Guidelines on Corporate Term under the Revised Corporation Code and SEC Memorandum Circular No. 22

Under Republic Act No. 11232* or the Revised Corporation Code of the Philippines (“RCC”), corporations shall now have perpetual existence unless its Articles of Incorporation (AOI) provide otherwise. The Securities and Exchange Commission (SEC) issued Memorandum Circular No. 22, s. 2020 (“MC No. 22”) providing guidelines on the corporate term in perpetuity by corporations established before and after the effectivity of the RCC:

Q. What is the corporate term of corporations incorporated prior to the effectivity of the RCC and are still existing?

Corporations with certificates of incorporation issued prior to the effectivity of the RCC and continue to exist shall have perpetual existence without need of any action on the part of the corporation unless the corporation elects to retain its specific corporate term. An amendment of their AOI to reflect perpetual existence is not mandatory.

The corporation may amend their AOI for this purpose by vote of majority of the Board of Directors or Trustees and majority of its outstanding capital stock (“OCS”) including the non-voting shares, or a majority vote of the members, in case of non-stock corporations (“NSCs”); provided that for all other provisions to be amended in the same amended AOI, the required approval should be majority of the Board and a vote representing 2/3 of its OCS or members in case of NSCs.

Corporations that elect to retain their specific corporate term are required to notify the SEC of its decision within a period of two (2) years from 23 February 2019 or until 23 February 2021 by filing the required Notice with attached Directors’ Certificate certifying that the decision to retain their specific corporate term was approved by a majority of the Board and the stockholders representing a majority of the OCS or the members in case of NSCs. The Notice must be signed by at least majority of the Board and attested to by the Secretary.

Corporations that fail to comply with the required notification shall be treated as having perpetual existence.

Q. Is there a sample form for the Notice and Director’s Certificate required for this purpose?

Yes. The sample forms of the required Notice and Director’s Certificate annexed to MC No. 22 may be downloaded here.

Q. How are the required forms submitted to the SEC for corporations incorporated prior to the effectivity of the RCC and are still existing and who intend to retain their specific term?

Pursuant to SEC Notice dated 13 January 2021, corporations may electronically file the Notice with the Director's Certificate on or before 23 February 2021 through the email MC22_S2020@sec.gov.ph. The hard copies must be filed through the Company Registration and Monitoring Department Receiving Unit for the issuance of a Certificate of Filing Notice to Retain Specific Corporate Term subject to payment of certification fees.

As currently worded, this latest SEC notice requires submission of the printed/hard copy of the required Notices while the electronic filing is optional.

Q. Can (a) corporations incorporated under the RCC that specified their corporate term not in perpetuity, and (b) corporations incorporated prior to the effectivity of the RCC that elected to retain their specific corporate term, subsequently extend or shorten their corporate term?

Yes. They may file an amendment of AOI to extend or shorten the specific corporate term pursuant to Section 11, paragraph 3 of the RCC upon vote or written assent of majority of the Board and a vote or written assent of the stockholders representing at least 2/3 of the OCS of the corporation.

Q. When may corporations file applications for amendment of AOI to extend their specific corporate term?

Section 3 of MC No. 22 states that corporations may extend their corporate term not earlier than three (3) years prior to the original or subsequent expiration date of the corporate term, unless there are justifiable reasons for extension as may be determined by the SEC.

The extension shall take effect on the day following the original or subsequent expiry date.

Q. Can corporations with specific corporate term subsequently change its specific corporate term to perpetual existence?

Yes, by amending the AOI. The amendment must be approved by a vote or written assent of majority of the Board and vote or written assent of the stockholders representing at least 2/3 of the OCS of the corporation.

Q. Can a corporation with perpetual existence subsequently shorten its corporate term?

Yes. A corporation may subsequently amend the provision in its AOI to provide for a specific corporate term, upon vote or written assent of majority of the Board and a vote or written assent of the stockholders representing at least 2/3 of the OCS of the corporation.

The same rule applies to existing corporations whose corporate terms were treated as perpetual for failure to comply with the notification required under MC No. 22 and to corporations that amended their AOI to reflect their perpetual term of existence.

Q. Does this affect the appraisal right of dissenting stockholders?

No. Section 6 of MC No. 22 expressly provides that any change in corporate term shall be without prejudice to the appraisal right of dissenting stockholders in accordance with the RCC.

Q. When is this effective?

MC No. 22 shall take effect immediately after its publication in a newspaper of general circulation. MC No. 22 was published on 23 August 2020 in Philippine Daily Inquirer and Philippine Star.

Click here to read the full text of SEC MC No. 22, s. 2020 and herefor the full text of SEC Notice dated 13 January 2021.

--

Related article: SEC Issues Guidelines on the Revival of Expired Corporations