Corporate Compliance & Governance

The choice of business structure has legal, tax, operational, and regulatory implications. A sole proprietorship, partnership, limited partnership, and corporation differ in ownership, management, contractual allocation, disclosure, and potential exposure. A limited partnership has general and limited partners, and the agreement, statutory requirements, and conduct of each partner must be assessed. For example, a limited partner may assume general-partner liability where the limited partner takes part in control of the business. A corporation may offer separate juridical personality, subject to applicable exceptions and compliance requirements.

The Revised Corporation Code permits a One Person Corporation (OPC) with a single stockholder who is a natural person, trust, or estate. An OPC may be appropriate for a sole business owner depending on the proposed activity, records, governance, capital, and regulatory requirements. A licensed natural person may not use an OPC to exercise that profession unless a special law provides otherwise. This restriction is distinct from an assessment of a separate lawful business or investment activity. OPC requirements, including the nominee and alternate nominee framework, must be properly documented.

For businesses with foreign equity participation, the current Foreign Investment Negative List and any sector-specific statute or license requirement must be reviewed. Recent liberalization involved separate laws, including RA No. 11647 amending the Foreign Investments Act, RA No. 11595 amending the Retail Trade Liberalization Act, and RA No. 11659 amending the Public Service Act. Consequences of noncompliance vary by the applicable constitutional, statutory, sectoral, and regulatory regime; they should not be described as automatically rendering every corporation's registration null.

The Revised Corporation Code significantly strengthened the duties and liabilities of corporate directors and officers. Directors are now required to act in the best interest of the corporation and its stockholders, exercise the care and diligence of a reasonably prudent person, and avoid conflicts of interest. The business judgment rule provides some protection for good-faith business decisions, but it does not shield directors from liability for fraud, gross negligence, or bad faith.

Related party transactions, contracts between the corporation and its directors, officers, or major stockholders, require board approval and, in some cases, stockholder approval. Failure to properly document and approve related party transactions can expose directors to personal liability and the transactions to nullification. We help corporations establish governance protocols that ensure related party transactions are properly identified, disclosed, and approved.