Corporate conversion made easy
When survival is the way for most industries, MC 27 is perfect for individuals or corporations to not only adapt but also grow and expand or secure its portfolio.
Published in Daily Tribune on October 30, 2020
by: Juan Romulo R. Taleon
On 25 August 2020, the Securities and Exchange Commission (SEC) issued Memorandum Circular 27 (MC 27), denominated as “GUIDELINES FOR THE CONVERSION OF CORPORATION EITHER TO ONE PERSON CORPORATION OR TO ORDINARY STOCK CORPORATION.” This operationalizes Sections 131 and 132 of R.A. 11232 (Revised Corporation Code), which permit the conversion of an ordinary corporation to a one-person corporation and vice-versa. In this time of pandemic, the move is indeed a welcome development, allowing individuals to either consolidate to maintain assets or go public to acquire funds to maintain liquidity.
MC 27 has three parts. Part 1 (Sections 1 to 6) discusses the requirements for converting an ordinary stock corporation into a one-person corporation. Part 2 (Sections 7 to 14) discusses the requirements for the conversion of a one-person corporation into an ordinary stock corporation. Part 3 (Sections 15-20) are the common provisions.
Part 1 of MC 27 enumerates the documents required, beginning with an Application for Conversion of an Ordinary Stock Corporation to a One-Person Corporation, the form for which is attached to the circular. It must be accomplished in accordance with MC 7, Series of 2019 (Guidelines on the Establishment of a One-Person Corporation). A copy of the latest Articles of Incorporation of the ordinary stock corporation shall be attached to the Articles of Incorporation of the one-person corporation. The applicant should declare that, upon issuance by the SEC of the Certificate of Filing of Amended Articles of Incorporation, the said Articles of Incorporation of the ordinary stock corporation be deemed superseded.
Because the ordinary stock corporation is merely converted into a one-person corporation, Section 3 of the circular emphasizes that it shall retain the corporation’s original SEC Registration Number and corporate name, with the suffix “OPC” appended to reflect its conversion to a one-person corporation. Section 4 is clear that the succeeding one person- corporation shall succeed to, and be legally responsible for, all the outstanding liabilities of the ordinary stock corporation as of the date of approval of its conversion.
Part 2 of MC 27, which covers the conversion of a one-person corporation into an ordinary stock corporation, does not require an application for conversion. The law seems to recognize that actual conversion can be accomplished by distributing the shares of the one person corporation to more than one person; hence, Section 7 of MC 27 instead requires the filing of a Notice of Conversion of a One Person Corporation into an Ordinary Stock Corporation (the form for which is also attached to the circular). Section 8 of MC 27 in fact requires that once shares of a one-person corporation are transferred to at least two stockholders, a NOTICE OF CONVERSION SHALL be filed with the SEC within 60 days from such transfer/s, as expressly stated under Section 132 of the Revised Corporation Code. Failure to submit such notice within the period prescribed may expose such corporation to liability for penalty under Section 132, in relation to Section 158 of the same law.
The Articles of Incorporation and proposed By-Laws of the ordinary stock corporation shall also be filed in accordance with the requirements provided under Section 14 of the Revised Corporation Code.
Similar to the requirements of Part 1, the converted corporation shall retain the corporation’s original SEC Registration Number and corporate name. The suffix “OPC” shall be removed from its corporate name.
Part 3 of MC 27 contains the provisions common to both types of conversion. Under Section 16, the conversion from an ordinary stock corporation to a one-person corporation is deemed optional while conversion in the reverse is deemed mandatory. This is necessary because of the public nature of an ordinary stock corporation. Additionally, Section 18 provides that in case of opposition to or disputes arising from such conversions, the aggrieved party may file a sworn Petition for Cancelation of the certificate issued. The Petition must be filed before the SEC’s Company Registration and Monitoring Department on the ground of fraud in the procurement of such stocks.
When survival is the way for most industries, MC 27 is perfect for individuals or corporations to not only adapt but also grow and expand or secure its portfolio. Kudos to SEC for finally releasing these guidelines.
