Republic Act No. 11232 | BUSINESS ORGANIZATIONS

Republic Act No. 11232: Revised Corporation Code of the Philippines

Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines, was signed into law on February 20, 2019. It replaced the Corporation Code of 1980 (Batas Pambansa Blg. 68) and aims to improve the ease of doing business in the country while providing greater protection and flexibility to corporations and stakeholders. The law provides a comprehensive framework for the formation, governance, and regulation of both domestic and foreign corporations in the Philippines.

Below is a detailed breakdown of the significant provisions and key aspects of RA 11232 as it relates to business organizations:

I. CORPORATE FORMATION

  1. One-Person Corporation (OPC)

    • Definition: A corporation with a single stockholder, a major innovation in RA 11232. Previously, a minimum of five incorporators was required.
    • Key Features:
      • Only natural persons, trust, or estate can form an OPC.
      • Banks, quasi-banks, pre-need, trust companies, insurance, public and publicly listed companies, and non-chartered government-owned and controlled corporations (GOCCs) cannot incorporate as OPCs.
      • An OPC is not required to have a Board of Directors, but a single stockholder acts as both the President and sole director.
    • Corporate Secretary and Treasurer: Although not required to have a Board, the OPC is required to appoint a Corporate Secretary and Treasurer, who may or may not be the sole shareholder.

  2. Incorporators

    • The revised law reduced the minimum number of incorporators from 5 to any number, including 1.
    • All incorporators must be natural persons, except in certain instances involving partnerships or associations.

  3. Perpetual Existence

    • Under the old code, corporations had a maximum lifespan of 50 years, unless extended.
    • RA 11232 grants corporations perpetual existence unless otherwise provided in the Articles of Incorporation. This is a significant change as it encourages long-term investments and stability.

  4. Corporate Term and Renewal

    • Corporations formed under the old law with limited terms may now opt for renewal even after the expiration of their term, as long as they file the necessary application with the Securities and Exchange Commission (SEC).

II. CORPORATE GOVERNANCE

  1. Board of Directors and Officers

    • Qualifications:
      • Directors must own at least one share of stock in their own name.
      • At least majority of the directors must be residents of the Philippines.
      • The number of directors must be at least five (5) but no more than fifteen (15).

  2. Independent Directors

    • Publicly-listed corporations and companies vested with public interest must have independent directors. RA 11232 mandates that at least 20% of the board must be composed of independent directors.
    • Independent directors are individuals who are not officers, employees, or substantial shareholders of the corporation or its related companies.

  3. Corporate Officers

    • Mandatory officers include the President, Corporate Secretary, Treasurer, and Compliance Officer (for corporations vested with public interest).
    • The President must be a director of the corporation, while the Corporate Secretary must be a resident and citizen of the Philippines.

  4. Quorum and Voting

    • A majority of the board constitutes a quorum, unless the articles of incorporation or bylaws provide otherwise.
    • Voting can now be done through remote communication, a provision modernized to reflect the global shift towards digital solutions.
    • Stockholders may also vote through remote communication or in absentia during meetings.

  5. Fiduciary Duties

    • Directors and corporate officers have fiduciary duties to act in good faith and in the best interests of the corporation, including the duty of diligence, loyalty, and avoidance of conflicts of interest.

III. CORPORATE OPERATIONS

  1. Corporate Name

    • The corporate name must be distinguishable from other entities. The SEC has the authority to issue regulations on corporate names and resolve disputes.
    • Corporations must also include the word “Corporation,” “Incorporated,” or “OPC” (for One-Person Corporations) in their names.

  2. Stockholders' Meetings

    • RA 11232 allows electronic meetings (e.g., via teleconferencing, videoconferencing, etc.), especially in exigent circumstances such as public health emergencies.
    • Written notices for meetings must be sent to stockholders at least 21 days before the date of the meeting unless otherwise provided.

  3. Bylaws

    • A corporation’s bylaws must be adopted within one month after incorporation.
    • Amendments or new bylaws may be adopted with the approval of a majority of the board and two-thirds (2/3) of the stockholders.

  4. Dividends

    • Dividends, whether cash or property, may be declared by the board of directors, but they are payable only out of unrestricted retained earnings.

  5. Corporate Books

    • Corporations must keep accurate records of transactions, including minutes of meetings of directors and stockholders.

IV. DISSOLUTION AND LIQUIDATION

  1. Voluntary Dissolution

    • A corporation may voluntarily dissolve upon:
      • The vote of the majority of the board and two-thirds (2/3) of the outstanding shares.
      • Submission of the articles of dissolution to the SEC.

  2. Involuntary Dissolution

    • SEC may dissolve a corporation in cases of fraud, failure to commence business within two years, or continuous non-operation for at least five years.

  3. Liquidation

    • Upon dissolution, the corporation must settle its liabilities and distribute remaining assets to stockholders.
    • A corporation can assign liquidators or leave liquidation to the Board of Directors under supervision of the SEC.

V. FOREIGN CORPORATIONS

  1. License to Transact Business

    • Foreign corporations must secure a license to transact business in the Philippines from the SEC before engaging in any commercial activities.
    • A foreign corporation is required to file reports with the SEC, including financial statements.

  2. Branch Offices and Representative Offices

    • Foreign corporations may establish branch offices, which carry out business activities in the Philippines and are subject to the same taxation as domestic corporations.
    • Representative offices, on the other hand, are not allowed to generate income within the Philippines and exist solely to act on behalf of the parent company.

VI. TAXATION AND OTHER COMPLIANCE REQUIREMENTS

  1. Corporate Income Tax

    • Domestic corporations are taxed on their worldwide income, while foreign corporations are taxed only on their Philippine-sourced income.
    • The corporate income tax rate was adjusted under the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) law, but RA 11232 provides the structure for corporate compliance.

  2. SEC Reporting Requirements

    • Corporations must submit General Information Sheets (GIS) and Audited Financial Statements (AFS) annually to the SEC.
    • The revised code has simplified and streamlined compliance procedures to encourage transparency.

VII. PENALTIES AND SANCTIONS

  1. Corporate Liability

    • A corporation, its officers, and directors may be subject to fines, penalties, or suspension for non-compliance with the provisions of RA 11232.
    • Corporations found guilty of offenses, including failure to submit required reports or fraudulent acts, can be penalized by the SEC, which has been granted broad powers under the new law.

  2. Criminal Liability

    • Directors and officers may face criminal liability for fraudulent acts committed in connection with the corporation's activities.

VIII. INNOVATIONS AND MODERNIZATION

  1. Emergency Board Powers

    • During emergencies (e.g., natural disasters, war, public health crises), RA 11232 allows the corporation to fill board vacancies temporarily, ensuring continued operations.

  2. E-Governance

    • Provisions for the use of technology in governance, including remote communication for meetings and voting, are intended to modernize corporate operations and facilitate ease of doing business.

CONCLUSION

Republic Act No. 11232, the Revised Corporation Code of the Philippines, has modernized corporate governance and compliance in the Philippines. It simplifies procedures for incorporation, strengthens corporate governance, and protects stakeholders, all while fostering a more business-friendly environment. Key innovations include the creation of One-Person Corporations, provisions for perpetual corporate existence, and greater use of digital technology. This legal framework aims to promote ease of doing business, transparency, and corporate accountability, making the Philippines more competitive on the global stage.

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