SECURITIES and Exchange Commission (SEC) head Teresita Herbosa is pushing for the passage of Senate Bill 2194, which will introduce a number of amendments to the Philippines’ outdated corporation code, before the May 2016 elections.
If we are to disagree with Chairperson Herbosa at all, it is only to call for passage of this vital measure sooner than her target date next year.
SB 2194 principally adjusts the lifespan of corporate franchises by allowing extensions, in 25-year increments, beyond the current 50-year limit.
Other important changes the legislation would make to the corporation code include eliminating requirements for a minimum number of incorporators, streamlining the business name verification process, clarifying procedures for dissolving a corporation, and providing for a grace period for non-compliant corporations rather than requiring their immediate dissolution.
Other amendments are aimed at providing better protection for stockholders’ rights and reducing opportunities for fraud, such as giving the SEC the authority to order corporations to hold regular stockholders’ meetings if they fail to do so on their own, a common problem under existing laws.
The upgrade of the corporation code is critical for a couple of reasons. First, it brings Philippine corporate regulation into the 21st century by aligning our laws with common international standards. This will help make the Philippine business environment more competitive with the rest of the Asean in the upcoming regional integration.
The second and, perhaps, even more important reason is that the revised corporation code will greatly expand opportunities for “regularization” of Philippine businesses, particularly in the vital small- and medium-enterprise sector.
One of the chronic handicaps of the Philippine economy is that so much of it is “informal,” made up of businesses that are either entirely unregistered, or are operating under false pretenses (for example, so-called “dummy” or “paper” corporations).
While the vast majority of these businesses are productive, their potential is wasted. The government loses out on a vast amount of tax revenue – something that, if corrected, might encourage the Bureau of Internal Revenue to stop persecuting ordinary wage-earners in an attempt to make up the difference. The businesses themselves suffer even more from the lack of opportunity to grow. Being “informal” or a part of the “shadow economy,” they are obliged to operate in a high-risk, heavily cash-dependent environment, and are shut out from formal credit and other funding opportunities.
By reducing the number of required incorporators to as few as one or two people, a vast number of essentially subsistence-level small businesses will be able to become formal businesses; incorporation reduces their economic risk by separating business and personal assets, and gives them access to formal credit and opportunities to expand. It also will bring a large number of productive businesses into the mainstream economy where they can contribute – as they should – to the nation’s tax revenue base.
SB 2194 is not a ‘magic bullet’; we are not so naive as to believe it will completely solve the problems of fraud, inefficient regulation, and lost revenue overnight. But it is a giant step in the right direction. We urge the Senate to advance this important measure with as much speed as can be responsibly applied.