Public Interest Corporations under the Revised Corporation Code
The Revised Corporation Code of the Philippines introduced numerous changes in the realm of corporate law in the country. From the removal of corporate term limits, the creation of new entities including the new One Person Corporation, deletion of various requirements involving for capitalization, and introduction of many innovations involving the use of technology, the Revised Corporation Code of the Philippines also focused on enhancing corporate governance within the entities governed by the Securities and Exchange Commission.
The term “public interest” corporations, or “corporations vested with public interest”, was also introduced as among the landmark changes implemented under Republic Act No. 1232, signed into law on February 20, 2019, also known as the Revised Corporation Code of the Philippines.
Public Interest Corporations, a new Classification
Under the old Corporation Code of the Philippines
Section 22 of the Revised Corporation Code of the Philippines introduced the concept of “corporations vested with public interest”. This provision was derived from the old Corporation Code’s Section 23, under Title III “Board of Directors/Trustees and Officers”, which originally states:
Section 23. The board of directors or trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be members thereof. A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines.
It will be noted that in this progeny to Section 22 of the Revised Corporation Code of the Philippines, there is no such reference to this distinct class of corporations.
Under the Revised Corporation Code of the Philippines
Reworded, revised and expanded, Section 22 of the Revised Corporation Code of the Philippines borrows from the context of the old Section 23, and introduces a new paragraph outlining what is now known as a Public Interest Corporation, or a corporation vested with public interest. The full text of the new Section 22 of found below, with underscored from the original text:
SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers, conduct all business, and control all properties of the corporation.
Directors shall be elected for a term of one (1) year from among the holders of stocks registered in the corporation’s books, while trustees shall be elected for a term not exceeding three (3) years from among the members of the corporation. Each director and trustee shall hold office until the successor is elected and qualified. A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member of the corporation shall cease to be such.
The board of the following corporations vested with public interest shall have independent directors constituting at least twenty percent (20%) of such board:
a. Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code”, namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares;
b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and
c. Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.
An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors. Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board memberships and other requirements that the Commission will prescribe to strengthen their independence and align with international best practices.
How does the Law define a Public Interest Corporation?
Circuitous as it may seem, the law defines a Public Interest Corporation as a corporation vested with public interest. This definition is further expanded by enumerating entities and providing examples of what may be considered as a Public Interest Corporation. These include a broad class of entities regulated by the Securities and Exchange Commission, by the Banko Sentral ng Pilipinas (the Philippines’ Central Bank), by the Insurance Commission of the Philippines, and those similarly situated, which the Securities and Exchange Commission may later consider or expressly define as a corporation belonging to such class of entities.
What are considered by Law as Public Interest Corporations?
As enumerated under Section 22 of the Revised Corporation Code, the following are considered as Public Interest Corporations:
- Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code”
- Publicly listed corporations
- Corporations with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares
- Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business
- Pre-need, trust and insurance companies, and other financial intermediaries
- Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission
If a corporation falls under any of these categories, it must implement significant changes within the company and meet additional regulatory compliance requirements. This includes introducing amendments to the Articles of Incorporation or By-Laws in accordance with the provisions of the Revised Corporation Code of the Philippines.
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