Letter to a Lawyer

Dear Attorney,

I hope this message finds you well. I am reaching out to inquire about the minimum capital requirements for registering a corporation in the Philippines. Are there specific amounts mandated by law, and are there any exemptions or special cases where the requirement may be waived or reduced? Additionally, how does this apply to different types of corporations, such as domestic, foreign-owned, or one-person corporations?

Your guidance on this matter will be greatly appreciated.

Sincerely,
A Concerned Business Enthusiast

Legal Analysis on Minimum Capital Requirements for Corporations in the Philippines

Legal Framework: Understanding Capitalization for Corporations

The minimum capital requirement for corporations in the Philippines is governed by the Revised Corporation Code of the Philippines (R.A. No. 11232) and relevant rules issued by the Securities and Exchange Commission (SEC). This article provides a comprehensive analysis of the rules and nuances related to minimum capital requirements.

What is Authorized Capital Stock?

Authorized capital stock refers to the maximum amount of capital or shares a corporation is authorized to issue under its Articles of Incorporation. It is important to distinguish this from subscribed and paid-up capital:

Subscribed Capital – The portion of the authorized capital stock that shareholders have agreed to purchase.
Paid-Up Capital – The actual amount of money paid by shareholders, which must be at least 25% of the subscribed capital stock.

General Rule on Minimum Capitalization

The Revised Corporation Code removed the general minimum capital requirement previously required under the old Corporation Code. This means that corporations, in general, are no longer mandated to maintain a minimum capitalization unless otherwise required by specific laws, rules, or regulations applicable to particular industries or business activities.

Key Takeaway: For most domestic corporations, there is no longer a fixed minimum capital requirement. However, corporations must ensure compliance with the 25%-25% rule, which states:

At least 25% of the authorized capital stock must be subscribed.
At least 25% of the subscribed capital stock must be paid-up.

For instance, if a corporation’s authorized capital stock is ₱1,000,000, the minimum requirements are:

Subscribed Capital: ₱250,000 (25% of ₱1,000,000)
Paid-Up Capital: ₱62,500 (25% of ₱250,000)

Specific Minimum Capital Requirements

While the general rule allows flexibility, certain industries and corporate setups are subject to specific minimum capital requirements as provided by special laws, regulations, or SEC circulars. Some notable examples include:

Foreign-Owned Corporations
- For corporations with more than 40% foreign ownership, the minimum paid-up capital is typically US$200,000 or its peso equivalent.
- The amount may be reduced to US$100,000 if the corporation’s activities involve advanced technology or employ at least 50 direct employees.
Export-Oriented Enterprises
- A corporation that exports at least 60% of its output may not be subject to the US$200,000 capitalization rule for foreign-owned corporations.
One Person Corporation (OPC)
- The Revised Corporation Code introduced the OPC as a simplified form of corporate structure. No minimum capital is required unless the OPC engages in activities subject to special regulations.
Special Industries
- Banks, insurance companies, financing companies, and other entities regulated by the Bangko Sentral ng Pilipinas (BSP) or the Insurance Commission often have specific capitalization requirements. For example:
  - Banks: Ranges from ₱3 billion to ₱20 billion depending on the type and scope of banking activities.
  - Insurance Companies: ₱1 billion minimum paid-up capital under the Amended Insurance Code.

Exemptions and Special Cases

Small and Medium Enterprises (SMEs)
- SMEs typically benefit from the absence of minimum capital requirements, allowing greater ease of doing business.
Startups and Technology Enterprises
- Certain initiatives, such as the Philippine Innovation Act (R.A. No. 11293), encourage the growth of startups by providing flexibility in capital requirements.

Steps in Determining Minimum Capital for Registration

Identify the Type of Corporation
- Determine whether the corporation is domestic, foreign-owned, or an OPC.
Check Industry-Specific Requirements
- Review applicable laws and regulations for specific industries (e.g., banking, insurance).
Comply with the 25%-25% Rule
- Ensure that the subscribed and paid-up capital meet the statutory thresholds.
Engage with the SEC
- The SEC may issue additional guidelines for industries subject to evolving regulations.

Practical Considerations for Business Owners

Drafting the Articles of Incorporation
- Ensure that the authorized capital stock is realistic and aligns with the corporation’s business goals.
Compliance with Foreign Investment Laws
- Corporations with foreign equity must adhere to the Foreign Investment Act and related issuances.
Bank Certification of Paid-Up Capital
- A bank certification is often required to demonstrate compliance with paid-up capital requirements.

Consequences of Non-Compliance

Failure to meet the capitalization requirements may result in the SEC’s denial of registration or, in some cases, administrative penalties. It is critical to adhere to the rules to avoid delays or legal issues.

Recent Developments and Trends

The government has introduced measures to encourage foreign investment, including relaxing restrictions on foreign ownership in specific industries.
Startups and innovative enterprises continue to enjoy greater flexibility in regulatory requirements, fostering growth in the Philippine business sector.

Conclusion

The minimum capital requirement for corporations in the Philippines varies depending on the type and industry of the corporation. While the Revised Corporation Code has removed the general minimum capital requirement, specific sectors remain subject to mandatory thresholds. Business owners must carefully navigate these regulations to ensure compliance and operational success.

For tailored advice, it is best to consult legal professionals or corporate advisors with expertise in Philippine corporate law.