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SEC guidelines on number, qualifications of incorporators

 

KELVIN LESTER LEE

One of the most frequently asked questions about Republic Act No. 11232, or the Revised Corporation Code of the Philippines (RCC), pertains to the number and qualifications of incorporators. Among others, the new regulatory framework allows for the creation of a one-person corporation, effectively removing the minimum number of incorporators required to form a corporation.
So, the question now is: Can two, three or four incorporators form corporations?

Section 10 of the old Corporation Code, or Batas Pambansa Blg. 68, only provides: “Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.”

Section 10 of the RCC, on the other hand, provides: “Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes: Provided, that natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of legal age. Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.”

On July 30, 2019, the Securities and Exchange Commission (SEC) released on its official website (www.sec.gov.ph) SEC Memorandum Circular No. 16, Series of 2019 (SEC MC No. 16, s. of 2019), which pertains to the Guidelines on the Number and Qualifications of Incorporators under the Revised Corporation Code.


The purpose of the guidelines is for the SEC to properly implement Section 10 of the RCC. This is likewise pursuant to the powers of the SEC to formulate and enforce standards, guidelines, policies, rules and regulations to carry out the provisions of the RCC [Section 179 (o), RCC].

The following salient features are provided for under SEC MC No. 16, s. of 2019:

1. To form a new domestic corporation, two (2) or more persons, but not more than 15, may organize themselves and form a corporation (Section 1, SEC MC No. 16, s. of 2019).

2. The composition of incorporators is any combination of natural person/s, SEC-registered partnership/s, SEC-registered domestic corporation/s or association/s, as well as foreign corporation/s (Section 3, second paragraph, SEC MC No. 16, s. of 2019). The qualifications for each combination is explained under Sections 4, 5 and 6 of SEC MC No. 16, s. of 2019.

3. The inclusion of foreign nationals in the Articles of Incorporation shall be subject to the applicable constitutional, statutory and regulatory restrictions, as well as conditions, with respect to foreign participation in certain investment areas or activities (Section 9, SEC MC No. 16, s. of 2019).

4. The SEC will require a favorable recommendation from the appropriate government agency in case banks, banking and quasi-banking institutions, preneed, insurance and trust companies, Non-Stock Savings and Loan Associations (NSSLAS), pawnshops and other financial intermediaries will be incorporated (Section 10, SEC MC No. 16, s. of 2019).

5. There will be manual registration by the SEC’s Company Registration and Monitoring Department and the Extension Offices for the processing of all applications until further notice (Section 11, SEC MC No. 16, s. of 2019).

This game-changer gives entrepreneurs ample options for incorporating a new domestic corporation with just a minimum of 2 incorporators up to a maximum of 5. This is, of course, separate from the establishment of a One-Person Corporation which application for registration already started on May 6, 2019.

In light of the abovementioned reform on the number and qualifications of incorporators through the issuance of the above guidelines, we at the commission hope that prospective incorporators will be better guided in choosing their desired number of incorporators for their new domestic corporations. I advise you to check the SEC website to check the full details and implementation of SEC MC No. 16, s. of 2019.

Kelvin Lester K. Lee is a Commissioner of the Securities and Exchange Commission (SEC). He is the co-chairperson of the SEC Committee on Memorandum Circular/s To Operationalize Revised Corporation Code Provisions. The views and opinions stated herein are his own. You may email your comments and questions to oclee@sec.gov.ph.

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Today’s Front Page January 27, 2020

Today’s Front Page January 27, 2020