Opinion No. 24-37 Re: Number of Directors in a Financing Company

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Securities and Exchange Commission

BACONG PILIPINAS

OFFICE OF THE GENERAL COUNSEL

19 November 2024

SEC-0GC Opinion No.24-37 Re Number of Directors in a Financing Company

3B Basic Petroleum Bldg., 104 C Palanca St.Legazpi Village support@gammadlaw.com GAMMAD LAW OFFICE Makati City

AttentionAtty.Joel C.Gammad

Dear Sir:

number of directors allowed in a financing company. This refers to your letter requesting for clarification from the Commission on the minimum

You cited the previous rules under the Corporation Code on the matter, to wit

but not more than fifteen (i5) all of fegal age and a majority of whom are residents of the Philippines, may "Section 10.Number and qualifications of incorporators-Any number of natural persons not less than five 5 form a private corporation for any lawful purpose or purposes.xxx

acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise Section 14. Contents of articles of incorporation.-All corporations organized under this Code shall file with the prescribed by this Code or by special law Securities and Exchange Commis ission articles of incorporation in any of the official languages, duly signed and

XXX XXX XXX

xxx (Emphasis and underscoring supplied) 6.The number of directors or trustees.which shall not be less than five (5) nor more than fifteen(15):

follows: On the other hand, you cited relevant provisions of the Revised Corporation Code (RCC) as

"Section 10. Number and Qualifications of Incorporators.- Any person. partnership. association or corporation. singly with others but not more than fifteen (15) in number may organize a corporation for any lawful purpose or purposes:xxx

manner as may be allowed by the Commision, containing substantally the following matters, except as Section 13. Contents of the Articles of Incorporation- All corporations shall file with the Commission articles of incorporation in any of the official languages, duly signed and acknowledged or authenticated, in such form and otherwise prescribed by this Code or by special law:

The Corporation Code of the Philippines,Batas Pambansa Blg.6801May 1980 1Dated 03 June 2020 Revised Corporation Code of the Philippines,Republic ActR.A.No.11232,20 February 2019. 14/F The SEC Headquarters,7907 Makati Avenue +63288185348/+63288185418 Salcedo Village, Bel-air,Makati City IN PEOPLE INVESTORS ae www.sec.gov.ph |ogc_legal@sec.gov.ph Vainvee

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XXX XXX XXX ( The number of directors. which shall not he more than fifteen(15) or the number of trustees which may be more than fifteen (15)i xxx. Section 116. One Person Corporation.- A One Person Corporation is a corporation with a single stockholder Provided, That only a natural person,trust or an estate may form a One Person Corporation Banks and quasi-banks pre-need trust insurance public and publicly-listed companies. and non Corporation: xox chartered government-owned and -controlled corporations may not incorporate as One Person

Section 121. Single Stockholder as Director, President - The single stockholder shall be the sole director and president of the One Person Corporation.

(2 the organization, direction and administration of the applicant, as well as the integrity and and operation of financing companies. You noted that the primary considerations of the Commission are that (1) the establishment of such financing company will promote public interest and convenience; and responsibility of the organizers and administrators,reasonably assure the protection of the interest of the general public. Implementing Rules and Regulations (IRR)on the role of the Commission with respect to the registration Moreover,you cited the provisions of the Financing Company Act (FCA of 1998 and its

that has a Board of Directors composed of members who are less than five (5) in number without compromising public interest or public's convenience. It is your opinion that said considerations can be realized and achieved by a financing company

Relative thereto, you are requesting for an opinion on: 1 Whether a financing company may have a Board of Directors composed of less than 5 2 Whether there is a minimum number of directors required in a financing company. members; and

Rules for Stock Corporations

mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel property.s Financing companies are primarily organized for the purpose of extending credit facilities to

The FCA and its IRR define financing companies as follows:

operating under other special laws,which are primarily organized for the purpose of extending credit facilities to factoring commercial papers or accounts receivable,or by buying and selling contracts,leases,chattel mortgages Financing Companies" hereinafter called companies,are corporations, except banks, investment houses, or other evidences of indebtedness,or by financial leasing of movable as well as immovable propertyxxx Savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or

The organization and capital requirements of financing companies are as follows: "Section 6.Form of Organization and Capital Requirements.-Financing companies shall be organized in the form of stock corporations may be owned up to one hundred percent (100%) by foreign nationals, and shall have a paid-up capital of not less than ten million (P10,000.000.00) in case the financing company is located in Metro Manila and other first class cities,five million pesos (P5,000,000.00 in other classes of cities and two million five hundred thousand pesos (P2,500.000.00 in municipalities: Provided, That the Securities and Exchange Commission may adjust said minimum paid-up levels as it deems warranted by its prudential oversight requirements and consistent with the objectives of this Act: Provided, however, that financing companies duly existing and in operation before the effectivity of this Act shall comply with the minimum capital

Rules and Regulations to Implement the Provisions of RA No.8556The Financing Company Actof 1998,20 May 1999. Section 1(a,Republic Act(R.A.)No.8556,Financing Company Act of 1998,26 February 1998,as amended by R.A.No.10881,27 July 2015

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concerned,the financing company shall comply with the constitutional provision on foreign ownership of land. require nt within one1 year from the date of the said effectivityand Providedfurtherthat where land is

the provisions of the RCC and the rules thereunder regarding stock corporations. Based on the above cited provision, the incorporation of financing companies shall comply with

issued SEC Memorandum Circular (MC) No.7, Series of 20197 to provide guidelines on the establishment of an OPC.Section 14 of SEC MC No.7 states the following To implement the provisions of the RCC on One Person Corporations (OPCs),the Commission

chartered government-owned and -controlled corporations (GOCs) cannot incorporate as OPC. "Section 14. Who are Not Allowed to Form OPCs. Banks,non-bank financial institutions pre-need, trust, insurance, public and publicly listed companies, non-

A natural person who is licensed to exercise a profession may not organize as an OPC for the purpose of exercising such profession except as otherwise provided under special laws. (Emphasis and underscoring supplied)

cannot have just one (1) regular director. A financing company being a non-bank financial institution, and hence not allowed to be an OPC, it

Commission issued SEC MC No.16,Series of 20198which provides Meanwhile, to implement Section 13f of the RCC, ie. not more than fifteen (15) directors, the

"Section 1.Number of Incorporators For the purpose of forming a new domestic corporation under the Revised Corporation Code, two (2 or more persons, but not more than fifteen (15), may organize themselves and form a corporation.

its registration must comply with the corresponding separate guidelines on the Only a One Person Corporation(OPC mav have a single stockholder,as well as a sole director.Accordingly tablishment of an OPC.

Thus, an ordinary corporation (not an OPC) must have at least two (2) regular directors. Corporate Governance Rules

of Corporate Governance RCCG,which applies to the following registered corporations and to branches or subsidiaries of foreign corporations operating in the Philippines that: However,the Commission also promulgated the SEC MC No.6,Series of 2009,or the Revised Code

(a sell equity and/or debt securities to the public that are required to be registered with the b) have assets in excess of Fifty Million Pesos and at least two hundred (200 stockholders who own c whose equity securities are listed on an Exchange,or (d) are grantees of secondary licenses from the Commission Commission, or at least one hundred (100)shares each of equity securities,or

imbued with public interest, and hence, should adhere to more than ordinary corporate governance best practices. The RCCG considers secondary licensees of the Commission, such as financing companies, to be

be composed of at least[5] but not more than [15lmembers who are elected by the stockholders.lo Accordinglyunder the RCGG, the Board of Directors of corporations covered by the Codeshall

7 SEC Memorandum Circular No. 7, 25 April 2019. SEC Memorandum Circular No.16Guidelines on the Number and Qualifications of Incorporators 6 Supra, note 5 Code,30 July 2019. SEc Memorandum Circular No.6,Revised Code of Corporate Governance,22 June 2009 10 Ibid, Article 3(A). Inder the Revised Corporation

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directors or such number of independent directors that constitutes twenty percent (20%) of the members of the Board, whichever is lesser. but in no case less than 2.11 The RCCG likewise requires that all companies covered"shall have at least two (2) independent

SEC MC No. 5 which limited the RCCG's coverage to financing companies that possess any of the following qualifications Slightly over a year from its issuance, the RCCG was amended by SEC MC No. 5, Series of 201012

3. 2. Have total assets of PhP50 million or more Have more than 40% foreign participation in their voting stock: Have issued exempt or registered commercial papers.

SEC MC No.14 which,by way of exception to SEC MC No.5,exempts financing companies that are registered as close corporations from the requirement of electing at least 2 independent directors in their board,subject to the following conditions: Please note, however, that the Commission subsequently issued SEC MC No. 14, Series of 201413

I They amend their [AOI] to state the provisions of the [RCC] for close corporations; 2. 3. All commercial papers shall be issued ONLY to Directors,Officers, Stockholders,and Related Restrictions on the right to transfer shares shall be provided in the [AOI], By-Laws and Stock Interests (DOSRI not exceeding nineteen (19 persons and to institutional lenders as provided under SRC Rule 9.2,as amended; and Certificates.

Conclusion

qualifications under SEC MC No. 5 and is not a close corporation that satisfies the conditions under SEC MC only. No.14,then it cannot have less than 5 board members as it is required under the RCCG to have at least 5 such members,at least 2 of which must be independent directors.Otherwise,if a financing company is a close corporation that satisfies the conditions under SEC MC No.14 or is not a close corporation but does not possess any of the qualifications under SEC MC No.5,then it may have at least 2 regular directors Considering the foregoing, to answer your queries, if a financing company possesses any of the

circumstances and documents disclosed/submitted, and should be considered relevant solely to the particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances.14 If upon and void. investigation,it will be disclosed that the facts relied upon are different, this opinion shall be rendered null It shall be understood that the foregoing opinion is rendered solely on the basis of the facts

Please be guided accordingly.

ROMUALD G.PADILLA ofmmwhLa General Counsel

12SEC Memorandum Circular No.5,Coverage of Financing Companiesby the Revised Code of Corporate Governance, August2010 13 SEC Memorandum Circular No. 14, Amendment to the Revised Code of Corporate Governance (RCCG)Exemption from I Supra, note 9. Independent Director Requirement for Close Financing Companies,27 June 2014 14Section 7.SEC Memorandum Circular 2003-15.16December 2003.