WHEN CAN A STOCK CORPORATION BE DEEMED AS A CORPORATION VESTED WITH PUBLIC INTEREST?

Published — August 30, 2022

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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

After reading “When can a stock corporation be deemed as a corporation vested with public interest?”, read also “What are the powers of a stock corporation?”

Corporations vested with public interest are subject to additional regulatory conditions that do not apply to other corporations.
Section 22 of the Revised Corporation Code of the Philippines requires corporations vested with public interest to have independent directors constituting at least 20% of their respective boards.
The Congress shall declare the corporations vested with public interest.

Corporations vested with public interest are subject to additional regulatory conditions that do not apply to other corporations. The Revised Corporation Code of the Philippines identified those corporations vested with public interest.

The law says:

Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code”, namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares;
Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and
Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors. (Section 22, Revised Corporation Code of the Philippines)

Banks are declared as corporations impressed with public interest due to the trust and confidence of the public.

Jurisprudence says:

Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. (Philippine Commercial International Bank vs. Court of Appeals, G.R. No. 121413, January 29, 2001)

In order to promote good governance, as part of the enactment of the Revised Corporation Code to fill the gaps of Batas Pambansa Bilang 68 or the “Corporation Code of the Philippines,” Section 22 of the Revised Corporation Code of the Philippines requires corporations vested with public interest to have independent directors constituting at least 20% of their respective boards.

Who is an independent director?

The law says:

An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director. Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors.

Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board memberships and other requirements that the Commission will prescribe to strengthen their independence and align with international best practices.

What are the additional regulatory conditions that apply to corporations vested with public interest?