Revised Corporation Law PDF

Preview

Summary

REVISED CORPORATION LAWSUMMARY NOTESGeneral Provisions 2Dissolution 14One Person Corporation 16Specific Provisions on Investigation, Offenses and Penalties 17GENERAL PROVISIONSWhat are the changes in the classifications of shares? Designating different types of shares, with varying rights, privilege...

Description

1

REVISED CORPORATION LAW SUMMARY NOTES

General Provisions Dissolution One Person Corporation Specific Provisions on Investigation, Offenses and Penalties

2 14 16 17

2

GENERAL PROVISIONS What are the changes in the classifications of shares? Designating different types of shares, with varying rights, privileges, and restrictions, is still allowed. However, the founder shares given the exclusive right to vote and be voted for are not allowed to exercise that right in violation of the Anti-Dummy Law and the Foreign Investment Act. As for the redeemable shares, their redemption shall now be subject to any rules and regulations issued by the Securities and Exchange Commission (SEC), in addition to terms and restrictions in the Articles of Incorporation and certificate of stock. What are the changes in incorporators? Incorporators are any person, partnership, association, or corporation, singly or jointly with others, not exceeding 15, may now be incorporators. Incorporators are those persons who originally form a corporation and are the first stakeholders. No minimum number is required, and the majority of them need not be Philippine residents. Previously, a minimum of 5 natural persons is necessary to create a corporation. Since there is no longer any minimum number required for incorporators, any single natural person is now allowed to form a corporation by him/herself, known under the new Code as a One Person Corporation. What are the changes in the corporate term? Perpetual corporate existence is now allowed. Those whose corporate existence was limited by the 50year rule in the Old Code will automatically have perpetual existence unless they notify the SEC of their desire to stick to the limited 50-year term. What are the changes in the corporate term? If a corporation wishes to change its corporate term, it may amend its articles of incorporation at least three years before the expiration of its term. Previously, such a change should be made at least five years before the expiration. If the term has already expired, the corporation may now ask the SEC to revive its corporate existence, which option was not present in the old Code. If the same is approved, the SEC will issue a certificate of revival giving it perpetual existence unless it requests a limited term. However, no revival is allowed for companies under the supervision of other government agencies, such as banks, insurance and trust companies, unless the appropriate government agency first approves the revival. What are the changes in the minimum capital stock? Though there has been no previously set minimum amount for a corporation’s authorized capital stock, it was however required to have a minimum subscription of 25% of the total stock, 25% of which must be paid upon subscription. The minimum amount for such paid-up capital should not be less than P5,000. Under the new Code, no such minimum requirements are provided.

3

What are the changes in the articles of incorporation? The new Code now recognizes that the Articles of Incorporation may be authenticated, instead of merely being acknowledged before a notary public. Its required contents are similar to those required under the old Code; however, it may include an arbitration agreement to govern intra corporate disputes and relations. What are the changes in requirements for incorporation? Though generally, the same documentary requirements are needed to incorporate, the new Code provides that the Articles of Incorporation may be filed with the SEC, and any application for amendments, in an electronic document. The old Code did not have any similar provisions regarding electronic documents. In addition to the articles of incorporation, another document previously required was the treasurer’s affidavit attesting that the minimum amounts of subscribed and paid-up capital have been met. Since the new Code no longer requires such minimum amounts, the Treasurer need not issue such an affidavit. Instead of this, the Articles should indicate that the named Treasurer certifies that the information in the Articles regarding authorized capital stock, and the subscription and paid-up amounts have been duly received for an in behalf of the corporation. What are the changes in a corporate name? Previously, the old Code did not allow corporate names which are identical, similar, or confusingly similar to another corporate name, among others. Under the new Code, names which are “not distinguishable” from reserved corporate names or names of an existing corporation. Names are not distinguishable even if they contain the word corporation, company, incorporated, limited o any abbreviation, punctuation, article conjunction, contraction, preposition or abbreviation, or is of different tenses, with spacing, or with a number of the same word or phrase. What are the changes in the power of SEC over corporate names? Previously, the SEC only holds power to approve or deny proposed corporate names and any change. Under the new Code, the SEC has the power to summarily order a corporation to cease and desist from using a name it finds to violate the requirements of the law. It may also now cause the removal of all visible signs, marks, ads, labels, prints, and other materials bearing the disapproved name. If the corporation does not obey the order of the SEC, the SEC may hold it and its responsible officers or directors in contempt, and hold them administratively, civilly, and criminally liable, and revoke its registration altogether. What are the changes in the process of incorporation? The old Code did not provide for a specific process to be followed when incorporating a company. At most, it only stated when corporate existence commences. Under the new Code, a specific process has been laid down. First, the incorporators shall submit their intended corporate name to the SEC for verification. Once approved, they shall then submit their articles of incorporation and by-laws to the SEC. Once the SEC determines that the documents submitted are duly compliant, then it shall issue the certificate of incorporation. Upon issuance of such a certificate, its corporate existence begins.

4

What are the changes in the non-use of the corporate charter? Under the old Code, a new corporation must formally organize and commence business or construction of its works within two years from incorporation. Otherwise, it shall be deemed dissolved. Under the new Code, a new corporation has five years from the date of incorporation to commence business operations. If he fails to do so within the said 5-year period, its certificate of incorporation will be deemed revoked at the end of the five years. What are the changes in continuous operation? It may be possible that a corporation, even after it has initially commenced business operation, may become inoperative. Under the old Code, if it becomes inoperative continuously for five years, then the SEC may revoke its certificate of incorporation. Under the new Code, the corporation may be placed by the SEC under delinquent status, other after notice and hearing, for two years, to allow it to resume operations. This will be lifted once the corporation resumes business, but if it does not resume operations, then the SEC may revoke its certificate of incorporation. What are the changes in the board of directors (BOD) and trustees? A corporation exercises its powers through a BOD if it is a stock corporation, or through a board of trustees if it is a non-stock corporation. Previously, directors hold office for a term of 1 year, and the majority of whom should be Philippine residents. Trustees hold office in a way that 1/3 of the first board will hold office for one year, and then subsequent ones will hold office for three years. Under the new Code, directors hold office for one year, while trustees hold office for three years. The majority of the Board is also no longer required to be Philippine residents. What are the changes in independent directors? Previously, the old Code did not require the appointment of independent directors and was only required for specific corporations such as those falling under the Securities Regulation Code, and banks and institutions under the supervision of BSP. Independent directors are persons who, apart from shares and fees from the corporation, are independent of management and free from any business or other relationship which could materially interfere with independent judgment in carrying out their responsibilities as a director. Under the new Code, corporations vested with public interest should have a board with independent directors constituting at least 20% of the board, to be elected by their shareholders. Corporations vested with public interest are corporations engaged on registered securities activities, publicly listed companies which are those with assets of at least P50 million and with 200 or more holders of shares, each with at least 100 shares, banks, and quasi banks, NSSLAs, pawnshops, money service companies, pre-need, trust and insurance companies, other financial intermediaries, and other corporations vested with similar public interests. What are the changes in the election of directors or trustees? Previously, the old Code provided for the manner of electing directors or trustees, without any mention of

5

nominations. Under the new Code, Directors/Trustees are first nominated by the stockholders/members, and the nominees receiving the highest number of votes will be elected. Generally, the same process for an election still governs; however, remote communication or voting in absentia may now be done, if allowed in the by-laws or authorized by a majority of the board. These two new modes for voting are not available for corporations vested with the public interest. What are the changes in the failure to hold elections of directors and trustees? The old Code did not provide for a specific process to be followed in case no elections are held, or the required majority of the stockholders/members were not present during the elections. Under the new Code, even if no elections are held, the meeting will be adjourned and the same will be reported to the SEC within 30 days from the date of the elections. The report should include a new specific date when the elections will be held which should not be more than 60 days from the first date. In case no date was selected, the SEC may schedule it for the corporation, and issue other orders. What are the changes in corporate officers? Under the old Code, the directors were only required to elect a president, who must be a director, a treasurer who need not be a director, and a corporate secretary who must be a resident citizen of the Philippines. No other officers are required to be elected; unless there are others listed in the by-laws. Under the new Code, the same officers are required; however, the treasurer is now required to be a resident of the Philippines. In addition to these officers, a compliance officer must also be elected for corporations vested with the public interest. What are the changes in death and resignation of a director, trustee, and officer? Though the old Code required that any death, resignation, or any other circumstance causing a director, trustee, or officer to cease holding office must be reported to the SEC, no period was provided. Under the new Code, such a warranty should be reported to the SEC within seven days from the time the secretary learns of such death, resignation, etc. What are the changes in the disqualifications of directors, trustees, and officers? Under the old Code, only those who have been convicted by final judgment of an offense punishable by imprisonment of more than six years under the said Code, within five years from election or appointment, are disqualified. Under the new Code, additional disqualifications were included, such as those who have been found, within the same 5-year period, to have violated the Securities Regulation Code, made administratively liable for offenses involving fraudulent acts, and found by a foreign court to have violated or engaged in similar misconduct. Also, the SEC and the Philippine Competition Commission may impose additional qualifications/disqualifications. What are the changes in the removal of directors and trustees? Under the old Code, only the stockholders or members of a corporation may remove any member of the board. Under the new Code, the SEC is also given the power to motu proprio, upon a verified complaint, after due notice and hearing, to order the removal of a disqualified director/trustee. The

6

said removal is without prejudice to any other sanction the SEC may impose on the board member who, despite knowledge of disqualification, failed to remove the director/trustee involved. What are the changes in the vacancies on the Board? Under the old Code, though vacancies caused by removal or expiration of term were required to be filed by the vote of a majority of the stockholders or members, no procedure for such election was included. Even for vacancies caused by other reasons, no mention is made as to the time when they should be filled. Under the new Code, elections for vacancies due to term expiration should be held within one day from date of expiration in a meeting called for that purpose. If the vacancy is due to removal, the election may be held on the same day of the meeting authorizing removal, which fact of removal should be indicated in the agenda and notice of the meeting. For any other vacancy, elections should be within 45 days from the time when the vacancy arose. The director/trustee to be elected will only be a replacement and shall serve only for the unexpired term. What are the vacancies in the Board requiring emergency action? The old Code did not have any provision on vacancies requiring immediate emergency action. Under the said Code, even if emergency action is needed, the general rules on vacancies should still be followed. This is remedied by the new Code since it provides that any vacancy which prevents the board from constituting a quorum to do business, and there is a need to act to prevent grave, substantial, and irreparable loss or damage to the corporation, may be temporarily filled from among the officers of the corporation by a unanimous vote of the remaining directors/trustees. The one designated will only be allowed to act on the emergency action necessary at such time, since his/her term shall cease within a reasonable time from the termination of the emergency or upon the election of a replacement. Within three days from the creation of the emergency board, the corporation is required to notify the SEC of such matters. What are the changes in the compensation of directors and trustees? Similar to the old Code, the new Code provides that the board shall not receive compensation to act as members of the board, except for reasonable per diems, unless a majority of their stockholders/members approve of giving them compensation. But, the new Code also provides that corporations vested with public interest shall submit to the shareholders/members and the SEC, an annual report of the total compensation of each of their directors/trustees. What are the changes in dealings of directors, trustees, and officers of the corporation? Under the old Code, only contracts of directors, trustees, and officers with the corporation are voidable, unless certain conditions are present. Under the new Code, even contracts with their spouses and relatives within the 4th civil degree of consanguinity are affinity is also voidable. However, in addition to the conditions laid down in the old Code to make such contracts valid, an additional condition was inserted: in case of corporations vested with public interest, material contracts are approved by at least 2/3 of the entire membership of the board, with at least a majority of the independent directors voting to approve the material contract.

7

What are the changes in special committees? Even under the old Code, the Board may create an executive committee, if they are allowed by the bylaws, to be composed of at least three directors, to act on specific matters delegated by the Board. In addition to the executive committee, the new Code allows for the creation of special committees that are temporary or permanent, and the board may determine the committee member’s term, compensation, powers, and responsibilities. What are the changes in extending and shortening the corporate term? Extending or shortening the corporate term is still subject to the requirement of sending notices to the stockholders/members of the meeting when the corporate term will be extended or shortened. In addition to being sent personally or by mail to the stockholders or members, the new Code allows the notice of the meeting to be sent electronically, so long as such electronic sending is allowed by the by-laws or with the consent of the stockholder/member, by rules and regulations of the SEC on the use of electronic data messages. What are the changes in increasing and decreasing capital stock? Similar to the notice requirement meetings called to extend/shorten the corporate term, the new Code now allows for the notice to be sent by the electronic means, as may be recognized in the by-laws, and the SEC’s rules and regulations on electronic data messages. Also, any application to change the capital stock shall now be filed with the SEC within six months from the approval of the Board and its stockholders. What are the changes in the dispositions of corporate assets? The old Code was passed at a time when the Philippines still did not have competition law. Thus, it is only in the new Code that the said law is expressly mentioned, thereby subjecting dispositions of corporate assets to its provisions. A notable insertion in the new Code is the basis for determining whether the disposition or sale covers all or substantially all assets or properties. The new Code now specifically provides that the determination must be based on the net assets values of the corporate assets, as shown in the latest financial statements of the corporation. Another insertion is the provision on allowing notice of the proposed sale and the meeting called for such purpose to be sent electronically when such is allowed by the by-laws or with the consent of the stockholders/members. Under the old Code, notice can only be sent personally or by mail. What are the changes in investing in corporate funds? Similar to the old Code, the new Code provides that when corporate funds are invested in another corporation or business, a meeting should be called to allow the stockholders to vote on the investment. Notices of such meetings should be sent to them before the meeting, which, under the new Code, may be sent electronically, by rules and regulations of the SEC on electronic data messages and when allowed by the by-laws or dine with the consent of the stockholders.

8

What are the changes in the adoption of by-laws? Under the old Code, within one month from receipt of the certificate of incorporation from the SEC, the corporation is mandated to adopt its by-laws for its government. But, the same Code also allows for the by-laws to be adapted before incorporation, which must then be signed by all incorporators, to be filed with and approved by the SEC along with the articles of incorporation. Under the new Code, the 1 month to adopt the by-laws after incorporation has been deleted. The Corporation now as more time to adopt it’s bylaws, so long as it files its by-laws with the SEC once adopted. It may also still choose to adopt the by-laws before incorporation, following the same rules as provided in the old Code. What are the changes in the contents of by-laws? The new Code lays down the same contents as those provided in the old Code, but it does require including two new matters: 1. By-laws must state the modes by which stockholders, member, trustee, or director may attend the meeting and cast their votes 2. A maximum number of other board representations that an independent director or trustee may have, which should not be more than that prescribed by the SEC. Simil...