One Person Corporation | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

One Person Corporation (OPC) under Philippine Law

The concept of the One Person Corporation (OPC) in the Philippines is governed by Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines. Enacted in 2019, this law introduced the OPC as a new form of corporation to address the needs of small to medium enterprises and individual entrepreneurs who wish to operate as a corporation without the need for partners or a board of directors. Below is a comprehensive examination of the key aspects, requirements, rights, limitations, and obligations related to OPCs in the Philippines.

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Definition of a One Person Corporation

A One Person Corporation (OPC) is defined under the Revised Corporation Code as a corporation with a single stockholder who may be either a natural person, trust, or an estate. This single stockholder serves as both the incorporator and the sole director of the corporation, eliminating the need for multiple incorporators and board members as required in traditional corporations.

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Key Features of the One Person Corporation

1. Single Incorporator:

   • Only one person is needed to establish an OPC. This incorporator must be either:
     • A natural person (i.e., a Filipino or a foreign individual),
     • A trust (subject to specific regulations), or
     • An estate (e.g., an inheritance being managed under a legal estate).
   • The incorporator is responsible for 100% of the corporation's shares and owns complete control over its decision-making processes.

2. No Minimum Capital Requirement:

   • Unlike traditional corporations that may have minimum capital requirements, an OPC has no minimum capital stock requirement unless required by specific industry regulations.
   • However, any subscribed capital must be paid in full at the time of incorporation.

3. Limited Liability:

   • As with traditional corporations, an OPC affords its single shareholder the benefit of limited liability. This means that the personal assets of the incorporator are generally protected from corporate liabilities, unless the incorporator engages in unlawful acts such as fraud, bad faith, or gross negligence that would justify piercing the corporate veil.

4. Corporate Succession:

   • The sole stockholder of an OPC is required to nominate a successor who will take over management in case of the stockholder’s death or incapacity.
   • This ensures the continuity of the OPC, which is particularly beneficial for business continuity planning.

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Limitations on One Person Corporations

1. Prohibited for Certain Types of Businesses:

   • Banks, quasi-banks, pre-need companies, trust companies, insurance companies, public and publicly listed companies, and non-chartered government-owned and controlled corporations (GOCCs) are prohibited from being registered as OPCs.
   • This limitation aims to ensure that entities engaged in financial intermediation or requiring heightened public accountability cannot operate under the OPC structure.

2. Residency Requirement:

   • If the single stockholder is a foreign national, the OPC must comply with the Foreign Investment Act and other applicable laws regulating foreign ownership. Certain industries also impose restrictions on foreign equity ownership.

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Mandatory Requirements for the Establishment of an OPC

1. Articles of Incorporation:

   • The Articles of Incorporation must explicitly state that the corporation is an OPC, including the suffix "OPC" in the corporate name to distinguish it from other types of corporations.
   • Additional information required includes:
     • The full name of the incorporator.
     • Nomination of a Designated Nominee and an Alternate Nominee in case of the sole stockholder’s death or incapacity.
     • The initial capital stock, if any, which must be fully paid upon incorporation.

2. Bylaws:

   • Unlike traditional corporations, an OPC is not required to adopt bylaws. This simplifies the administrative process and reduces regulatory burdens.

3. Annual Reports and Financial Statements:

   • OPCs are required to submit an Annual Financial Statement and General Information Sheet (GIS) to the Securities and Exchange Commission (SEC).
   • A distinction in financial reporting applies:
     • If the total assets or total liabilities exceed PHP 600,000, the financial statements must be audited by an independent certified public accountant.
     • If the threshold is not met, financial statements may be self-prepared.

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Management and Operations of an OPC

1. Sole Director and Officer:

   • The single stockholder serves as both the President and sole director. However, he/she may also assume other corporate roles, such as the Treasurer and Corporate Secretary, subject to certain guidelines.
   • For compliance purposes:
     • If the single stockholder acts as the Treasurer, a surety bond must be posted in favor of the SEC to protect the OPC against potential malfeasance.

2. Decision-Making and Documentation:

   • All corporate actions, resolutions, and contracts may be executed solely by the single stockholder.
   • Resolutions and other records of major decisions must be documented for proper corporate governance and legal compliance.

3. Nominee and Succession Plan:

   • The Designated Nominee assumes temporary control and management if the sole stockholder dies or becomes incapacitated, ensuring the OPC’s continuity.
   • Within 15 days after the original stockholder’s incapacity or death, the Nominee must notify the SEC of the succession, with the stockholder's estate determining a more permanent succession plan if necessary.

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Legal Protections and Liabilities

1. Protection Against Misuse of Corporate Structure:

   • The Revised Corporation Code allows for piercing the corporate veil when the OPC is used to perpetrate fraud, evade obligations, or when personal interests are inseparable from corporate actions.
   • Mismanagement or abuse by the incorporator may thus lead to personal liability.

2. Taxation:

   • OPCs are taxed similarly to other domestic corporations, subject to corporate income tax and other applicable taxes.
   • The OPC structure may result in tax advantages compared to sole proprietorships, as it can qualify for deductions and tax benefits exclusive to corporate entities.

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Dissolution and Liquidation of an OPC

1. Voluntary Dissolution:

   • An OPC may dissolve voluntarily upon the decision of the sole stockholder. The stockholder must file a Notice of Voluntary Dissolution with the SEC.

2. Liquidation Process:

   • Upon dissolution, all assets of the OPC must be liquidated and applied toward settling liabilities, with any remaining assets transferred to the stockholder.
   • If the sole stockholder passes away without a succession plan, the estate will handle the distribution and liquidation of assets under probate proceedings.

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Conclusion

The introduction of the One Person Corporation has been a pivotal advancement in Philippine corporate law, streamlining the process for individuals to establish a corporation. It provides greater flexibility, control, and limited liability to sole proprietors or entrepreneurs who wish to formalize their business structure without the complexities of forming a traditional corporation. Through minimal requirements, continuity planning, and the convenience of single-stockholder governance, OPCs cater to the evolving needs of modern entrepreneurs in the Philippines.

Religious Corporation | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

In Philippine law, religious corporations are distinct entities specifically established for religious purposes, falling under the broader classification of "corporations sole" or "religious societies." These entities operate under the auspices of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and are designed to address the unique organizational and functional needs of religious groups. Below is an exhaustive exploration of religious corporations under Philippine law.

1. Definition and Nature of Religious Corporations

A religious corporation is primarily established for the administration and governance of church or religious affairs. Unlike commercial or stock corporations focused on profit generation, religious corporations serve to manage the property, assets, and legal matters for religious purposes without aiming for profit.

Religious corporations can take two primary forms under Philippine law:

1. Corporation Sole: This is an entity composed of a single person, typically an ecclesiastical officer like a bishop, priest, or minister, who serves as the trustee of the temporalities of the church. Corporation sole structures are used mainly by hierarchical churches to handle the administration and legal matters of the church property and assets.

2. Religious Societies: These are organizations established by groups of individuals who come together to form an association or society with religious purposes. These corporations are managed by a board of trustees, similar to other non-stock corporations but are tailored for religious worship, advancement of faith, and the community’s spiritual growth.

2. Legal Basis and Governing Law

Religious corporations are governed by Sections 109 to 116 of the Corporation Code of the Philippines. These provisions outline the creation, governance, powers, dissolution, and succession of religious corporations, particularly focusing on corporations sole. Key sections include:

• Section 109: Recognizes and defines a "corporation sole" as a special form of corporation organized to manage the property of religious denominations.
• Section 110: Establishes the procedural requirements for forming a corporation sole, including the filing of Articles of Incorporation with the Securities and Exchange Commission (SEC).
• Section 113: Details the authority of a corporation sole to acquire and hold property, essential for managing church-owned assets.
• Section 115: Specifies the process for succession within a corporation sole, ensuring continuity when a current officeholder (e.g., bishop or priest) vacates their position.

3. Formation of Religious Corporations

Corporation Sole

To establish a corporation sole, an individual occupying a clerical office (bishop, minister, etc.) must file Articles of Incorporation with the SEC. These articles must include the following information:

• The name of the corporation sole and the ecclesiastical office it represents.
• The principal office location.
• The full name of the individual constituting the corporation sole.
• A declaration that the entity will be used solely for managing church property and facilitating its religious mission.

The filing must be accompanied by certified proof of the ecclesiastical office and a notarized affidavit of consent. Once approved, the corporation sole gains legal capacity to act in secular matters regarding property and contractual relationships.

Religious Societies

Religious societies, or religious non-stock corporations, are formed when a group of individuals (at least five) establishes a non-profit religious organization. This formation follows the general rules for non-stock corporations under the Corporation Code but must adhere to religious, not-for-profit goals in its activities and management.

4. Powers and Limitations

Powers

Religious corporations are endowed with specific powers to ensure they can fulfill their religious and administrative functions. These powers include:

• Holding and Managing Property: They can acquire, hold, and dispose of property for religious purposes, as long as it is consistent with the religious mission.
• Contractual Authority: They can enter into contracts, sue, and be sued in court.
• Governance Autonomy: The religious leadership (e.g., bishops or trustees) can make decisions concerning the corporation’s operations, in line with the religious doctrine and mission.

Limitations

Religious corporations are limited in the following respects:

• Non-Profit Nature: They cannot engage in profit-making activities. Any income or assets must directly serve the religious mission.
• Ownership Restrictions: The property is held in trust for the religious mission and not for individual gain.
• Succession Rules: A corporation sole is limited by its requirement for a specific succession process, ensuring that the officeholder’s replacement (e.g., the new bishop) inherits both responsibilities and property.

5. Succession in Corporation Sole

In cases where the position in a corporation sole becomes vacant (e.g., due to death, resignation, or removal of the religious leader), the succession process under Section 115 of the Corporation Code ensures continuity. The successor, upon meeting the qualifications and taking office, assumes the corporation sole’s responsibilities without requiring a new SEC filing, preserving the corporation's legal identity and authority.

6. Dissolution of Religious Corporations

Religious corporations, like other non-stock entities, can be dissolved voluntarily or involuntarily. Voluntary dissolution may occur through the filing of a verified request for dissolution with the SEC, often approved by the relevant religious authority. Involuntary dissolution might arise if the corporation fails to meet legal compliance or faces judicial dissolution for serious misconduct.

7. Taxation of Religious Corporations

Tax-Exempt Status

Religious corporations generally qualify for tax exemptions on income and property under Section 28(3), Article VI of the 1987 Philippine Constitution and the National Internal Revenue Code (NIRC). Key points regarding taxation include:

1. Income Tax Exemption: Income generated by religious corporations that are directly tied to religious activities (e.g., donations, offerings) is exempt from income tax. However, income derived from unrelated business activities may be subject to taxation.

2. Property Tax Exemption: Properties used exclusively for religious worship or charitable activities are exempt from property taxes. However, properties not used for religious purposes, such as commercial lease arrangements, may be subject to property tax.

3. Other Exemptions: Religious corporations are exempt from documentary stamp taxes on donations and other activities directly related to religious purposes.

Reporting Requirements

Religious corporations must still comply with some reporting requirements to maintain their tax-exempt status. This includes filing certain forms with the Bureau of Internal Revenue (BIR) if they have unrelated income or property not used exclusively for religious purposes.

8. Jurisprudence on Religious Corporations

Philippine case law highlights key principles in managing and interpreting the rights of religious corporations:

• Separate Legal Identity: Religious corporations are separate legal entities, meaning the property of a corporation sole does not belong to the officeholder individually but to the corporation for the benefit of the religious organization.
• Autonomy in Religious Affairs: Courts generally uphold the autonomy of religious corporations in matters of doctrine and religious practice, respecting the constitutional separation of church and state.
• Property Disputes: The Supreme Court has often ruled in favor of the religious corporation’s right to manage its properties as long as they align with the religious mission, recognizing the unique role of these entities in supporting faith-based activities.

Conclusion

Religious corporations in the Philippines provide an essential legal structure for religious organizations to manage their properties and carry out their missions. By recognizing both the corporation sole and religious society models, the Corporation Code accommodates the diversity in religious organizational needs. These corporations enjoy unique privileges, such as tax exemptions and specific succession rules, that support their non-profit, faith-centered objectives. Nonetheless, they must adhere to Philippine corporate and tax laws, especially regarding property use, unrelated income, and compliance requirements, to maintain their special status under Philippine law.

Educational Corporations | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

Educational Corporations under Philippine Law

In the Philippines, educational corporations are a distinct category within the broader classification of private corporations. These are organizations established and regulated under the Revised Corporation Code (RCC) and the Education Act of 1982 (Batas Pambansa Blg. 232), among other related laws. This type of corporation is characterized by its purpose to operate educational institutions and is subject to specific rules regarding formation, governance, and taxation due to its unique social role.

1. Definition and Purpose of Educational Corporations

Educational corporations are private, non-profit, or for-profit corporations created to operate schools, colleges, universities, or similar educational institutions. They must align with the public policy of promoting and enhancing quality education as provided under Section 5(2) of Article XIV of the 1987 Philippine Constitution. The Constitution emphasizes the role of education in fostering civic consciousness, national unity, and development.

2. Formation and Structure

The incorporation and registration of educational corporations are governed by both the Revised Corporation Code (R.A. No. 11232) and additional regulations from the Department of Education (DepEd), Commission on Higher Education (CHED), or Technical Education and Skills Development Authority (TESDA) depending on the level of education provided.

Key steps and requirements include:

• Articles of Incorporation: Educational corporations are required to include specific purposes in their Articles of Incorporation, detailing their educational objectives.
• Board Composition: Unlike typical corporations, which have flexibility in board membership, educational corporations often have governing boards that include representatives from faculty, administration, and occasionally, student bodies, ensuring that educational policies align with institutional goals.
• Approval from Educational Authorities: After incorporation, these corporations must secure permits and licenses from DepEd, CHED, or TESDA before they can legally operate. These permits ensure that educational standards are met.

3. Types of Educational Corporations

Educational corporations can generally be classified as follows:

• Non-Stock, Non-Profit Educational Corporations: These are the most common type and are set up with a non-profit purpose. They are dedicated solely to educational purposes without intent for profit distribution among members.
• Stock Educational Corporations: Though less common, some educational institutions are organized as stock corporations, meaning they operate with a profit motive. Stock educational corporations are often limited to private entities offering specialized, non-formal education, such as tutorial centers or technical training institutions.

4. Governance and Operation

• Board of Trustees or Directors: Governance of educational corporations follows either a Board of Trustees (non-stock) or Board of Directors (stock). In both cases, board members must act in the institution's best interests, prioritizing educational objectives over personal profit.
• Special Requirements for University Status: For educational corporations desiring to operate as universities, they must meet CHED's stringent requirements regarding academic programs, faculty qualifications, and research facilities.
• Corporate Life and Perpetual Succession: Educational corporations often receive a perpetual life under the RCC, meaning they continue to exist regardless of changes in membership or ownership, provided they comply with regulatory requirements.

5. Taxation of Educational Corporations

• Income Tax Exemption for Non-Profit Educational Corporations: Article XIV, Section 4(3) of the 1987 Constitution provides that non-stock, non-profit educational institutions are exempt from taxes on income used directly, actually, and exclusively for educational purposes. Additionally, they are exempt from property taxes on assets utilized in their educational mission.
• Application for Exemption: To avail of these exemptions, educational corporations must register with the Bureau of Internal Revenue (BIR) as non-profit educational entities and submit proof of income application towards educational purposes.
• For-Profit Educational Corporations: Educational corporations that operate as for-profit entities are subject to the standard corporate income tax rates and must comply with other BIR regulations concerning tax liabilities.

6. Accreditation and Quality Control

Educational corporations are subject to rigorous accreditation standards by the Philippine Accrediting Association of Schools, Colleges, and Universities (PAASCU) and other accrediting bodies. Accreditation, while not mandatory, provides credibility, financial aid eligibility, and often affects licensing and permits from government bodies.

7. Supervision and Regulation

The regulatory framework involves several agencies:

• DepEd oversees primary and secondary educational institutions.
• CHED regulates higher education institutions (colleges and universities).
• TESDA manages technical and vocational education.

Educational corporations must submit annual reports to these regulatory bodies, including updates on faculty, curricula, and facilities, to ensure compliance with standards.

8. Compliance with Labor and Other Laws

Educational corporations must comply with labor laws, including the Labor Code and regulations regarding faculty tenure, wages, and benefits. They must also adhere to safety standards, student welfare laws, and laws regarding intellectual property, especially concerning curricula and research output.

Key Cases and Jurisprudence

Several cases have shaped the jurisprudence surrounding educational corporations:

• Non-Stock Non-Profit Educational Institutions Tax Exemption (Lladoc v. Commissioner of Internal Revenue): The Supreme Court upheld that educational institutions exempted from income tax must apply all income toward educational purposes.
• Religious Affiliation and Educational Corporations (DECS v. San Beda College): Institutions with religious affiliation were found to retain their tax exemptions, provided their educational operations remained non-profit and religious doctrine was not the primary function.

Conclusion

Educational corporations in the Philippines play a critical role in the country’s educational landscape, and they are afforded unique benefits and responsibilities under Philippine law. From specific incorporation requirements to strict tax exemptions and regulatory oversight, these entities are structured to prioritize educational objectives over profit.

Close Corporation | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

Close Corporations under Philippine Law

In the Philippines, close corporations are regulated primarily under the Revised Corporation Code (RCC) of the Philippines, or Republic Act No. 11232, which outlines specific provisions for close corporations. A close corporation has distinct characteristics and requirements compared to other types of corporations, specifically tailored to maintain a small, tightly controlled ownership structure.

1. Definition of a Close Corporation

A close corporation is defined under Section 95 of the RCC as a corporation whose articles of incorporation specifically limit the number of stockholders to a maximum of 20 individuals. In a close corporation:

• Shares cannot be offered or sold publicly. This restriction means that shares in a close corporation cannot be traded in the open market or listed on a securities exchange.
• Restrictions on share transfers are put in place, typically by requiring shareholder consent before any transfer of shares. These restrictions are designed to maintain a controlled, limited ownership group.

2. Characteristics of a Close Corporation

The essential characteristics of a close corporation include:

• Limited Shareholders: The maximum number of shareholders allowed is 20, aligning it more with private ownership than a publicly-traded entity.
• Non-public Offering of Shares: The prohibition on public stock offering ensures that the ownership structure remains limited and prevents external shareholders from diluting the control of the existing owners.
• Share Transfer Restrictions: Transfers of shares may require approval from existing shareholders or directors to ensure that control of the corporation remains within a predefined circle of owners.
• Direct Involvement of Shareholders: Shareholders in a close corporation are often directly involved in the management and operation of the corporation, making it similar to a partnership in practical terms.

3. Formation Requirements

To establish a close corporation in the Philippines, the articles of incorporation must explicitly state that the corporation is a close corporation and comply with the following requirements:

• Name Requirements: The articles must specify that the corporation is a close corporation.
• Limitations on Transfer of Shares: Provisions to restrict the transfer of shares must be clearly outlined in the articles of incorporation.
• Maximum Number of Stockholders: The articles must specify that the total number of shareholders will not exceed 20 at any time.

These formation requirements are essential for the SEC to recognize a corporation as a close corporation, providing it with certain benefits under the RCC.

4. Management and Governance Structure

In a close corporation, management structure and governance can diverge from traditional corporate models:

• Flexible Management: Shareholders in a close corporation are often empowered to directly participate in management without the need for a separate board of directors. Section 96 of the RCC allows close corporations to operate without a board, provided that this structure is stated in the articles of incorporation.
• Director-Like Responsibilities for Shareholders: In the absence of a board, all shareholders may assume the role of directors, sharing responsibility for decision-making and corporate governance.
• Fiduciary Duty: Shareholders who directly manage a close corporation have fiduciary duties akin to those of directors in traditional corporations. They are obligated to act in the corporation’s best interest, maintaining loyalty and diligence.

5. Unique Rights and Restrictions in Close Corporations

The RCC grants certain rights and restrictions tailored for close corporations:

• Pre-emptive Rights: Shareholders have pre-emptive rights by default, allowing them to purchase additional shares in proportion to their current holdings before the corporation can offer these shares to outsiders. This helps maintain ownership structure and prevent dilution of control.
• Restriction on Deadlocks: In case of management or shareholder deadlocks, any shareholder may petition the court to resolve the issue, including potentially dissolving the corporation if the deadlock severely impairs its ability to function.
• Stock Transfer Limitations: Restrictions on stock transfers are enforceable, ensuring the corporation maintains a closely-held ownership structure. Section 97 of the RCC specifically allows the inclusion of provisions to restrict share transfers, provided these are documented in the articles of incorporation.

6. Benefits and Limitations

Benefits of a Close Corporation:

• Control and Flexibility: The close structure allows for streamlined decision-making and greater control, as shareholders are typically involved in day-to-day operations.
• Privacy in Operations: With no obligation to disclose information to public shareholders, close corporations maintain higher privacy levels regarding their financials and strategic decisions.
• Reduced Formalities: The RCC allows close corporations to operate with reduced formalities, which lowers operational costs and complexity.

Limitations of a Close Corporation:

• Limited Access to Capital Markets: Due to the prohibition on public offerings, close corporations may find it challenging to raise capital beyond the initial contributions from shareholders.
• Restrictions on Stock Transfers: The limitations on stock transfers can reduce liquidity for shareholders, making it more difficult to exit the corporation or realize the value of their shares.
• Potential for Conflict: With a small ownership base, personal relationships among shareholders can lead to conflicts that could affect corporate operations, particularly in the absence of formal governance structures like a board of directors.

7. Dissolution of Close Corporations

A close corporation can be dissolved in the following scenarios:

• Voluntary Dissolution: Shareholders may opt for voluntary dissolution, which requires a majority vote unless otherwise specified in the articles.
• Involuntary Dissolution due to Deadlock: A severe deadlock among shareholders or the inability to carry out corporate functions may lead to court-ordered dissolution.
• By Order of the SEC: If the corporation violates provisions in its articles, fails to maintain shareholder limits, or breaches regulatory requirements, the SEC may initiate dissolution proceedings.

Summary

Close corporations are structured for small groups of shareholders who wish to maintain a high degree of control and privacy over their business operations. Under Philippine law, they offer a unique blend of partnership-like flexibility with the limited liability of a corporation. However, these corporations also face restrictions, particularly in accessing capital and transferring shares, which reflect the balancing act between control and flexibility.

Non-Stock Corporation | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

Non-Stock Corporations in the Philippines

In the Philippine legal context, a non-stock corporation is defined and regulated under the Revised Corporation Code of the Philippines (Republic Act No. 11232). It is distinct from stock corporations, which are organized primarily for profit. Non-stock corporations, on the other hand, operate not for profit but for purposes such as charitable, educational, cultural, social, fraternal, literary, scientific, civic, or similar objectives.

Here's a comprehensive overview of non-stock corporations under Philippine law:

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1. Definition and Legal Basis

• Section 86 of the Revised Corporation Code defines a non-stock corporation as a corporation that does not issue shares of stock and does not declare dividends.
• All income of a non-stock corporation is used in furthering the purpose(s) for which it was formed, without profit distribution to members.

2. Purposes and Objectives

• The purposes of a non-stock corporation must be aligned with its defined objectives under the Corporation Code. These typically include:
  • Charitable purposes, such as relief of poverty
  • Educational advancement or public awareness campaigns
  • Religious and spiritual missions
  • Cultural preservation and promotion
  • Social and civic initiatives

3. Formation and Membership

• Incorporators and Members: A non-stock corporation must have at least five incorporators, who must be natural persons of legal age. Unlike stock corporations, membership in a non-stock corporation is acquired through methods other than share ownership.
• Membership Classifications and Rights: Membership can be structured in various classifications, as provided by the corporation’s Articles of Incorporation or Bylaws. Each member has voting rights unless otherwise stated, but they have no proprietary interest in the corporation.

4. Capitalization and Funding

• Sources of Funds: Since non-stock corporations do not issue shares, their funds come from membership fees, donations, grants, and other forms of fundraising activities.
• Tax-Exempt Status and Deductions: Certain non-stock, non-profit corporations may qualify for tax exemptions under the National Internal Revenue Code (NIRC), especially those organized for religious, charitable, scientific, athletic, cultural, and educational purposes, provided they meet BIR requirements and do not engage in profit-driven activities.

5. Management Structure and Governance

• Board of Trustees: Non-stock corporations are governed by a Board of Trustees (instead of Directors). Trustees must be members of the corporation, and a minimum of five trustees is required.
• Officers: The board elects officers, including a president, treasurer, and secretary, as provided in the Bylaws.
• Fiduciary Duties: Trustees and officers must act in the corporation’s best interest and are subject to fiduciary duties such as duty of care, loyalty, and obedience to the corporation’s purpose.

6. Dissolution and Distribution of Assets

• Upon dissolution, the assets of a non-stock corporation are not distributed to members but instead are donated to another institution with a similar purpose, as specified in the Articles of Incorporation.
• Liquidation Process: The corporation must comply with all requirements from the Securities and Exchange Commission (SEC) and any other relevant authorities.

7. Relevant Taxation Laws

• Non-stock corporations may enjoy tax exemptions on income related to their purpose, provided they satisfy BIR requirements. Certain laws and regulations govern taxation, such as:
  • Revenue Memorandum Circulars (RMC) by the BIR providing specific guidelines
  • Income Tax Exemption, subject to limitations under Section 30 of the NIRC

8. Corporate Reporting and Compliance

• Annual Reports: Non-stock corporations must submit annual financial statements and General Information Sheets (GIS) to the SEC.
• Corporate Governance Reporting: Those with public or quasi-public funds, such as foundations, may have additional reporting requirements.

9. Privileges and Limitations

• Privileges: Non-stock corporations may apply for accreditation with government agencies, enabling them to receive government grants or act as implementing partners for government projects.
• Limitations: They are prohibited from distributing profits to members, making them distinct from cooperatives or mutual benefit organizations which may operate similarly but allow profit distribution within certain constraints.

10. Legal Protections and Liabilities

• Corporate Personality and Liability Protection: Non-stock corporations enjoy a separate legal personality, shielding members from personal liability.
• Derivative Suits: Members may file suits on behalf of the corporation against its trustees or officers if there is any act against the corporation’s best interests.

Conclusion

Non-stock corporations play a crucial role in the Philippine corporate landscape, allowing organizations to operate in a not-for-profit capacity with specific tax and regulatory benefits. They are governed by stringent requirements under the Revised Corporation Code and the National Internal Revenue Code, with obligations to uphold their stated purposes and reinvest all resources into achieving those objectives.

Stock Corporation | Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

Under Philippine law, the concept of corporations is fundamentally governed by the Revised Corporation Code (Republic Act No. 11232) and other relevant tax and mercantile legislation. Stock corporations, a critical type of business entity, are specifically designed to enable capital-raising through the issuance of shares to investors. Here is an exhaustive breakdown of the legal intricacies and regulatory guidelines surrounding stock corporations in the Philippines:

1. Definition of a Stock Corporation

A stock corporation, as per Section 3 of the Revised Corporation Code, is defined as a corporation with a capital stock divided into shares and authorized to distribute profits to its shareholders based on their shareholdings. This differentiates it from non-stock corporations, which do not issue shares and primarily focus on non-profit purposes.

2. Capital Structure and Shareholding

A stock corporation is structured around its capital stock, which is divided into shares and represented by share certificates. Key considerations include:

• Authorized Capital Stock: The maximum amount of capital that a corporation is legally permitted to raise by issuing shares. Stock corporations must declare this in their Articles of Incorporation.
• Subscribed Capital Stock: The portion of the authorized capital stock that shareholders commit to subscribe. It is part of the corporation’s equity but is not fully paid until required.
• Paid-Up Capital: The actual funds received by the corporation from shareholders. Under the Revised Corporation Code, the initial paid-up capital must be at least 25% of the subscribed capital stock or 25% of the authorized capital stock, whichever is lower.

3. Formation and Registration Requirements

The process to incorporate a stock corporation in the Philippines is stringent, with requirements outlined in the Revised Corporation Code:

• Articles of Incorporation: This foundational document must include the corporation’s name, purpose, term, principal office, authorized capital stock, names of incorporators, and details on the shares to be issued.
• Bylaws: Stock corporations must adopt bylaws within one month after receiving their Certificate of Incorporation. Bylaws are essential for establishing the internal governance structure, including board meetings, shareholder rights, and director responsibilities.

4. Classification of Shares

Philippine law allows corporations to issue different types of shares, which serve various investor rights and corporate finance functions. These include:

• Common Shares: These shares carry voting rights, enabling shareholders to participate in corporate decision-making, and typically grant entitlement to dividends, subject to board approval.
• Preferred Shares: Holders of preferred shares often do not have voting rights but may receive dividends at a fixed rate and priority over common shareholders in the distribution of assets in liquidation.
• Treasury Shares: Previously issued shares that the corporation buys back from existing shareholders and holds without retiring them. Treasury shares do not have voting rights and do not earn dividends.
• Redeemable Shares: These shares can be repurchased or redeemed by the corporation at a specified date or upon demand of the corporation, subject to provisions in the Articles of Incorporation.

5. Governing Bodies and Corporate Governance

The primary governing bodies of a stock corporation are the Board of Directors and the General Shareholders’ Meeting:

• Board of Directors: The board has oversight and policy-making authority, setting strategic direction, approving budgets, and deciding on major corporate actions. Directors must act in the best interest of the corporation, bound by fiduciary duties of loyalty and diligence.
• Shareholders’ Meetings: Key decisions, including amendments to the Articles of Incorporation, election of directors, and major asset disposals, require shareholder approval. Voting is typically based on the number of shares held, with certain resolutions necessitating a majority or supermajority vote.

6. Dividend Distribution

Stock corporations may distribute profits in the form of dividends, which are classified as:

• Cash Dividends: Distributed in cash to shareholders, subject to sufficient retained earnings and board approval.
• Stock Dividends: Additional shares issued to shareholders from retained earnings, which does not involve cash payout but dilutes share value.
• Property Dividends: Distribution of assets other than cash or stock, often requiring consent from shareholders, especially if the property differs significantly in value from cash equivalents.

7. Corporate Taxation

Stock corporations in the Philippines are subject to corporate income tax and other related taxes, including:

• Corporate Income Tax: Currently set at a standard rate of 25% for most domestic corporations, though smaller enterprises with net taxable income below PHP 5 million and total assets below PHP 100 million are taxed at a lower rate of 20%.
• Minimum Corporate Income Tax (MCIT): Imposed on corporations with insufficient gross income for two consecutive years, calculated at 2% of gross income.
• Dividend Tax: Dividends paid to domestic shareholders are exempt from tax. However, dividends distributed to foreign shareholders may be subject to withholding tax unless reduced or exempted under an applicable tax treaty.
• Final Withholding Tax: A final tax of 10% is imposed on cash and property dividends issued to individual Filipino residents.

8. Reporting and Compliance Obligations

Stock corporations must adhere to ongoing regulatory requirements to maintain their legal standing:

• Annual Financial Statements (AFS): Submitted to the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC), detailing financial performance and compliance with tax obligations.
• General Information Sheet (GIS): Filed with the SEC annually, the GIS contains information on the corporation's structure, shareholder list, and relevant changes in capital.
• Tax Compliance: Corporations must file various tax returns (e.g., Quarterly and Annual Income Tax Returns, VAT or Percentage Tax Returns, and Withholding Tax Returns) and comply with the required payment schedules set by the BIR.

9. Dissolution and Liquidation

A stock corporation may be dissolved voluntarily by a vote of the board and shareholders or involuntarily through administrative or judicial action if it fails to comply with regulatory requirements or becomes insolvent. Upon dissolution:

• Liquidation Process: The corporation’s assets are distributed to creditors, and any remaining assets are distributed to shareholders based on the priority of shareholding and claims.
• Final Tax Obligations: The corporation must settle final taxes, submit tax clearance certificates, and file final corporate reports with the SEC and BIR.

Conclusion

Stock corporations in the Philippines serve as a robust business vehicle for raising capital and facilitating profit-sharing among shareholders. The Revised Corporation Code provides a detailed framework governing their formation, operations, and dissolution. This legal structure, combined with shareholder rights and corporate governance regulations, underpins the corporate landscape and ensures that stock corporations remain viable, compliant, and attractive for investment in the Philippines.

Kinds of Corporation | Corporations | BUSINESS ORGANIZATIONS

In the Philippine legal context, corporations are defined and regulated under the Revised Corporation Code of the Philippines (Republic Act No. 11232), enacted in 2019. The Code categorizes corporations based on various factors such as purpose, membership, capital structure, and whether they are publicly listed or privately held. This classification system ensures that corporations operate within a defined structure, maximizing legal clarity and business efficiency.

Here is a comprehensive discussion on the kinds of corporations under Philippine law:

1. Classification Based on Legal Structure and Purpose

• Stock Corporations
  Stock corporations are organized primarily for profit and have capital divided into shares. Shareholders hold ownership through stocks, entitling them to profits in the form of dividends. The Revised Corporation Code (RCC) specifies that stock corporations are required to distribute any profits to their shareholders, following the proportion of their shares.

• Non-Stock Corporations
  Non-stock corporations are established for purposes other than profit, typically for social, charitable, educational, cultural, or similar objectives. Instead of shares, these corporations have members who contribute to the corporation’s purpose. They do not distribute dividends but use their income to further their mission.

2. Classification Based on Nationality

• Domestic Corporations
  A corporation is classified as domestic if it is incorporated under Philippine law. A domestic corporation is a juridical entity created and existing under the Philippines' jurisdiction and is bound by all the laws applicable within the country.

• Foreign Corporations
  A corporation organized and existing under the laws of a foreign country is classified as a foreign corporation. Foreign corporations seeking to do business in the Philippines are required to obtain a license from the Securities and Exchange Commission (SEC) and adhere to Philippine regulatory requirements.

3. Classification Based on Control and Ownership

• Close Corporations
  Close corporations limit the number of shareholders, often capped at 20, and restrict the transferability of shares. These corporations allow shareholders more flexibility in governance as they often have exemptions from certain formalities, like board meetings, provided they conform to the conditions set forth in the RCC. In close corporations, directors and shareholders are often the same individuals.

• Publicly Held Corporations
  Publicly held corporations (or publicly listed corporations) offer shares to the general public and are listed on the Philippine Stock Exchange (PSE). They are subject to stringent regulatory oversight by the SEC and the PSE, focusing on transparency, disclosure, and governance standards. Publicly held corporations must meet specific requirements, including minimum public ownership thresholds and regular disclosure obligations.

• One-Person Corporation (OPC)
  An OPC is a corporation with a single shareholder, who may be a natural person, trust, or estate. OPCs were introduced in the RCC to facilitate easier business formation, especially for sole proprietors. They provide the benefit of limited liability to the single stockholder, with fewer compliance requirements than other corporate structures.

4. Classification Based on Regulatory Function

• Quasi-Banking Corporations
  Quasi-banking corporations, such as financing and investment companies, are authorized to perform quasi-banking functions like lending, deposit-taking, or similar financial services under the supervision of the Bangko Sentral ng Pilipinas (BSP). These corporations must meet specific capital adequacy requirements and adhere to BSP regulations to protect public interest and ensure financial stability.

• Government-Owned or Controlled Corporations (GOCCs)
  GOCCs are corporations with the Philippine government as the primary or controlling shareholder. They operate under both the Revised Corporation Code and special laws specific to their mandate, such as the Government Owned or Controlled Corporations Governance Act (R.A. 10149). GOCCs serve national interests and are accountable to government agencies, including the Governance Commission for GOCCs (GCG).

5. Special Types of Corporations under the Revised Corporation Code

• Educational Corporations
  Educational corporations are organized exclusively for educational purposes, following the Revised Corporation Code and the Department of Education (DepEd) or Commission on Higher Education (CHED) regulations. Non-stock, non-profit corporations often register as educational corporations, meeting specific standards related to their educational mission.

• Religious Corporations
  Religious corporations are established for religious purposes and operate within the specific guidelines of the RCC. There are two primary types:

  • Corporation Sole: A single member, typically a bishop or religious leader, serves as the corporation's head and legal entity.
  • Religious Societies: These are more collective organizations with a board of trustees, like other non-stock corporations.

6. Classification Based on Existence and Tenure

• De Jure Corporations
  A de jure corporation is one that fully complies with all legal requirements under the Revised Corporation Code, making it a valid and legally recognized entity. De jure corporations have the benefit of corporate protections against claims questioning their legitimacy.

• De Facto Corporations
  De facto corporations are those that operate as corporations despite certain procedural defects in their formation. Philippine law recognizes de facto corporations if they meet three conditions:

  1. A valid law under which the entity could be incorporated.
  2. An effort to comply with the legal requirements.
  3. Actual use of corporate powers. This status provides temporary protection, but the corporation is vulnerable to challenges in court.

• Corporations by Estoppel
  Corporations by estoppel arise when individuals act as a corporation without legally incorporating. While they are not recognized as legitimate corporations, parties involved in corporations by estoppel may be held personally liable for corporate obligations if their actions mislead third parties.

7. Classification Based on Public Benefit and Impact

• Public Corporations
  Public corporations are entities created for government or municipal functions, such as barangays, municipalities, and provinces. They exist to serve the public and often do not pursue profit, operating under their enabling laws rather than under the Revised Corporation Code.

• Private Corporations
  Private corporations are established for private benefit, such as commercial enterprises, and fall under the provisions of the RCC. These corporations have no governmental purpose and operate independently of public entities, serving the interests of their shareholders.

8. Classification Based on Duration

• Perpetual Corporations
  Under the RCC, all corporations now have perpetual existence unless otherwise specified in their articles of incorporation. This provision marks a significant shift from prior law, which required corporations to renew their corporate life periodically.

• Fixed-Term Corporations
  Corporations may also choose to set a limited duration in their articles of incorporation, particularly if they aim to operate for a defined project or purpose. Upon expiration of their term, they may renew by amending their articles, subject to SEC approval.

9. Classification Based on Investment Type

• Holding Companies
  A holding company is formed to hold and manage equity investments in other corporations. These companies usually do not produce goods or services but exist to control and manage their subsidiary companies.

• Subsidiary Corporations
  A subsidiary corporation is a company controlled by another corporation, known as the parent company, which owns a significant portion (usually more than 50%) of the subsidiary’s stock. They operate as independent entities but align with the parent company’s overall strategy.

Summary

The Revised Corporation Code provides a detailed and structured approach to categorizing corporations to meet various business and regulatory needs in the Philippines. Each type serves a specific function, allowing businesses to select structures that align with their goals and operational needs while ensuring compliance with Philippine law.