Corporate

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

As of 21 August 2020

Under Republic Act No. 1132 or the Revised Corporation Code of the Philippines (“RCC”), corporations shall now have perpetual existence unless its Articles of Incorporation (AOI) provides 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 rule on corporate term for corporations incorporated under the RCC?

Section 11 of the RCC provides that corporations shall have perpetual existence unless its AOI provides a specific term.

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 Director’s Certificate certifying that the said decision was approved by a majority of the Board and the stockholders representing a majority of the OCS or the members in case of NSCs; and 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 to have 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. 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.

--

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


Disclaimer: The information in this website is provided for general informational purposes only. No information contained in this post should be construed as legal advice from Platon Martinez or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances.