One-person corporation

Atty. Jun De Zuñiga A major change introduced by the Revised Corporation Code (Republic Act No. 11232) is that authorizing the formation of a one-person corporation (OPC), defined as a corporation with a single stockholder, who can either be a natural person, a trust or an estate. Congress realized that many corporations are in effect owned by single proprietors who, in order to avail of the advantages of conducting business through a corporate vehicle, then assign equity to other individuals to comply with the then minimum five (5) incorporators requirement. There cannot be OPCs however for banks, quasi-banks, preneed, trust insurance, public and publicly listed companies, and for government-owned or controlled corporations. As we know, in corporations the stockholders have limited liability in the sense that they cannot be held accountable beyond the capital they have subscribed in. This means that their personal assets are insulated from the business risks of the corporation. This is because the personality of the stockholders is separate and distinct from that of the corporation. On the other hand, in a single proprietorship, such personal assets can be proceeded against to satisfy claims against the enterprise. The personality of the proprietor and that of his enterprise are considered as one. Through the OPC, however, the proprietor can protect the exposure of his personal assets to financial risks of the enterprise. In corporate law, there is the doctrine of piercing the veil of corporate fiction which says that, in certain circumstances, the legal personality of the corporation can be set aside to enable creditors to run after the individual stockholders. When the veil of corporate personality is pierced, the concerned shareholders may be held personally liable to creditors or persons prejudiced by the corporation (Herbosa & Recalde, The Revised Corporation Code, p. 30). This doctrine does not immediately apply however to OPCs by the mere fact that an OPC is wholly owned by its single stockholder. The separate corporate personality of the OPC remains respected in the absence of any showing that the OPC is resorted to for fraud purposes or for defeating unfairly the claims of third parties. The corporate veil may also be pierced in “alter ego” cases where the corporation is organized as a farce. As held by the Supreme Court, such “alter ego” situation may arise “where the discreteness of its personality is used to defeat public convenience, justify wrong, protect fraud or defend crime” (Cagayan Valley vs. Court of Appeals, G.R. No. 78413; Nov. 8, 1989). In addition, for OPCs, there is a specific provision that a sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation was adequately financed. And when the single stockholder cannot prove that the property of the OPC is independent of the stockholder’s personal property, the stockholder shall be jointly and severally liable for the debts and other liabilities of the OPC (Sec. 130, Revised Corporation Code). To sum it up, the separate personality of the OPC should be upheld and cannot be set aside and pierced by the mere fact that it is absolutely owned by its single stockholder except when it is shown that: (a) it was organized for fraud, (b) the OPC is in effect on “alter ego” case; or (c) it is not adequately financed vis-à-vis its corporate activities. As mentioned in the law, the principles of piercing the corporate veil applies with equal force to OPCs as with other corporations.

* The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph