockholder. The liability of the single stockholder for the corporation’s liabilities and obligations shall be limited to his or her capital contributions. Thus, creditors of the OPC can run only against the net assets of the OPC, and not against the personal assets of the single stockholder.

Meanwhile, creditors of a sole proprietor can go against his or her personal properties.

However, the principle of piercing the veil—where creditors can run after the assets of stockholders in certain instances, especially when the corporation is used as a vehicle for fraud—applies to OPCs.

In addition, to safeguard the creditors of an OPC, SB No. 1280 requires that the single stockholder proves that the OPC was “adequately financed.” If such stockholder cannot prove that the OPC’s property is independent of his or her properties, he or she shall be solidarily liable for the debts and liabilities of the OPC.

Ordinary corporations are not required to prove the above additional requirements. Thus, while an OPC is granted separate juridical personality, it has to comply with additional requirements to preserve its limited liability shield.

Also, it should be noted that SB No. 1280 does not set any parameters on what constitutes “adequate financing.”
For tax purposes, an OPC would be subject to corporate tax rate, currently at a flat regular income tax rate of 30 percent (under the TRABAHO Bill though, this rate will go down to 20 percent in 2029). In addition, an OPC’s dividend distribution to the single stockholder shall be subject to the 10 percent final tax on dividends payable to individuals.

In contrast, no such double layer of taxation is imposed on the income of a sole proprietor. A sole proprietor is subject to the graduated personal income tax rates and can avail of the eight percentspecial tax rate allowed under Republic Act No. 10963 (TRAIN 1) if his or her gross receipts do not exceed P3 million in a single year.

However, a sole proprietor could also be taxed at 35 percent if his or her taxable income exceeds P8 million.
No doubt, an OPC is an alternative business vehicle to be considered by entrepreneurs and investors. It will be simpler to maintain than an ordinary corporation and will entitle the single stockholder to the benefit of limited liability.

However, an OPC’s separate personality can still be set aside if it will be shown that it is not adequately financed, its properties are not separate from those of the single stockholder, or it is used to perpetuate fraud.

#OPC #onepersoncorporation #separatejuridicalpersonality #norequiredminimumcapitalstock #revisedcorporationode

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Elreen Joy O. De Guzman is a Junior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is an active member of MTF Counsel’s corporate and tax practice. The contents of the above article are intended for general information purposes only and do not constitute legal advice. 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

ELREEN JOY DE GUZMAN

From The Manila Times website on October 11, 2018

https://www.manilatimes.net/opc-an-alternative-business-vehicle/450624/