How to Change Company Shareholders in the Philippines

August 31, 2023

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In the dynamic business landscape of the Philippines, modifying company shareholders is a common yet complex process that requires meticulous adherence to legal and regulatory frameworks, such as the Revised Corporation Code of 2019 and Securities and Exchange Commission (SEC) guidelines. Whether adding new investors to fuel growth or transferring shares to resolve ownership disputes, businesses must navigate a series of procedural steps, tax obligations, and compliance requirements to ensure a seamless transition. This comprehensive guide outlines the essential steps, documents, and considerations for changing company shareholders in the Philippines, tailored for corporations and one-person corporations (OPCs), while addressing potential challenges and regulatory nuances to help business owners and investors achieve compliance and operational success.

Why Change Company Shareholders? Key Reasons and Scenarios

Modifying company shareholders can significantly impact a business’s growth, governance, and compliance with Philippine regulations. Understanding these changes’ motivations helps companies align their strategies with legal requirements and market demands.

Raising Capital for Expansion: Businesses often add shareholders to secure additional funding, enabling growth initiatives like market expansion or product development. For instance, a tech startup may issue new shares to attract venture capital investors.
Resolving Ownership Disputes: Transferring shares can settle internal conflicts among shareholders, such as when a founding member exits the company, requiring a formal share transfer to maintain governance stability.
Facilitating Mergers or Acquisitions: Shareholder changes are integral to mergers or acquisitions, where new entities or individuals acquire shares to gain control or integrate operations.
Complying with Foreign Ownership Rules: In sectors with foreign ownership limits (e.g., 40% for public utilities under the Foreign Investments Act), adjusting shareholder composition ensures compliance while attracting global investors.
Adapting to Strategic Shifts: Companies may alter shareholder structures to align with new strategic goals, such as bringing in partners with specialized expertise or industry connections.
Supporting Succession Planning: In family-owned businesses, transferring shares to heirs or successors ensures continuity while adhering to legal requirements.

Legal Framework Governing Company Shareholders in the Philippines

Navigating the legal landscape is essential for ensuring compliance when changing company shareholders. The Philippines has a robust regulatory framework that governs shareholder transactions, requiring adherence to multiple laws and agencies.

Revised Corporation Code of 2019 (Republic Act No. 11232): This law governs the formation, operation, and amendment of corporate structures, including shareholder changes, requiring board approval and SEC business registration for stock corporations and OPCs.
Securities and Exchange Commission (SEC) Regulations: The SEC mandates updating the General Information Sheet (GIS) within 30 days of shareholder changes and maintaining an updated Stock and Transfer Book (STB) to reflect ownership.
The Foreign Investments Act (Republic Act No. 7042, as amended) outlines foreign ownership limits. Companies in restricted sectors (e.g., public utilities and media) must verify compliance before adding foreign shareholders.
Bureau of Internal Revenue (BIR) Requirements: Share transfers trigger tax obligations, including Documentary Stamp Tax (DST) at 0.75% of par value and Capital Gains Tax (CGT) at 5-10% for individuals or 15% for corporations under the CREATE Act.
Board of Investments (BOI) Oversight: Companies registered with the BOI for incentives must secure clearance for shareholder changes to maintain eligibility for tax benefits or exemptions.
Anti-Money Laundering Act (AMLA): Shareholder transactions must comply with AMLA to prevent illicit activities, requiring due diligence on new shareholders’ identities and funding sources.

Step-by-Step Process for Adding Company Shareholders

Adding new shareholders involves a structured process to ensure legal compliance and proper documentation. Following these steps meticulously helps businesses integrate new investors seamlessly while meeting SEC and BIR requirements.

Secure Board Approval: Convene a board meeting to pass a resolution authorizing the issuance of new shares, specifying the number, type (e.g., standard or preferred), and price, documented in board minutes.
Execute a Share Subscription Agreement: Draft and sign a notarized agreement between the company and the new shareholder, outlining the terms of share acquisition, including payment schedules and share class.
Receive Payment for Shares: Ensure the new shareholder pays the agreed amount, typically via bank transfer or check, with funds deposited into the company’s designated account, verified by a Treasurer’s Affidavit.
Issue Share Certificates or Electronic Records: Provide the new shareholder with a physical share certificate or update the electronic share registry, noting the shareholder’s name, number of shares, and issuance date.
Update Corporate Records: Record the new shareholder in the Stock and Transfer Book (STB) and submit an updated General Information Sheet (GIS) to the SEC via the eSPARC portal within 30 days.
File with Regulatory Bodies: Submit required documents (e.g., board resolution, subscription agreement, Treasurer’s Affidavit) to the SEC, paying filing fees (PHP 1,000–5,000), and settle DST with the BIR within 5 days of the transaction month.

Step-by-Step Process for Removing or Transferring Company Shareholders

Removing or transferring shareholders requires careful execution to comply with corporate governance and tax regulations. This process ensures a smooth ownership transition while avoiding legal or financial penalties.

Obtain Board Approval: Pass a board resolution approving the transfer or buyback of shares, ensuring compliance with the company’s articles of incorporation and shareholder agreements.
Execute a Share Transfer Agreement: Draft a notarized Deed of Assignment between the transferring shareholder (transferor) and the buyer or company (transferee), detailing the number of shares and transfer price.
Settle Tax Obligations: Pay the Documentary Stamp Tax (DST) at 0.75% of the par value to the BIR within 5 days of the transaction month and secure a Certificate Authorizing Registration (CAR) for CGT (5-10% for individuals, 15% for corporations).
Update the Stock and Transfer Book (STB): Record the transfer in the STB, cancel the transferor’s share certificate, and issue a new one to the transferee, or retire the shares if the company repurchases them.
Submit Documents to the SEC: File the Deed of Assignment, updated STB, and revised GIS via the eSPARC portal within 30 days, accompanied by filing fees and proof of tax payments.
Notify Relevant Authorities: For BOI-registered companies, inform the BOI of the transfer to maintain incentive eligibility, and ensure compliance with AMLA for due diligence on the transferee.

Common Challenges and How to Address Them

Changing company shareholders can encounter obstacles that delay or complicate compliance. Proactively addressing these challenges with professional support ensures a smoother transition and adherence to regulations.

Shareholder Disputes: Conflicts over share valuation or transfer terms can delay the process. Engage a neutral mediator or legal counsel to facilitate negotiations and draft clear agreements.
Regulatory Non-Compliance: Missing SEC or BIR deadlines (e.g., 30-day GIS submission or 5-day DST payment) can incur penalties. Maintain a compliance calendar and consult professionals to ensure timely filings.
Tax Complications: Miscalculating DST or CGT or failing to secure a CAR can lead to BIR audits. Work with a tax advisor to compute liabilities accurately and prepare necessary documentation.
Foreign Ownership Restrictions: Adding foreign shareholders in restricted sectors (e.g., media, education) requires verifying ownership caps (e.g., 40%). Review the Foreign Investment Negative List and secure BOI clearance if applicable.
Incomplete Documentation: Missing documents, such as the Treasurer’s Affidavit or notarized agreements, can delay SEC approval. Prepare a checklist (e.g., board resolution, STB, GIS) to ensure completeness.
Complexity of OPC Transfers: Transferring shares in a One-Person Corporation (OPC) may convert it to a regular corporation unless all shares go to a single transferee. Given the intricate nature of this process, seeking expert guidance from Triple i Consulting is highly recommended, as their expertise in corporate compliance ensures accuracy, efficiency, and adherence to SEC requirements.

Key Takeaways

Changing company shareholders in the Philippines demands precision to comply with the Revised Corporation Code, SEC, and BIR regulations while managing complex documentation and tax obligations. By following the outlined steps, addressing challenges, and adhering to legal frameworks, businesses can effectively manage shareholder transitions to support growth, resolve disputes, or align with strategic objectives.

Is Assistance Available?

Yes, Triple i Consulting offers expert guidance to simplify this complex process and ensure compliance. Contact us today to schedule an initial consultation with one of our experts: