“What is this entity?”
A One Person Corporation (OPC) is a corporation with a single stockholder. OPCs can only be formed by a natural person, trust, or the estate of a deceased person (Section 116). If the single stockholder is a trust or an estate, the name, nationality, and residence of the trustee, administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties must be shown in the Articles of Incorporation, together with the proof of authority to act as such (Section 118, Republic Act 11232).
The incorporator of an OPC, being a natural person, must be of legal age. As an incorporator, a trust as used by the law does not refer to a trust entity, but to the subject being managed by the trustee. The term of existence of the OPC shall be perpetual. However, in the case of a trust or estate, its term of existence shall be co-terminus with the existence of the trust or estate. The OPC under the name of the estate may be dissolved upon proof of partition (Sections 1 and 2, SEC Memorandum Circular No. 7, Series of 2019).
Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations may not incorporate as OPCs. Neither can a natural person who is licensed to exercise a profession, such as lawyers, doctors, engineers, architects, and accountants, among others, organize as an OPC for the purpose of exercising such a profession (Section 116, Republic Act 11232).
There is no minimum required capital stock or capitalization for OPCs unless a special law requires it (Section 117). To form an OPC, the applicant must file only his or her articles of incorporation with the Securities and Exchange Commission (SEC) (Section 118). The OPC is not required to file corporate by-laws unlike ordinary corporations (Section 119).
To keep the public informed of the nature of its incorporation, an OPC must indicate the letters “OPC” either below or at the end of its corporate name (Section 120). Since an OPC has a single shareholder, the latter will be the sole director and president of the same (Section 121). However, within fifteen (15) days from the issuance of its certificate of incorporation, the OPC shall appoint a treasurer, corporate secretary, and other officers necessary for its operation (Section 122).
The OPC must notify the SEC within five (5) days from the appointment of its corporate officers. The single stockholder must not be appointed as the corporate secretary, but the former may be a self-appointed treasurer (Section 122). If the single shareholder is also a treasurer, he must give a bond and a written undertaking to faithfully administer the OPC’s funds to the SEC, pursuant to its Memorandum Circular 7-2019. Such a requirement is continuing as long as the single stockholder is the self-appointed treasurer of the OPC (Section 10, SEC Memorandum Circular No. 7, Series of 2019).
In addition to the functions of the corporate secretary, the OPC’s corporate secretary shall: (a) be responsible for maintaining the minutes book and/or records of the corporation; (b) notify the nominee or alternate nominee of the death or incapacity of the single stockholder; (c) notify the SEC of the death of the single stockholder and furnish them with a list of the names, residence addresses, and contact details of all known legal heirs; and (d) call a meeting with the nominee, alternate nominee, or legal heirs regarding the business and operations of the OPC (Section 123).
Who is a nominee and alternate nominee? He or she is the person designated by the single stockholder to manage the OPC’s affairs in the event of the single stockholder’s death or incapacity (Section 124). The articles of incorporation shall state the names, residence addresses and contact details of the nominee and alternate nominee, as well as the extent and limitations of their authority in managing the affairs of the OPC (Section 118).
The written consent of the nominee and alternate nominee must be obtained and attached to the application for incorporation. Consent may be withdrawn in writing any time before the death or incapacity of the single stockholder (Section 124). The single stockholder may, at any time, change his or her nominee and alternate nominee by submitting to the SEC the names of the new nominees and their corresponding written consent (Section 126).
When the incapacity of the single stockholder is temporary, the nominee shall sit as director and manage the affairs of the OPC until the stockholder, by self-determination, regains the capacity to assume his or her duties. In the case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and manage the affairs of the OPC until the legal heirs of the single stockholder have been lawfully determined, and the heirs have agreed that the estate shall be the single stockholder of the OPC (Section 125).
An OPC shall maintain a “minutes book” which shall contain all its actions, decisions, and resolutions (Section 127). When action is needed on any matter, it shall be sufficient to prepare a written resolution, signed and dated by the single stockholder, and recorded in the minutes book of the OPC. The date of recording in the minutes book shall be deemed to be the date of the meeting for all purposes under the Revised Corporation Code (Section 128).
This provision puts an end to the long-time practice of single shareholders, not unknown to the SEC, of farming out some of his or her shares to employees, house-helpers and drivers to be able to comply with the minimum requirement of having at least five (5) incorporators and directors. It also solves the problem of having the “minutes of the meeting” circulated among and signed by nominee directors upon the instruction of the single or majority shareholder who owns the corporation.
Like any corporation, the OPC must comply with the reportorial requirements of the SEC such as the submission of: (a) audited annual financial statements; (b) reports containing explanations or comments by the president on every qualification, reservation, or adverse remark or disclaimer raised by the auditor in the latter’s report; (c) disclosure of all self-dealings and related party transactions entered into between the OPC and the single stockholder; and (d) other reports the SEC may require. Failure of the OPC to submit the reportorial requirements for three (3) times, consecutively or intermittently, within a period of five (5) years will put it on a delinquent status (Section 129).
A sole or single shareholder who claims the benefit of limited liability has the burden of showing that the OPC was adequately financed. If the single stockholder cannot prove that the property of the OPC is independent of the stockholder’s personal property, the single stockholder shall be jointly and severally liable for its debts and other liabilities. The principles of piercing the corporate veil applies with equal force to OPCs (Section 130).
This is unlike sole proprietorship, wherein the individual proprietor has full control over the business and owns all of the assets, is responsible for all debts and liabilities, and consequently, suffers all the losses and profits from his or her business, with the exclusion of others (Definition, Board of Investments, January 28, 2018). The sole proprietor applies for a business name and registers with the Department of Trade and Industry. The registration does not create a separate entity from the applicant but merely gives the latter the right to use a chosen business name.
Can an ordinary corporation be converted to an OPC or vice versa? Yes. When a stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for conversion into an OPC, subject to the submission of the documents the SEC may require. On the other hand, an OPC may be converted into an ordinary stock corporation after giving due notice to the SEC of the fact and of the circumstances leading to the conversion, together with compliance with all other requirements for stock corporations (Sections 131 and 132).
In either case, the surviving entity shall succeed and be legally responsible for all the outstanding liabilities as of the date of conversion (Sections 131 and 132). For example, when a single stockholder dies, the nominee or alternate nominee must transfer the shares to the declared legal heirs of the estate, and the heirs shall then notify the SEC within sixty (60) days of their decision to convert the OPC to an ordinary stock corporation.
The introduction of the OPC to the Revised Corporation Code is a welcome development especially for those who cannot handle the rigid requirements of an ordinary corporation but would still want to venture in business with limited liability. The prospective single stockholder must first familiarize himself with the workings of the OPC before incorporating one in order to avoid its legal pitfalls.