Revolutionizing Corporate Law
February 28, 2019
Ira Paulo Pozon, 2018 AsiaGlobal Fellow
Ira Paulo Pozon, 2018 AsiaGlobal Fellow, discusses how the new law is a step towards improving the ease of doing business by bringing fundamental changes to the business climate.
Recent events reinforce the notion that the Duterte administration, working closely with the two Houses of Congress, are moving full-steam ahead in making legislation with real and innovative impact on society.
In particular, R.A. No. 11232 (the Revised Corporation Code of the Philippines), is a law with momentous and substantial changes on the corporate sector of the country.
This new law is a timely measure, complementing last year’s Ease of Doing Business Act, a law I am proud to have worked on and contributed to. The law had strict provisions in simplifying the way government streamlines business transactions by decreasing processing times for permits, licenses and other regulatory matters needed for private businesses.
This revised corporation code is groundbreaking as it brings the law on corporations into a technological age, as well as amending the provisions that proved challenging during the effectivity of the predecessor law almost four decades its senior.
For instance, the new law provides for a one-person corporation (OPC) formed by a single incorporator, instead of the minimum of five and maximum of 15 incorporators under the old law. The one-person corporation is exactly what the term means, a corporation incorporated by a single entity – either a natural person, a trust, or an estate.
This allows for more ease in the actual operations of a business where the single incorporator is his or her own board, and can make certain corporate decisions without having to convene a board meeting.
The single incorporator is deemed the sole director and president, who then has to appoint the treasurer, corporate secretary, and other corporate officers within 15 days from the issuance of the certificate of incorporation. However, the president and corporate secretary cannot be the same person, while the president could be treasurer, subject to certain regulatory conditions.
The OPC is limited by other existing laws, which is why banks, publicly-listed companies, insurance companies, etc., cannot form one. Also barred from forming such corporations are licensed professionals to exercise that profession, an established legal concept I never quite agreed with but still respected.
The OPC is required to display “OPC” after or below the corporate name.
The new law also complements the actions of the SEC in bringing corporate registrations online. To date, one could register a corporate name, and even fill in the details for articles of incorporation and by-laws all online. Under this new law, videoconferencing and teleconferencing are recognized way of communication, and stockholders unable to physically attend meetings can now participate and vote.
Another novel concept in the law is the removal of the previous 50-year corporate term, which would have to be renewed. The new law grants a perpetual term, to which the millennials could say, “may forever din pala”.
This addresses the situation where some corporations had been considered closed after the officers had failed, perhaps due to simple forgetfulness, to renew corporate papers prior to the half-century term.
The new law also allows those companies that had expired documentation to reacquire corporate existence through revival with the Securities and Exchange Commission (SEC).
The law also allows for the creation of an emergency board in the event a quorum is unreachable due to a vacant position in the existing board of directors. To allow a board to make emergency decisions, the vacancy can be filled by a vote of the remaining directors or trustees who would then choose a temporary board member from the corporate officers.
Once the emergency board is constituted, the corporation then has three days to notify the SEC of that action.
Alternative dispute resolution
In line with the growing popularity of modes of alternative dispute resolution (ADR), the new law allows for ADR to be the adopted method to resolve intra-corporate issues, instead of bringing the issues to the regulators or the courts. Certain ADR methods include arbitration and mediation, both of which have grown in popularity and effectiveness across the globe.
With this new law, it is hoped that businesses can easily be formed, managed, and flourish. As with our experiences in the past, laws must not only be on paper but truly and efficiently implemented to truly realize the intent the framers had in mind. This is not a small step, but a significant one.
The author is the founder and CEO of Caucus, Inc., a multi-industry, multi-disciplinary management consultancy firm. He graduated MBA (De La Salle University), Juris Doctor (Far Eastern University), and LLM in International Commercial Law (University of Nottingham, United Kingdom). He also studied Mandarin Chinese Language and Culture in Fuzhou, China, was a Chevening-HSBC UK Government Scholar, a Confucius Institute Scholar, an alumnus of the US State Department’s International Visitor Leadership Program, and a Fellow of the Asia Global Institute – University of Hong Kong. The author may be emailed at firstname.lastname@example.org.
This article first appeared in The Manila Times on February 28, 2019.
The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy.
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