Corporate Governance for MSMEs in the Philippines

Navigating the Regulatory Landscape for Board Directors, Corporate Secretaries and Other Corporate Officers By: Atty. Apollo X.C. S. Sangalang

In the intricate tapestry of business, the importance of sound corporate governance cannot be overstated. For Micro, Small, and Medium Enterprises (MSMEs) in the Philippines, the landscape is evolving, with a focus on the roles of board directors, corporate secretaries, and other corporate officers. A closer look at the provisions of the Revised Corporation Code (RCC) of the Philippines sheds light on the regulatory framework shaping the governance practices of these small businesses.

I. Evolving Role of Board Directors

In the realm of MSMEs, the role of board directors is undergoing a transformation. Beyond traditional oversight, directors are increasingly expected to contribute actively to strategic decision-making. The RCC acknowledges this shift by encouraging the appointment of independent directors, fostering diversity in perspectives, and promoting a balance between executive and non-executive directors.

For MSMEs, this translates into an opportunity to bring in diverse expertise, enhancing the board's ability to navigate challenges unique to smaller enterprises. Moreover, the emphasis on strategic engagement aligns with the dynamic nature of MSMEs, allowing for agility in decision-making and responsiveness to market shifts.

II. Corporate Secretaries: Guardians of Compliance

Corporate secretaries play a pivotal role in upholding corporate governance, serving as the custodians of compliance. With the RCC, their responsibilities extend beyond record-keeping to actively advising the board on legal and regulatory matters. For MSMEs, this underscores the importance of having a proficient corporate secretary who can guide the company through the intricacies of corporate law.

As MSMEs often operate in resource-constrained environments, the role of the corporate secretary becomes even more critical. Navigating the evolving legal landscape requires vigilance and expertise, ensuring that the company remains compliant with statutory requirements. The corporate secretary becomes the lighthouse, guiding the ship through the regulatory seas.

NOTE: The corporate secretary is not necessarily the corporate (legal) counsel. The only qualifications for the position of corporate secretary is that one must be a Filipino (citizen) and a Philippine resident.

III. Other Corporate Officers: Collaborators in Governance

Beyond directors and corporate secretaries, other corporate officers in MSMEs are integral to the governance framework. All corporations must also elect a president and a treasurer.

The RCC encourages the delegation of authority, allowing for a more streamlined decision-making process. This is particularly relevant for MSMEs, where agility and adaptability are key strengths.

Empowering officers with specific responsibilities fosters a culture of accountability. For instance, a Chief Financial Officer (CFO) may bear the responsibility of financial transparency, ensuring that the company's financial statements accurately reflect its financial health. This level of accountability enhances the overall governance structure, instilling confidence in stakeholders.

NOTE: The treasurer is not necessarily the CFO. The only qualification for the position of treasurer is that one must be a a Philippine resident. Moreover, the president is not necessarily the Chief Executive Officer (CEO).

IV. Provisions of the Revised Corporation Code: Tailoring Governance for MSMEs

The RCC recognizes the unique challenges faced by MSMEs and introduces provisions tailored to their specific needs. One such provision is the ability of corporations to dispense with the requirement of an annual stockholders' meeting, provided that all stockholders agree in writing.

For MSMEs, this flexibility can be a game-changer. It acknowledges the practical constraints faced by smaller enterprises, allowing for more efficient decision-making processes. However, it also emphasizes the importance of transparent communication among stakeholders, ensuring that all parties are aligned with the company's direction.

The RCC, enacted to modernize corporate laws, brings about several significant changes that specifically benefit MSMEs. These amendments aim to enhance the ease of doing business, provide more flexibility, and address the unique challenges faced by smaller enterprises.

1. One-Person Corporations (OPCs): Tailored for Small Entrepreneurs

One of the groundbreaking changes introduced by the RCC is the recognition and establishment of One-Person Corporations (OPCs). This allows entrepreneurs, including those in the MSME sector, to form a corporation with a single stockholder. This is a game-changer for solo entrepreneurs or small businesses operated by a single owner, providing them with a formal corporate structure that aligns with their scale of operations.

OPCs not only simplify the incorporation process but also offer limited liability, protecting the personal assets of the entrepreneur. This is particularly advantageous for MSMEs, where the business and personal finances of the owner are often closely intertwined.

2. Less Restrictions on Incorporators and Directors: Promoting Small Businesses

Another major overhaul in the RCC is the reduction in the number of incorporators and members of the board of directors to a minimum of two (except in the case of OPCs). Previously, the minimum number was five.

Moreover, legal entities, such as corporations, can now become incorporators. Under the old law, only individuals can become incorporators, and the majority has to be Philippine residents. Now, there is no residency requirement for incorporators.

In fact, for business activities that have no foreign ownership restrictions, the incorporators and directors can be all foreign nationals and non-residents.

3. Reduced Minimum Capital Requirement: Enhancing Financial Accessibility

The RCC significantly reduces the minimum capital requirement for corporations. Previously, companies were mandated to have a minimum authorized capital stock, regardless of their actual financial needs. The new code eliminates this requirement for most corporations, including MSMEs.

This change enhances financial accessibility for MSMEs, allowing them to allocate capital more efficiently based on their operational needs. By eliminating the burden of a substantial minimum capital requirement, the RCC encourages entrepreneurship and facilitates the establishment of corporations tailored to the financial realities of small businesses.

4. Perpetual Corporate Term: Continuous Existence for Stability

Traditionally, corporations had a maximum term limit of 50 years, after which they needed to renew their existence. The RCC introduces the concept of a perpetual corporate term, allowing corporations, including MSMEs, to exist indefinitely unless dissolved or revoked.

For MSMEs planning for long-term sustainability, this change eliminates the need for periodic renewals, providing stability and continuity. It also simplifies administrative processes and reduces the regulatory burden on small businesses, enabling them to focus on growth and innovation.

5. Electronic Meetings and Remote Voting: Facilitating Efficient Decision-Making

Recognizing the digital transformation of business operations, the RCC authorizes the use of electronic means for meetings, remote communication, and even voting. This is especially beneficial for MSMEs with dispersed teams, allowing them to conduct meetings efficiently and make decisions without the need for physical presence.

For smaller enterprises where time and resources are precious, this change streamlines corporate processes, making governance more accessible and cost-effective. It also promotes inclusivity, enabling stakeholders from diverse locations to participate actively in decision-making.

In summary, the RCC introduces pivotal changes that directly benefit MSMEs. From the creation of OPCs to the reduction of minimum capital requirements and the embrace of electronic governance, these amendments empower small businesses, fostering a conducive environment for growth, innovation, and long-term sustainability in the dynamic Philippine business landscape.

V. Conclusion: The Path Forward

As MSMEs navigate the dynamic business landscape in the Philippines, embracing the evolving roles of board directors, corporate secretaries, and other corporate officers is paramount. The RCC provides a regulatory framework that acknowledges the unique challenges and opportunities inherent in small businesses.

For MSMEs, the path forward lies in weaving governance into the fabric of their organizational culture. By doing so, they not only comply with legal requirements but also lay the foundation for sustainable growth. The evolving roles within the corporate governance structure are not just regulatory obligations; they are strategic imperatives that can propel MSMEs towards success in an ever-changing business environment.

CALL TO ACTION FOR BOARD DIRECTORS, CORPORATE SECRETARIAT, AND CORPORATE OFFICERS OF MSMEs:

Equip yourself and your team with the working knowledge to drive your MSMEs to new heights with our Corporate Governance Course (for MSMEs) on January 31, 2024 (Wednesday) from 8:00am to 5:00pm.

Learn about the pertinent provisions of the REVISED CORPORATION CODE and the compliance requirements of the SECURITIES AND EXCHANGE COMMISSION (SEC).

Organized by ARIVA ACADEMY.

Reserve your seats by clicking this LINK.

You may also call ARIVA ACADEMY at these numbers:

LANDLINE: 8832-9901

MOBILE: 0917-3257870

Learn more about this seminar / webinar by clicking this LINK. See you :)