Moves for the implementation of the recent amendments and revisions to the Corporation Code of the Philippines are now in full swing with the release of Notices from the Securities and Exchange Commission (SEC) asking all interested parties for their comments or views on the proposed guidelines for (i) the establishment of a one person corporation (OPC) and (ii) the conversion of an ordinary stock corporation into an OPC.

The New "One Person Corporation"

By: Atty. Jomel N. Manaig

Moves for the implementation of the recent amendments and revisions to the Corporation Code of the Philippines are now in full swing with the release of Notices from the Securities and Exchange Commission (SEC) asking all interested parties for their comments or views on the proposed guidelines for (i) the establishment of a one person corporation (OPC) and (ii) the conversion of an ordinary stock corporation into an OPC.

One of the big changes to the present Code, courtesy of Republic Act (RA) No. 11232, otherwise known as the Revised Corporation Code of the Philippines, is the introduction of a new kind of corporation: the one person corporation. With the release of the proposed guidelines, we can now delve deeper into this new kind of corporation.

The OPC was created to make it easier and more inclusive for small businesses. It also enables for a faster process of incorporation as part of the government’s commitment to improve the ease of doing business in the country.

The Revised Corporation Code introduced several ways to make an OPC a viable option for small businesses: (i) the reduction of documentary requirements for incorporation to only the Articles of Incorporation; (ii) removal of the minimum capital stock requirement; and (iii) conversion from ordinary stock corporation to an OPC, among others.

Despite all the attraction brought by the OPC, I invite you to take an elementary view into the OPC’s basic characteristic vis-à-vis the rudimentary tenets of our corporate laws and jurisprudence.

As the term would suggest, an OPC is a “corporation with a single stockholder, who can only be a natural person, trust or estate.” The proposed guidelines also expressly provides that the “single stockholder shall be the sole director and president of the OPC.”

The OPC would then enjoy the freedom brought by a sole proprietorship with the added benefit of a separate corporate entity - a “one-man show” in a corporate setting. This concentration of corporate power would necessarily yield absolute control to the single stockholder. However, in the famous words of Spiderman’s Uncle Ben: with great power, comes great responsibility.

Chief among the basic principles of corporate law is the “doctrine of separate corporate personality” wherein a corporation is treated as a separate and distinct entity from its stockholder. A concomitant doctrine to it is the “doctrine of piercing the veil of corporate entity.” In the piercing the veil doctrine, the separate corporate entity is disregarded and the corporation is treated as a mere association of persons, or in the case of two corporations, merge them into one.

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction.

Our judicial system is replete with cases tackling the doctrine of piercing the veil of corporate entity. In those cases, the overriding factor in piercing the veil or not is of control, or lack thereof, exercised by the stockholders/directors. Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the ‘instrumentality’ may be disregarded.

In the case of an OPC, it is without doubt that the control is with the single stockholder. To an extent, the OPC is but a mere instrumentality or adjunct of the single stockholder. By applying the case doctrines, a curious situation presents itself: how strict would the doctrine be applied to OPCs?

The control necessary to invoke the doctrine is not majority or even complete stock control, but such domination of finances, policies and practices. The single stockholder would, in effect, have such character of control. Does it mean that the doctrine would automatically apply to him?

With all the potential surge of applications for incorporation of OPCs, let us hope that our would-be-incorporators include this small concern in their decision-making.