Commentaries on the One Person Corporation under the Revised Corporation Code – BusinessWorld Online

(First of five parts)

Section 116 of the Revised Corporation Code (RCC) defines a One Person Corporation as a corporation with a Single Stockholder, who must either be a: (i) natural person; (ii) trust; or (iii) estate, and which shall be governed by a special set of provisions under its Chapter III, Title XIII. However, as will be demonstrated in the discussions below, it would be easier to view the Single Stockholder in a One Person Corporation (OPC) setting as simply a natural person.

By way of comparison, if the close corporation reflects the commercial medium of an incorporated partnership introduced into the Philippine setting by the old Corporation Code, then the OPC should be viewed as a new corporate medium of incorporated sole proprietorship introduced under the RCC to promote the ease of doing business (EODB). The provisions of Chapter III, Title XIII seek to extend the commercially advantageous features of separate juridical personality and limited liability to entrepreneurs and proprietors of micro-, small-, or medium-enterprises (MSMEs), and to promote the EODB.

The OPC is primarily a for-profit corporate vehicle and generally cannot be employed by a natural person as a means to practice a profession, unless expressly allowed by a special law. Although theoretically there can be a nonstock corporation with a single member, such an institution would not fall within the ambit of Chapter III, Title XIII of the RCC.

NATURAL PERSON AS THE SINGLE STOCKHOLDERAlthough Section 10 of the RCC (Number and Qualifications of Incorporators) expressly provides that a person, partnership, association or corporation, singly may organize a corporation for any lawful purpose or purposes, it nevertheless provides in its last paragraph that A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code. However, not all corporations with a single stockholder would fall within the definition of an OPC that shall be governed under Chapter III of Title XIII, since Section 116 provides essentially that only a natural person may form an OPC.

a. OPC is Organized as a Stock Corporation. The language of Section 10 referring to a single stockholder, as well as the provisions under Chapter III of Title XIII clearly provides that an OPC can only be organized as a stock corporation with a single stockholder.

To illustrate, although Section 10 allows for a single incorporator, and the amendment reflected in Section 22 allows the Board of Trustees to be constituted of only one member even for nonstock corporation, nevertheless, when a single natural person incorporator organizes a nonstock corporation with a Board of only one member, such a nonstock corporation cannot be considered as governed by Chapter III of Title XIII of the RCC, but rather by Title XI that governs primarily nonstock corporations.

b. A Natural Person as the Single Stockholder Acting as Nominee. When an OPC is organized by a natural person, there is no provision in Chapter III of Title XIII to indicate that it would not qualify to be an OPC when the Single Stockholder is holding such shares as a nominee for another person or persons, or even when he/she holds the shares as nominee of a corporation or any other juridical entity.

This position is bolstered by the fact that Section 116 provides that a trust is qualified to be the single stockholder, even when the trustee clearly holds the trust properties for the benefit of several beneficiaries, or, for that matter, for the benefit of a juridical entity.

c. A Trust as the Single Stockholder. A trust arrangement is not a juridical entity, and having no capacity to contract as such, cannot legally assume the role of the Single Stockholder who holds title to the shares in the OPC.

What Section 116 must mean is that the trustee of the trust property, when he/she is a natural person (since a trustee can also be a juridical person) can qualify to incorporate the trust estate into an OPC, with the trustee as the Single Stockholder, even when expressly stating that he holds the shares in the OPC as trustee for the benefit of an identified beneficiary or beneficiaries.

Again, when the natural person incorporates an OPC in his name as the Single Stockholder, expressly stating that he holds the shares as trustee for an identified beneficiary, this should not disqualify the corporation from being an OPC governed by Chapter III of Title XIII, since the provision itself allows a trust to be incorporated as an OPC, regardless of the trustor/beneficiary of record. It is only when the trustee is a juridical person that it cannot incorporate the trust properties into an OPC with the trustee-corporation itself as the Single Stockholder.

d. An Estate as the Single Stockholder. Section 111(a) (on Articles of Incorporation) states that If the single stockholder is an estate, the name, nationality and residence of the administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties together with the proof of such authority to act on behalf of the estate shall be contained in the OPCs articles of incorporation.

An estate cannot lawfully become a stockholder of any corporation, because it has no juridical capacity to act; only persons with capacity to contract may own properties (i.e., shares of stock) or become parties to contractual relationships (i.e., as subscriber to the shares of stock of a corporation). It may be true that the OPC may assume the name of the estate, say Estate of the Decedent Juan dela Cruz, OPC, but the Single Stockholder of record would be the fiduciary holding legal title to the estate properties.

What Sections 116 and 118(a) must mean when referring to an estate which may form an OPC is that whoever is the fiduciary holding title to the estate (whether as an administrator, executor, guardian, conservator, etc.) may validly incorporate the estate into an OPC, with a fiduciary natural person as the Single Stockholder of record. Again, such a fiduciary must be a natural person to constitute the corporation an OPC governed by Chapter III of Title XIII of the RCC.

As in the case of a trust, the single stockholder may validly indicate that he/she holds all of the shares in the OPC as fiduciary of an identified estate beneficiary. In the case of the conservator, he actually holds the title to properties that pertain to a corporate entity.

ENTERPRISE OR BUSINESSES THAT MAY BE PURSUED THROUGH AN OPCIf one were to evaluate the various provisions of the RCC, we can deduce the following rules on the types of enterprises or undertakings that may be pursued through the medium of the OPC, thus:

a. Practice of a Profession. Pursuant to the provisions of Section 10, a natural person can pursue the practice of his profession through an OPC (or an ordinary corporation) only when authorized by the special law that governs the practice of that particular profession.

An example of such a special law would be the Architecture Act of 2004 (R.A. 9266) that allows the registration with the SEC of architectural professional corporations.

b. Service Company. A natural person can pursue the rendering of his/her services, other than in the practice of a profession (i.e., a service that is not regulated by the Professional Regulations Commission), through an OPC which thereby retains him/her as an employee or a consultant.

c. Holding Company. Aside from the express power granted to a natural-person-trustee or natural-person-fiduciary to incorporate the trust properties or the estate into an OPC, there is no prohibition in Chapter III of Title XIII, for an OPC to be organized by a natural person Single Stockholder, not to operate a business, but merely to hold title to properties, real or personal; EXCEPT:

(i) When it comes to holding title to private lands, where the single stockholder must be a Filipino citizen; and

(ii) When holding shares in a corporation engaging in a nationalized business or industry, where, if the Single Stockholder is a foreigner, the amount of equity held in the corporation should not exceed 40% of the voting capital stock, nor more than 40% of the entire outstanding capital stock

d. All Other Lawful Business Enterprises May Be Pursued Through an OPC by the Single Stockholder; EXCEPT: As expressly provided in Section 116: (i) Banks and quasi-banks; (ii) Insurance, preneed and trust companies; (iii) Publicly-held and Publicly-listed companies; and (iv) Non-chartered GOCCs

e. Businesses Vested With Public Interests. Although not expressly stated in Chapter III of Title XIII (unlike in the case of close corporations), an OPC cannot be organized to undertake any business that has been classified by the SEC as being vested with public interests, because such classes of corporations are required to have at least 20% of the Board constituted of independent directors, which requirement an OPC, by its very nature, cannot legally comply with.

f. Mining and Oil Companies, Stock Exchanges, Public Utilities. If close corporations are expressly disqualified under Section 95 from engaging in these types of business, then policy considerations should also disqualify the OPC from engaging in such business activities.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP)

Cesar L. Villanueva is Chair of the MAP Corporate Governance Committee, the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs (GCG).

cvillanueva@vgslaw.com

map@map.org.ph

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Commentaries on the One Person Corporation under the Revised Corporation Code - BusinessWorld Online