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THE Securities and Exchange Commission (SEC) has released a draft memorandum circular (MC) containing guidelines for the compliance of one-person corporations (OPCs), which will be open for public comment until July 11.

The exposure draft MC, dated July 1, outlines the guidelines for the initial and subsequent appointment of officers, submission of audited financial statements (AFS), and the posting of a surety bond.

It also details the fines and penalties for noncompliance in filing the Form for Appointment of Officers (FAO) for OPCs, late filing and non-filing of AFS, and failure to comply with the surety bond posting requirements.

“Pursuant to Sections 115 and 129 of the Revised Corporation Code (RCC), and considering that the OPC is a new feature of the RCC, there is a need to establish monitoring guidelines for OPCs to ensure uniformity in the assessment of fines and penalties,” the draft MC stated.

The RCC defines an OPC as a corporation with a single stockholder, who serves as the sole director and president. OPCs are designed to make it easier for entrepreneurs to establish a limited liability company.

According to the draft MC, the OPC must appoint its treasurer, corporate secretary, and other officers, and submit the FAO to the SEC within 20 days from the approval of its certificate of incorporation. Failure to comply will result in a one-time penalty of P10,000.

For subsequent appointments of officers, the OPC must file the FAO within five days of any new appointment.

The penalty for noncompliance with FAO filing will depend on the OPC’s retained earnings. Fines for the first offense range from P5,000 to P15,000, while fines for the fifth offense range from P9,000 to P27,000.

The draft MC also mandates that the submission of the OPC’s AFS must comply with existing MCs and orders.

Under SEC MC No. 7, issued in 2019, an AFS must be prepared for OPCs with total assets and liabilities of P600,000 or more. The AFS must be filed within 120 days from the end of the fiscal year. 

The financial statements must include all explanations or comments by the president regarding any qualifications, reservations, or adverse remarks made by the auditor. The OPC is also required to attach a disclosure of all self-dealings and related party transactions.

The submission of reportorial requirements is considered late if filed after the due date but within one year of the prescribed deadline, or beyond one year, in which case the penalty will be the basic fine for non-filing.

Non-filing refers to the complete failure to submit the reportorial requirements, and the monthly penalty will be computed for up to 12 months.

Fines for late filing and non-filing of AFS will also depend on retained earnings.

For late filing, fines for the first offense range from P5,000 to P15,000, while fines for the fifth offense range from P9,000 to P27,000.

For non-filing, fines for the first offense range from P10,000 to P20,000, while fines for the fifth offense range from P18,000 to P36,000.

The draft MC requires the posting of a surety bond for OPCs where the single stockholder assumes the role of treasurer. The bond amount will be based on the corporation’s authorized capital stock and must be renewed every two years or as required upon submission of the AFS/FS.

The initial posting of the surety bond by the self-appointed treasurer at the time of incorporation must be completed within 30 days after the issuance of the certificate of incorporation.

If the single stockholder initially appointed another person as treasurer but later assumed the role themselves, the initial posting must be completed within 30 days from the submission of the FAO.

The biennial posting is a continuing requirement if the single stockholder remains the treasurer of the OPC.

The penalty for noncompliance with the deadlines for the initial posting of the surety bond is a basic fine of P10,000, with a surcharge of P500 per month of delay.

For the biennial posting, the first violation carries a basic fine of P10,000 and a surcharge of P500 per month of delay. The surcharge increases to P1,000 per month for the second violation, and to P1,500 per month for the third and subsequent violations.

“The posting of a surety bond will no longer be required when the OPC files an amendment to its FAO reflecting the appointment of a new treasurer, other than the single stockholder,” the draft MC stated.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the draft MC would encourage compliance but noted that the penalties could be costly for smaller OPCs.

“This could be a balancing act for some OPCs, especially those that can afford the fines and yet choose not to comply,” he said. — Revin Mikhael D. Ochave