One of the key features of the recently approved Revised Corporate Code, otherwise known as Republic Act No. 11232 is the creation of the One Person Corporation.
The one person corporation or OPC essentially allows you to form a corporation without the need to comply with the minimum requirement of five incorporators.
Being able to incorporate yourself versus being just a sole proprietor enables you to protect your personal assets from creditors.
For example, if your business is losing and can’t pay the debts of the company, your creditor can run after all your assets including your family home and savings under sole proprietorship.
But if you are doing business under a corporation, your liability is limited only to the extent of the assets of your company.
The other benefit of incorporation is the ability to raise funds in the future. Let’s say your business is expanding and you will need additional capital from other investors, you can simply sell a portion of your ownership in the company.
In sole proprietorship, because the business itself represents you, there are no options to sell partial ownership. You can only raise funds by borrowing which entails extra cost.
Last week, the Securities and Exchange Commission (SEC) released an updated guideline and rules and regulations for the establishment of a one-person corporation.
What are the key changes in the revised corporation code and how will this benefit the one-person corporation?
Here are the five things every entrepreneur must know about the new law:
1. There is no limit to corporate life
There is no such a thing as forever when it comes to love but in the revised corporation code, a corporation can go on forever.
The perpetual term of a corporation means that your company can continue to exist even if you are no longer around.
Previously, a corporation has a maximum corporate term of only 50 years.
For a corporation to extend its life upon expiration, stockholders will need to approve and file an amendment in the Articles of Incorporation, which can be a tedious process and sometimes risky, too.
Under the new code, the single shareholder of an OPC can simply designate a nominee who shall replace the founder in the event of death or incapacity.
Let’s say you have reached a point where you can no longer manage the business anymore, your nominee can take over the management from you temporarily until your legal heirs have agreed among themselves who will take your place.
2. There is no need to file corporate by-laws
The purpose of corporate by-laws is to establish a set of rules on how the company should conduct its business affairs for the benefit of all shareholders.
The by-laws establish a process on how to proceed with the business should there be some disagreement from other shareholders.
Since you will be the only stockholder in the corporation, there is a need for you to submit and file by-laws, but you will need to file an Articles of Incorporation where you will state your business’ primary purpose and other details required by law.
3. There is no more minimum capital required
Previously, the minimum paid-up capital required to incorporate a company in the Philippines is Php5,000. This means that the minimum authorized and subscribed capital should be Php20,000 because the minimum paid-up required by law must be at least 25 percent.
Under the new law, the OPC is not required to have minimum authorized capital as well as minimum paid up at the time of incorporation unless otherwise required by special laws.
This means that you can put up a business with a reasonable capital you think you need to raise in the future at the time of incorporation without the burden of complying with the 25 percent minimum paid up capital, which can be financially stressful.
4. There are requirements on appointment of corporate secretary and treasurer
The OPC is required to appoint a treasurer, corporate secretary and other officers of the company within 15 days from the issuance of its Certificate of Incorporation.
As a single stockholder, you are not allowed to be appointed as corporate secretary.
As in any corporation, the function of a corporate secretary is to ensure integrity in the governance of the company. The secretary is responsible for the compliance with the regulatory requirements and implementation of the company’s board.
In this case, since you are technically the board as sole shareholder, you will need to appoint someone to implement your corporate decisions.
But for the appointment of treasurer, you have the option to appoint yourself for the position since it will be your money that you will manage.
If you assume the position of treasurer, you will be required to post a surety bond to be computed based on the authorized capital stock of your OPC.
For example, if your authorized capital is between Php1 to Php1 million, your surety bond coverage shall be Php1 million. If your capital is between Php1 million and one peso to Php2 million, your coverage shall be Php2 million. The higher the capital, the higher the coverage.
If you appoint someone else to the position of treasurer, then there is no need for the surety bond anymore.
5. There are reportorial requirements needed to submit to the SEC
Perhaps this part is the one that you need to watch out for as you may need to file reports that may be required by the SEC.
For example, you may be required to file a disclosure of all self-dealings and related party transactions entered between you and your OPC.
For example, you use your corporation to pay for your personal expenses that have nothing to do with your business operations.
You also have to report on all explanations or comments by the president of your company on qualification or remarks made by the auditor of your financial statements.
If your total assets or total liabilities are less than Php600,000, your financial statements can be certified under oath by your corporation’s treasurer, otherwise you will need to have your financials audited by a Certified Public Accountant.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice firstname.lastname@example.org or follow him on Twitter @henryong888