8 Basic Corporate Rules no longer applicable under RCC

By: Garry S. Pagaspas, CPA

1. Natural person only incorporators, majority Ph residents

Under the old rules (Batas Pambansa Blg. 68 or BP 68), incorporators must be natural persons only and majority of such incorporators must be residents of the Philippines. This has been changed under the Revised Corporation Code or Republic Act No. 11232 (RA No. 11232) as incorporators of local corporation could now be natural personals and/or juridical persons – local or foreign. Philippine residency requirement is no longer required. This however, is subject to foreign investment rules for foreign ownership. Please refer to SEC MC No. 19 series of 2019 for incorporator guidelines.

2. At least five (5) natural person incorporators

It takes at least five (5) to fifteen (15) natural person incorporators, majority of which are Philippine residents, to register a local domestic corporation in the past. Under the Revised Corporation Code, at least two (2) to fifteen (15) incorporators could register and majority residence requirements is no longer required. While this works to the advantage of foreign investors in registering their business entity in the Philippines, the rules on extent of foreign ownership under foreign investment rules still applies. Notably, under the Revised Corporation Code Philippines as implemented by SEC MC No. 7 series of 2019, a single natural person can register a One Person Corporation (OPC) that could engage in any lawful business in the Philippines other than practice of profession.

3. 25%-25% Pre-incorporation subscription

To register a local domestic corporation, you are required to have an authorized capital stock of certain amount that once approved, such amount of capitalization represents the maximum that the corporation may raise through issuance of such shares. Previously, it is required that at least 25% of such authorized capitalization in Philippines shall be subscribed and of which, 25% must be paid-up, cumulatively, otherwise, the application for registration of domestic corporation will not be approved. This requirement has been changed and you can now register a local domestic corporation without regard to the 25%-25% pre-incorporation subscription.

4. Minimum paid-up capitalization of P5K, in general

Registering a corporation is not really cash heavy because the old rules only require at least PhP5,000.00 minimum paid-up capitalization for stock corporations following the application of the 25%-25% pre-incorporation subscription, unless a specific amount of paid-up capitalization is required by special law, rules and regulations (e.g. lending investor requiring PhP1M minimum paid-up capitalization). This requirement has also been changed and the new rules no longer require any minimum paid-up capitalization, unless a specific amount of paid-up capitalization is required by special law, rules and regulations. For practical considerations however, a reasonable amount of capitalization is highly recommended.

5. 5-15 natural person member of the Board, majority Ph residents

The Board of Directors is the governing body of the corporation through which corporate powers are exercised. As a rule, five (5) to fifteen (15) qualified members of the board of directors are required and majority of the members must be residents. Under the Revised Corporation Code in Philippines, at least two (2) to fifteen (15) qualified members of the Board of Directors could be opted and majority of such members does not necessarily be required to be residents of the Philippines.

6. Disallowed Teleconference/ Videoconference on stockholders meeting

The Old Corporation Code was enacted in the past where technology is not much a factor but later, SEC passed a circular allowing teleconference and/or videoconferencing for the conduct of meeting of the board of directors, instead of the traditional face to face. However, such rules were not made applicable to stockholders meeting, in turn, requiring a face-to-face attendance, unless a proxy is allowed by the bylaws. Now, under the Revised Corporation Code, remote communication, teleconference/ videoconference or in absentia is allowed for stockholder’s meeting, completely embracing the modern technological means of business gatherings. Please refer to SEC MC No. 6 series 2020 for related guidelines.

7.  50-year corporate term

Previously, corporate term or corporate life shall not exceed 50 years and subject to extension of not more than 50 years, in any one instance. Under the Revised Corporation Code Philippines, corporate term is perpetual and unlimited, unless a shorter term is opted. On transition, existing domestic corporations upon effectivity of Revised Corporation Code are automatically converted to perpetual existence unless it prefers a shorter term. At any rate, a fixed corporate term is still allowed either upon registration or as an amendment.

8. 3-year inoperation revocation, now 5 years

Once registered, the local domestic corporation in Philippines is expected to operate based on the purpose or purposes it was registered. If for a reason or another, the corporation stopped operation and failed to resume within a period of three (3) years, then, the old rules provide that the certificate of incorporation is automatically cancelled. Under the Revised Corporation Code Philippines, the three – year period now became five (5) years to give the corporation ample time to get back on its feet. 

Summary

The above enumeration of basic corporate rules no longer applicable under the Revised Corporation Code or Republic Act No. 11232 in Philippines is not all inclusive and there could be more rules that has been replaced with new ones or changed by the Revised Corporation Code. Further reading of the Revised Corporation Code in Philippines and related literatures is highly recommended to develop a better understanding of new corporate rules. Alternatively, let us know how we can further assist for the purpose.

About the author:

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for two (2) decades helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.