Highlights of the Revised Corporation Code of the Philippines: Part I, Summaries of Law

Download Highlights of the Revised Corporation Code of the Philippines: Part I and more Summaries Law in PDF only on Docsity! Source: Fortun Narvasa & Salazar law fi rm htt ps://www.fnslaw.com.ph/highlights-of-the-revised-corporati on-code-part-i/ Unchanged Corporate Principles and Concepts While the Revised Corp. Code now contains 188 secti ons compared to the 149 secti ons of the Old Corp. Code, it maintains the defi niti on of a corporati on, the classes of corporati ons, classifi cati on of shares, the management structure of corporati ons, corporate powers and capacity, dissoluti on process, mergers and consolidati ons, and licensing of foreign corporati ons. The main principle of having a corporati on with a separate and disti nct legal personality from those of its stockholders/member, directors/trustee, offi cers and employees remains albeit a recogniti on of the need for corporate governance and minority protecti on is now a recurring theme in this new Law. Signifi cant Changes and Introducti ons But there are signifi cant changes on corporati on law and principles introduced by the Revised Corp. Code. The substanti ve changes in the Revised Corp. Code may be classifi ed into the following main categories:  Ease in doing business;  Process improvements in corporate acti viti es;  Corporate conti nuity and stability;  Corporate Governance; Directors’ and offi cers’ accountability;  SEC jurisdicti on and authority expansion. Contributi ons to Ease in Doing Business  Incorporati on facilitated :  Partnerships, associati ons or corporati ons, singly or jointly with others but not more than 15 may now be incorporators – 10; but if singly or to be a One Person Corporati on (“OPC”), incorporator must be a natural person, trust or an estate – Sec. 116;  No more residency requirement for incorporators and directors – 10 and 22  Professionals or partnerships or associati ons organized for the practi ce of a profession are not allowed to organize as a corporati on – 10  Changes in the contents of the Arti cles of Incorporati on (AOI) – 13 and 14 and related secti ons  Corporate Name – must be disti nguishable from a name that is already reserved or registered for the use of another corporati on, or is not protected by law; or is not contrary to existi ng law, rules and regulati ons. – 17  Requires online verifi cati on – 18  If a One Person Corporati on (“OPC”), the lett ers “OPC” must be indicated either below or at the end of its corporate name – 120  Principal Offi ce Address – now allows general reference to city or municipality and not a specifi c offi ce address;  Corporate Term – now with a perpetual existence unless its AOI provides otherwise – 11  For existi ng corporati ons – automati cally now have perpetual existence, unless by a majority vote of its stockholders, noti fi es the SEC that it elects to retain its specifi c corporate term under its present AOI – 11, 2nd par.  Eff ect of non-use of corporate charter, failure to organize or commence business is now for a period of fi ve (5) years (no longer for 2 years) from its date of incorporati on – deemed revoked certi fi cate of registrati on – 21  Incorporators – May be partnerships, associati ons or corporati ons; may be only one (1) incorporator but sti ll not more than 15; and no more residency requirement – 10  Directors/Trustees – No more minimum number of fi ve (5) and no more residency requirement – 22  If a corporati on vested with public interest – at least 20% of the Board must be independent directors, i.e. independent of management and free from any business or relati onship that could aff ect exercise of independent judgment – 22 –  No required minimum capital stock except if required by special law – 12; – see, e.g. FIA on minimum paid up capital of foreign corporati ons in the domesti c market.  No more required 25% minimum subscripti on and paid up capital stock at incorporati on – previous Sec. 13 deleted – but in an increase of authorized capital stock the 25% subscripti on and 25% paid up requirements are sti ll imposed – 37  Arbitrati on Agreement – to govern dispute resoluti on between the corporati on, its stockholders or members arising out of the implementati on of the AOI or by- laws, or from intra-corporate relati ons; criminal off enses and interests of third parti es are not arbitrable; binding on the corporati on, its directors, trustees, offi cers, executi ves and managers; should indicate number of arbitrators and procedure for appointment; power to appoint granted to a designated independent third party; or failing which, the SEC; other usual arbitrati on provisions – 181  Treasurer’s Certi fi cati on in Arti cle Ninth of the AOI, the Treasurer is named and he is a signatory to the AOI thereby certi fying the informati on in the seventh and eighth clauses of the AOI – 14. – seems to imply no need for Treasurer’s Affi davit.  Treasurer must be a resident – Sec. 40  Tenth Arti cle – contains undertaking to change the name of the corporati on  Electronic fi ling – in accordance with SEC rules Sec. 13  The requirement for “favorable recommendati on of appropriate government agency to the eff ect such arti cles or amendment is in accordance with law” for incorporati on or amendment for public uti liti es, educati onal insti tuti on and other corporati ons governed by special law was deleted  Noti ce of Special Meeti ngs – may be sent electronically when allowed by the bylaws or done with the consent of the stockholders, and in accordance with the rules and regulati ons of the SEC – following purposes to: extend or shorten corporate term – 36, increase or decrease its capital stock, or incur, create or increase any bonded indebtedness – Sec. 37, approve the sale of all or substanti ally assets of the corporati on – Sec. 39, or invest the corporate funds in another corporati on or business – Sec. 41.  Directors/Trustees Meeti ngs – Noti ce of meeti ngs must be sent at least two (2)days prior to the scheduled meeti ng – no longer one (1) day  Directors or trustees who cannot physically att end or vote at board meeti ngs can parti cipate and vote through remote communicati on such as videoconferencing, teleconferencing, or other alternati ve modes of communicati on. Directors or trustees cannot att end or vote by proxy at board meeti ngs. – Sec. 52  Electronic Filing of AOI and applicati ons for amendments – 13 The SEC is required to develop and implement an electronic fi ling and monitoring system. It shall promulgate rules to facilitate and expedite corporate name reservati on and registrati on, incorporati on, submission of reports, noti ces, and documents required under the Revised Corp. Code, and sharing of perti nent informati on with other government agencies – Sec. 180  Corporate conti nuity and stability  Perpetual Existence – Corporati ons now have a perpetual existence or corporate term, unless the AOI provides otherwise, or in the case of existi ng corporati ons, unless majority of the stockholders elect to retain the specifi c corporate term provided in its AOI and advised the SEC – 11  Revival of Corporate Term – A corporati on whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certi fi cate of incorporati on and subject to all of its duti es, debts and liabiliti es existi ng prior to its revival. Upon approval by the SEC, the corporati on shall be deemed revived and a certi fi cate of revival of existence shall be issued – 11  Electi on of Replacement Directors/Trustees – when vacancy due to term expirati on, the electi on should be held no later than the day of such expirati on ; when vacancy is due to a removal, the electi on may be held on the same day as the removal; but in both cases, no later than 45 days from the vacancy; term of replacement director or trustee is only for the unexpired term – 28  Electi on of an emergency director/emergency board – is now allowed when there is no quorum in the board of directors due to resignati on, death or disqualifi cati on and emergency acti on is required to prevent grave, substanti al, and irreparable loss or damage to the corporati on , the vacancy may be temporarily fi lled from among the offi cers of the corporati on by unanimous vote of the remaining directors . The emergency director serves only to address the emergency and ceases when a replacement director is elected. The SEC must be noti fi ed – 28  Corporati ons are empowered to enter into partnerships , joint venture or any commercial agreements – 35(h) – expands rule in jurisprudence that corporati ons can only enter into joint ventures and not partnerships. Corporate Governance – introduced as a new concept and recurring theme; also strengthens minority protecti on; Directors’ and offi cers’ accountability; While the term “corporate governance” is not defi ned in the Revised Corp. Code, it is used signifi cantly and new provisions were added so that corporati on can practi ce good governance and in the process, protect minority stockholders. Directed at corporati ons vested with public interest such as listed companies, banks, quasi-banks, pawnshops, money service business, preneed, trust and insurance companies, and other fi nancial intermediaries. SEC Memorandum Circular No. 9, s. 2014 – defi ned corporate governance as: “the framework of rules, systems and processes in the corporati on that governs the performance of the Board of Directors and management of their respecti ve duti es and responsibiliti es to stockholders and other stakeholders which include, among others, customers, employees, suppliers, fi nanciers, government and community in which it operates.” 1. SEC Mandate – The SEC is granted the authority to promote corporate governance and the protecti on of minority investors through, among others, the issuance of rules and regulati ons consistent with internati onal best practi ces – 179 2. Independent Directors – required for corporati ons vested with public interest – 22 3. Duti es of Directors – The directors or trustees elected shall perform their duti es as prescribed by law, rules of good corporate governance, and by-laws of the corporati on – 23 4. Voti ng by shareholders through remote communicati on or in absenti a – is now allowed – 23 and Sec. 49. 5. Compliance offi cer – required for corporati ons vested with public interest – 24 6. Adds grounds for disqualifi cati on of Directors/Trustees/Offi cers – (a) for violati ng Republic Act No. 8799, otherwise known as “The Securiti es Regulati on Code”; (b) found administrati vely liable for any off ense involving fraud acts; and (c) by a foreign court or equivalent foreign regulatory authority for similar acts, violati ons or misconduct resulti ng in convicti on by fi nal judgment . 26 7. Total compensati on of each director – of corporati ons vested with public interest are required to be disclosed – 29. 8. Compensati on of Directors – Directors are prohibited from parti cipati ng in the determinati on of their own per diems or compensati on – 29. 9. The rule on self-dealing Directors – is expanded to cover contracts of the corporati on with spouses and relati ves within the fourth civil degree of consanguinity or affi nity of a director of offi cer – 31; A director who has potenti al interest in any related party transacti on must recuse from voti ng on the approval of the related party transacti on – Sec. 52 10.Higher voti ng threshold – including the vote of a majority of the independent directors, is required for certain contracts of directors or offi cers in a corporati on vested with public interest – 31 (d) 11.Foreign corporati ons are not allowed to give donati ons in aid of any politi cal party or candidate or for purposes of parti san politi cal acti vity – 35 (i) 12.Reference is made to the required approval of the Philippine Competi ti on Commission for sale or dispositi on of corporate assets – 39; increase or decrease in capital or incurring or increasing any bonded indebtedness – Sec. 37; or merger or consolidati on, of corporati ons – Sec. 78 – threshold of P5.2B for Party Size and P2.2B for Transacti on Size. 13.The bylaws may provide matt ers – necessary for the promoti on of good governance and anti -graft and corrupti on measures – 46 (k). 14.Expanded Informati on to be provided by directors/trustees to stockholders at their regular meeti ngs – minutes of stockholders meeti ng should now include additi onal informati on; items in the interest of good corporate governance and the protecti on of minority stockholders; list of stockholders/members with voti ng rights; assessment of corporati on’s performance; fi nancial report; dividend policy; directors/trustees profi les; directors/trustees att endance report; appraisal and performance reports for the board; compensati on report; self-dealing directors and transacti ons – 49 15.The noti ce of stockholders’ meeti ng – is required to be accompanied by: (i) the agenda for the meeti ng; (ii) a proxy form; (iii) the requirement and procedures to be followed by a stockholder who elects to parti cipate by remote communicati on or in absenti a, if such is allowed; (iv) the requirements and procedure for nominati on and electi on, if the meeti ng is for electi on of directors – 50