Corpo Code

On 20 February 2019, Philippine President Rodrigo Duterte signed into law Republic Act (RA)
No. 11232 or the Revised Corporation Code of the Philippines (Revised Code). The Revised
Code expressly repeals Batas Pambansa Blg. 68 or the Corporation Code of the Philippines, and
aims to improve the ease of doing business in the country.

The Revised Code took effect on 23 February 2019.

What the regulation says

The Revised Code initiates significant changes to the legal framework for the registration and
operation of private corporations in the Philippines, including the following:

A. Simplifying Corporate Registration

The Revised Code simplifies the requirements to set-up and register a corporation with the SEC.
The provisions of the new law likewise expressly recognize the importance of technology and its
use to facilitate government and internal corporate processes.

1. Removal of minimum number of shareholders, directors, trustees, and minimum capitalization

requirements

The Revised Code no longer requires five shareholders to establish a new corporation. It has also
removed, subject to compliance with special laws, the minimum subscribed and paid-up capital
requirement for stock corporations.

2. One Person Corporation

The new law permits natural persons, trusts or estates to form One Person Corporations, with the
single shareholder becoming, by default, the sole director and president.

3. Perpetual existence

Under the Revised Code, a corporation shall have perpetual existence unless its articles of
incorporation provide otherwise. This new law repeals the prior 50 year maximum corporate
term.

The new law grants perpetual existence to corporations whose corporate terms have not yet
expired. Corporations who intend to be bound by a specific corporate term must notify the SEC.

A corporation whose corporate term has expired may submit an application to the SEC for a
revival of its corporate existence, together with all the rights and privileges under its certificate
of incorporation and subject to all of its duties, debts, and liabilities existing prior to its revival.

4. Electronic Filing and Monitoring System

In line with the government's drive to eliminate red tape and streamline government procedures,
the Revised Code mandates the SEC to develop and implement a system to enable electronic
submission of applications, reports and other documents, as well as the sharing of pertinent
information with other government agencies.

5. Electronic notices and remote communication

Shareholders and directors are expressly allowed to participate in meetings through remote
communication.

To encourage efficient communication of notices to the shareholders, members, directors or

trustees, the Revised Code permits sending of notices by electronic means.

B. Strengthening Corporate Governance

The Revised Code also aims to improve corporate governance and protection of minority
shareholders, through the following provisions:

1. Appointment of Independent Directors and Compliance Officer

The new law requires a corporation vested with public interest[1] to have (i) a board with
independent directors occupying at least 20% of its board seats, and (ii) a compliance officer.

An independent director is one, who, apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or relationship which
could (or could reasonably be perceived to) materially interfere with the exercise of independent
judgment in carrying out the responsibilities as a director.

2. Additional reporting requirements

Apart from the annual financial statements and general information sheets required for all
corporations, a corporation vested with public interest must also submit (i) a director
compensation report; and (ii) a director appraisal or performance report, which should include
the standards or criteria used to assess each director.

3. Emergency Board

In the event an emergency action is required to prevent grave, substantial and irreparable loss or
damage to the corporation, and the current number of directors is not enough to constitute a
quorum, the Revised Code permits the appointment of a temporary director to fill in the vacancy,
by the unanimous vote of the remaining directors.

The action by the temporary director shall be limited to the emergency action necessary, and his
term shall cease within a reasonable time from the termination of the emergency or upon election
of the replacement director, whichever comes earlier.
C. Other Important Provisions

Other notable amendments introduced by the new law include the following:

1. The corporate articles of incorporation and/or bylaws may include an arbitration agreement for
intra-corporate disputes. In order to be valid, the provision must specifically mention the number
of arbitrators and manner of their appointment.

2. The minimum amount of security deposit required for foreign corporations doing business in
the Philippines is increased from PhP 100,000 to PhP 500,000.

3. A person required to file a report with the SEC may redact confidential information from such
report. The confidential information shall be filed in a supplemental report labelled
"confidential", together with a request for confidential treatment of the report and the specific
grounds for the grant thereof.

Actions to Consider

Clients are advised to (1) familiarize themselves with changes to the requirements and
procedures brought about by the Revised Code, and (2) consider how to incorporate the new
arrangements initiated by the Revised Code in their business model and operations. The Revised
Code grants a grace period of two years, from the Revised Code's effectivity, for existing
corporations to comply with the new requirements of the new law.

Quisumbing Torres may continue to assist you in understanding this new law, and how its
provisions may impact your business.

[1]
(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The
Securities Regulation Code", namely those whose securities are registered with the Commission,
corporations listed with an exchange or with assets of at least Fifty Million Pesos (PhP
50,000,000) and having two hundred (200) or more holders of shares, each holding at least one
hundred (100) shares of a class of its equity shares;
(b) Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations
engaged in money service business, preneed, trust and insurance companies, and other financial
intermediaries; and
(c) Other corporations engaged in the businesses vested with public interest similar to the above,
as may be determined by the Commission, after taking into account relevant factors which are
germane to the objective an purpose of requiring the election of an independent director, such as
the extent of minority ownership, type of financial products or securities issued or offered to
investors, public interest involved in the nature of business operations and other analogous
factors.