An amendment to the corporation code

“Legalizing the one-man corporation would drive up the entrepreneurial spirit of Filipino businessmen.

Last Tuesday, the Senate approved on third and final reading, Senate Bill (SB) 1280, amending Batas Pambansa 68, more commonly known as the Corporation Code, enacted back in 1980. This is a very welcome development in the Philippine business sector and we foresee a jump in the rank in the Ease of Doing Business Survey of the World Bank, should said bill is signed into law by President Rodrigo Duterte.

Notably, this bill crossed Senate party lines since it was sponsored by minority Sen. Franklin Drilon, co-sponsored by Senate Majority Leader Miguel Zubiri and voted unanimously by all senators – a sign of strong support and, perhaps, its urgent need by the Philippines.

As a lecturer on Corporation Law, I always start my semester with a talk on the different ways one may do business in the Philippines. The simplest way would be sole proprietorship and a sample would be the sari-sari stores we see where you immediately know who the owner is by looking at the placard above (i.e., Ana’s Sari-Sari Store). In this set-up, the liabilities of the store would be that of the owner.

In other words, the usual corporation code principles that would exempt a business owner from liability, such as separate juridical personality and limited liability, would not be applicable. As such, the liabilities of the sari-sari store would also be liabilities of the owner.

The Supreme Court has ruled in a number of cases, what makes a corporation unique and how it is the proper vehicle for doing business. In Pioneer Insurance v. Morning Star Travel & Tours (GR 198436, 8 July 2015), it held that “the law vests corporations with a separate and distinct personality from those that represent these corporations. The corporate legal structure draws its ‘economic superiority’ from key features such as a separate corporate personality. Unlike other business associations such as partnerships, the corporate framework encourages investment by allowing even small capital contributors to be part of a big business endeavor made possible by the aggregation of their capital funds. The consequent limited liability feature, since corporate assets will answer for corporate debts, also proves attractive for investors.”

The personal liability problem in small businesses is solved by SB 1280, as it introduces the one-man corporation. Presently, it takes at least five people to incorporate and would be founders settle to making his household help, friends and neighbors to be his co-incorporators, reminiscent of what Janet Lim Napoles did in her pork barrel scam.

Legalizing the one-man corporation would drive up the entrepreneurial spirit of Filipino businessmen and would mean benefits for the country since a large number of businesses are MSME. However, safeguards must be placed and enforced by the Securities and Exchange Commission since more fraudulent corporations may crop up due to this– a challenge, indeed, for new SEC Chairman Emil Aquino.

Another novel change introduced by SB 1280 would be the perpetual lifetime of a corporation, as opposed to the current lifespan of 50 years. This would prevent negligent corporations from incurring fees, or worse, its unbeknownst dissolution. Although such problem of corporations can be fixed by its hiring of diligent corporate housekeepers and compliance lawyers.

“Unlike other business associations such as partnerships, the corporate framework encourages investment by allowing even small capital contributors.

Other amendments would be the inculcating of technology in the corporation’s reportorial submissions and a simpler corporate name verification process. In totality, SB 1280 does nothing but wonders for Filipinos who intend to put up a business immediately.

Notably, the House of Representatives has been lagging in its passage of said bill. Two bills are still pending before the House Committee on Trade and Industry, namely: (1) House Bill 877, filed by Rep. Edgar Mary Sarmiento, which is quite similar to SB 1280 and (2) House Bill 2917, filed by Rep. Evelina Escudero, solely on the one-man corporation. So, what happens now?

Since the Senate has already passed its bill on third reading, they will then communicate with the House Committee on Rules, now chaired by House Majority Leader Rolando Andaya, where it will ask for the House’s concurrence. Should it be concurred with, then SB 1280 will be adopted in full. Should it not be concurred with, then the House would have to fast-track coming up with its own version of the bill, then prepare for a bicameral conference committee hearing with the Senate.

This writer is hopeful that SB 1280 be concurred with by the House in order for its hastened passage. Given the economic prowess of House Speaker Gloria Macapagal-Arroyo, we expect her to easily identify the importance and the positive impact this law would make to Philippine business. Further, its enactment would hopefully lead to a review of related commercial laws, such as the Securities Regulation Code, Foreign Investments Act and, most especially, the century-old Negotiable Instruments Law. Corporations have changed so much since the enactment of the Corporation Code in 1980 and it is high time for it to be amended.

For comments, email him at dmdejesus@house.gov.ph.