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The Revised Corporation Code of the Philippines

With the enactment of this new code of law on corporations, several reforms and innovations have been introduced and integrated with the aim of enhancing the ease of doing business in the Philippines. I will be discussing only some of these notable innovations and reforms and leave it to the experts to elaborate more.

Under the new system of law, a single person can now form a one-person corporation (Sections 115-132) thereby logically and expressly lifting the minimum number of incorporators from five to one person (Section 10). Likewise, companies are allowed to exist in perpetuity (Section 11). The fear before was that corporations may become so powerful that they may even rival the State; hence, the restrictions under the previous set-up. This is not the norm anymore.

Proceeding further, as a rule, there is no more minimum capital stock for stock corporations (Section 12) either.

The corporate name verification system with the “confusingly similar” standard has shifted to the “distinguishability test” (Section 17). Moreover, companies engaged in business impressed with public interest like those covered by the Securities Regulations Code, banks and quasi-banks, etc. shall now be required to have independent directors constituting at least 20% of the composition of their board (Section 22). In still other instances, compliance officers are appointed in companies.

Shareholder voting in absentia or conducted through remote communication is now statutorily permissible (Section 23). Early on, even prior to the passage of the new legal code on corporations, the Securities and Exchange Commission had long issued guidelines on teleconferencing and video conferencing which the Honorable Supreme Court took judicial notice of in a 2005 case.

On another point, the new system of law has also expanded the grounds for disqualification of directors (Section 26). Moving on, close (family) corporations are required to have a maximum number of 20 shareholders. Permit me to end the discussion for now.

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Data Privacy

Backgrounder

Since time immemorial, the right to privacy has been recognized in civilized societies. Take for instance the Anglo-Saxons in England made the edict that not even the King can enter into one’s humble home. Hundreds of years later, in 1928, Justice Louis Brandeis of the United States Federal Supreme Court termed the right to privacy as the “the right to be left alone” in his dissenting opinion in Olmstead vs. United States.

In our own jurisdiction, in 1968, the Philippine Supreme Court acknowledged the right to privacy as deserving of constitutional guarantee in Morfe vs. Mutuc. Then too, decades later or in 2008, it came up with the “writ of habeas data” which safeguards a person’s right to privacy and allows the individual to control any information concerning him/her.

Note that I am speaking of privacy in general owing to the fact that the right to privacy takes several forms like the privacy of communication/correspondence, the integrity of one’s person/body, one’s home, and, most especially, personal data/information which is the subject matter of this discussion.

In this light, sometime in 2014, the Court of Justice of the European Union in the Google Spain SL case broadened the right to privacy by recognizing the “right to be forgotten” having its leanings on the 1995 Directive for Data Protection.

Indeed, data privacy laws have been in place in the West since the 1970s. But with the rapid advancement in technology and the digitization of information, personal data today has become a highly monetized product. This must be secured and protected in the face of increasing incidents of hacking and data breaches, thereby necessitating an updating of existing laws. Hence, data protection laws were enacted in the 1990s and again further updated up until recent years.

In our own country, the law has caught up with data privacy brought about by the pressure and dictates of the modern world. Our leaders thus came up with the Data Privacy Act of 2012. However, it was not until March 2016 that the National Privacy Commission (NPC, for brevity) was appointed. The said Commission came up with the Implementing Rules and Regulations only in September 2016. Soon after, circulars, advisories and advisory opinions were released while the NPC’s initial deadline for mandatory registration ended in September 2017. Presently, government agencies and those organizations and individuals/professionals in the covered business sectors who registered during the first deadline need not renew their registration until March 2020.

References: Partly from retired Chief Justice Artemio Panganiban; and from the National Privacy Commission

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Can a condominium project built on Philippine soil be sold entirely to foreigners?

By: Atty. Jeremy O. Panganiban

The answer depends on whether the condominium corporation will hold title to the land or will merely lease it from another person/entity.

This is because if it will own the private land, the capital stock of the condominium corporation must be 60% Filipino owned so as not to contravene the prohibition under the Philippine Constitution in relation to the Condominium Act, as amended.

However, if the condominium corporation merely leases the land from another person/entity, particularly from the developer or landowner, then there is no legal impediment for the condominium project, not the land, to be entirely owned by foreigners and, accordingly, there will be no limit to the foreign ownership of the Condominium Corporation, this on the basis of the opinion issued by the Securities & Exchange Commission.

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How can you retain your real properties within the family even after death?

By: Atty. Jeremy O. Panganiban

There are two modes of planning for one’s death as a good way of helping your potential heirs keep the real properties within the family.

The first one is putting up a close corporation: You can set up, and transfer your real properties (land and building) to a “family” corporation. This is essential if you have acquired several pieces of real estate. The transfer to the company that will be put up is tax-free. Moreover, you continue to have control over your assets while you are still alive through the corporation. This is because your real properties will be converted into shares of stock and will practically make you the controlling stockholder with your potential heirs owning a minimum of one share of stock each.

However, you can later on distribute a substantial amount of your shares of stock thru a Deed of Assignment to your potential heirs, which transfer used to be subject to 5% capital gains tax for shares of stock worth not over P100,000.00, and 10% in excess of P100,000.00 under the old Tax Reform Code of 1997; but, with the enactment of the TRAIN law with effectivity date of January 1, 2018, a final tax of 15% on capital gains on the sale or other disposition of shares of stock not traded through the local stock exchange is imposed. Your potential heir also needs to pay 1.5% documentary stamp tax and 75% of 1% transfer tax which remain unchanged. The good thing about this is that the assets can be preserved and retained since what your potential heirs can sell if they opt out of the corporation are their shares of stock and not the real properties due to their transformation into corporate assets.

In putting up your family corporation, under the old Corporation Code, there must be at least 5 incorporators but not more than 15. With this, the 5 incorporators should be composed of at least 4 potential heirs and then yourself. If you have potential heirs who are foreigners, their shareholdings must not exceed 40% of the total capital stock.

The second mode of retaining real properties within the family is by executing a last will and testament which under Philippine laws may either be a “notarial will” which must comply with the formalities required by law in order to be probated; or a “holographic will” which must be entirely written, dated and signed by you in your own handwriting. In executing a last will and testament, you can prohibit the sale, disposition or encumbrance of your real properties within a period of 20 years from the time of your demise. By doing so, your potential heirs’ hands are tied and cannot sell to anyone their respective portion of their inheritance over your properties during the prohibited period.

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Estate Tax under the TRAIN Law

By: Atty. Jeremy O. Panganiban

The Tax Reform for Acceleration and Inclusion Act (TRAIN, for brevity) took effect on January 1, 2018, instituting further reforms and amendments to the Tax Reform Code of 1997, as amended. The taxes that were improved and simplified include estate tax.

Specifically, estate tax is now at a flat rate of 6% based on the amount in excess of P5,000,000.00 for decedents who died on or after the effectivity date of the new law.

The allowable deductions to the estate in order to get the net estate of a citizen or resident are, to wit: (1) P5 million as standard deduction; and (2) P10,000,000.00 as deduction for the family home.

It bears stressing that funeral expenses and medical expenses incurred by the decedent were removed as allowable deductions. What is more, the requirement to secure a certification from the Punong Barangay for the decedent’s home so as to be considered as a family home for estate tax purposes has been deleted.

In contrast, for deductions allowed to non-resident estates, there is a standard deduction of P500,000.00; and a proportionate deduction on: (a) claims against the estate; (b) claims of the decedent against insolvent persons; and (c) for unpaid mortgages upon or any debt/outstanding obligation relative to the property.

Futhermore, the new law has increased the gross value of an estate, for which a return is required to be filed, to P5 million. This must be supported by a statement duly attested to by a Certified Public Accountant. In addition, the time for filing an estate tax return is now one year from the time of the decedent’s death. The requisite notice of death to be submitted to the Bureau of Internal Revenue has been removed.

However, an estate, consisting of registrable property like stocks, real property, motor vehicle or other similar property is still required to have an estate tax return, regardless of value.

Likewise, under the new law, payment by installment on the estate tax due is allowed subject to the following requisites: (a) there is insufficient cash to pay the total estate tax due; (b) payment by installment must be made within 2 years from the statutory date; and (c) it is not subject to civil penalty and interest. Finally, unlike in the old tax law, bank deposits are now withdrawable. To be sure, the funds from the decedent’s bank account can now be withdrawn subject to the automatic deduction of 6% withholding tax, and the same funds shall be excluded from the gross estate for purposes of computing the estate tax.