The One Person Corporation in the Philippines

The creation of a one person corporation is not yet covered by Philippine laws. We support the proposals to allow the creation of one person corporation in the Philippines. We have encountered a number of clients who expressed their interest in creating a one person corporation. We are also handling foreign-registered one person corporations (called a corporation sole in other jurisdiction) doing business in the Philippines. The creation of a one person corporation, long allowed in other countries, is most welcome in the Philippines. Fortunately, there is a pending bill in Congress to allow the creation of a domestic one person corporation.

As the law now stands, a minimum of five natural persons are required to create a corporation under the Corporation Code of the Philippines (Batas Pambansa Blg. 68). There are two requirements under the existing law: one, only natural persons may serve as incorporators; and, two, there must be at least five incorporators. These requirements are no longer required for one person corporations under the proposed law.

During the 17th Congress, four bills were filed in the Senate, proposing an act allowing one person corporations in the Philippines: Senate Bill No. 81 (Senator Francis Escudero, “An Act Allowing One Person Corporations, Amending for the Purpose Pertinent Provisions of Batas Pambansa Blg. 68 or the Corporation Code of the Philippines, as Amended”), Senate Bill No. 231 (Sen. Franklin Drilon), Senate Bill No. 692 (Sen. Paolo Benigno Aquino IV), and Senate Bill No. 1011 (Sen. Sonny Angara). These bills were substituted by Senate Bill No. 1280 (“An Act Amending Batas Pambansa Blg. 68 or the Corporation Code of the Philippines”) under Committee Report No. 22.

In the explanatory note of Sen. Escudero’s proposed law, he stressed the need for a new law which “shall allow the creation and recognition of a single person corporation as a juridical entity vested with the same powers, purposes and prerogatives as that of the current legal fiction with the mandatory “not less than five but not more than fifteen” incorporators.”

“A one-person corporation has gained popularity worldwide as a business vehicle given its advantages in terms of liability. Compared to a sole proprietorship, which is presently the only legal option available for a one-individual owned business entity, a one-person corporation liability is limited to the properties you infused in the corporation.” We’ve covered this in the previous discussion on The Basic Forms of Business: Sole Proprietorship, Partnership and Corporation.

Let’s discuss some changes proposed in the Senate bill:

What is a one person corporation?

It is a corporation with a single stockholder, who can only be a natural person, trust or estate. This is a radical shift from the current corporate law requiring at least five incorporators, who must be natural persons; a trust or estate cannot be an incorporator. To highlight this point, let’s reproduce the exact provision of the proposed bill (portions in brackets are provisions in the existing law which will be deleted, while the portions in upper case are new provisions):

SECTION 4. Section 10 of the Code is hereby amended to read as follows:

Sec. 10. Number and qualifications of incorporators. – [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.] ANY PERSON, PARTNERSHIP, ASSOCIATION OR CORPORATION, SINGLY OR JOINTLY WITH OTHERS BUT NOT MORE THAN FIFTEEN (15) IN NUMBER, MAJORITY OF WHOM ARE RESIDENTS OF THE PHILIPPINES, MAY ORGANIZE A CORPORATION FOR ANY LAWFUL PURPOSE OR PURPOSES. INCORPORATORS WHO ARE NATURAL PERSONS MUST BE OF LEGAL AGE.

Each [of the] incorporator[s] of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock [of the corporation].

A CORPORATION WITH A SINGLE STOCKHOLDER IS CONSIDERED A ONE PERSON CORPORATION COVERED BY TITLE XIII, CHAPTER III.

Not required to have a minimum authorized capital stock

The proposed law states that “a one person corporation shall not be required to have a minimum authorized capital stock.” This is weird because it also provides that “at least twenty-five percent (25%) of the authorized capital stock must be subscribed at the time of incorporation, and in no case shall the paid-up capital be less than Five Thousand Pesos (P5,000.00).” So, a one person corporation MUST have a minimum paid-up capital of P5,000, which simply means that there is a minimum authorized capital stock (P5,000 divided by the par value).

By-laws not required

An ordinary corporation is required to have a set of by-laws, filed together with the Articles of Incorporation. A one person corporation is not required to file corporate by-laws.

Sole director

An ordinary stock corporation has a Board of Directors. A one person corporation has a single stockholder, who is automatically the sole director and president. The only prohibition is that the sole stockholder may not act as the Corporate Secretary.

Corporate name

To distinguish it from the usual corporation, a one person corporation is required to use “OPC”.

Conversion to or from an ordinary stock corporation

A one person corporation may be converted to an ordinary stock corporation. This requires the filing of a notification with the SEC, indicating the conversion and the circumstances leading to the conversion. The requirements for stocks corporations must be complied with. An amended Certificate of Incorporation will then be issued.

On the other hand, an ordinary corporation may be converted to a one person corporation. This is possible when a single stockholder acquires ALL the stocks of an ordinary stock corporation.

No meetings required

A meeting is obviously not required if there is only one stockholder. In lieu of meetings, the single stockholder only needs to prepare a written resolution, signed and dated. A one person corporation is required to maintain a minutes-book. The date of recording in the minutes-book is deemed as the date of meeting.

Designation of nominee and alternate nominee

The single stockholder is required to designate a nominee AND an alternate nominee, named in the articles of incorporation, in the event of death or incapacity. The nominee must submit a written consent, which must be attached to the application for incorporation.

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