—Paolo E. Abarquez, Partner
—Mitchel Q. Tuazon, Associate

On 18 August 2020, the Securities and Exchange Commission (“SEC”) issued SEC Memorandum Circular (“SEC MC”) No. 22 s. 2020, which provides for guidelines on corporate term, implementing Section 11 of the Revised Corporation Code (“RCC”) and particularly clarifying notice and voting/approval requirements.

Perpetual Corporate Existence

Under the Old Corporation Code (“OCC”), a corporation is limited to a maximum corporate term of fifty (50) years and is required to amend its Articles of Incorporation (“AOI”) in order to extend its corporate existence for another fifty-year period.[1]

Now, under the RCC,[2] as reiterated by the recently issued SEC MC, corporations incorporated under the RCC are given the freedom to exist perpetually, unless their AOI provide for a specific corporate term.[3] The SEC MC further explains that the existence of a corporation incorporated under the OCC, which continues to exist under the RCC, is deemed perpetual without need of any action on its part. However, it may nonetheless amend Article Four of its AOI to reflect such perpetual existence, subject to filing fees and by a vote of majority of its Board and its stockholders representing a majority of its outstanding capital stock including non-voting shares or a majority of its members in case of non-stock corporations.[4]

Notice to Retain Specific Corporate Term

Under the RCC,[5] corporations incorporated under the OCC, which continue to exist under the RCC, may elect to retain their present specific corporate term by notifying the SEC. More specifically, they shall file a Notice (“Notice”),[6] subject to the following requirements:

1. There must be an attached Director’s Certificate, certifying that the decision to retain the corporate term was approved in a meeting duly called for that purpose by a vote of majority of its Board and its stockholders representing a majority of its outstanding capital stock including non-voting shares or a majority of its members in case of non-stock corporations;
2. The Notice must be signed by at least a majority of the Board and attested to by the Corporate Secretary;
3. The Notice must be submitted to the SEC Company Registration and Monitoring Department (“CRMD”) or any SEC Satellite/Extension Office within a two-year period (from February 23, 2019 until February 2021);[7]
4. Failure to comply with the Notice requirement after the lapse of the two-year period shall cause the term of the corporation to be perpetual.[8]

It should be noted that the SEC MC clarifies the voting requirements for those which elect to retain their specific corporate term. The RCC only mentions a vote of the stockholders and is silent as to the requirement of Board approval. The SEC MC now specifies that the decision to retain the corporate term must also be by a vote of majority of the Board of Directors/Trustees.

Amendment to Extend or Shorten Corporate Term

For corporations with a specific corporate term (i.e., corporations incorporated under the RCC, whose AOI provide for a specific corporate term and corporations incorporated under the OCC who elect to retain their specific corporate term), they may still file an amendment of their AOI to extend or shorten their corporate term, which, according to the SEC MC,[9] must be approved by a majority vote of the Board and by a vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.[10]

As already stated in the RCC,[11] no extension of the corporate term shall be made earlier than three (3) years prior to the original or subsequent expiry date of the corporate term unless there are justifiable reasons for extension determined by the SEC.[12] Also, such extension shall take effect only on the day following the expiry date. As will be discussed shortly, these corporations can also amend their AOI to shift from specific corporate term to perpetual corporate term.

Amendment to Change From Specific Corporate Term to Perpetual Corporate Term, and Vice Versa

Corporations with a specific corporate term  are allowed to amend their AOI in order to shift to perpetual corporate existence by a majority vote of the Board and by a vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.[13]

In the same way, corporations with a perpetual corporate term (i.e., corporations incorporated under the RCC whose AOI provide for a perpetual corporate term ; corporations incorporated under the OCC whose term is deemed perpetual for failure to file the required Notice; and corporations which amended their AOI to reflect a perpetual corporate term) are allowed to amend their AOI in order to shift to specific corporate existence by the same majority vote of the Board and by a vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. [14]

Without Prejudice to Appraisal Right

All of these changes or amendments to a corporate term, of course, shall not affect or are without prejudice to the appraisal rights of dissenting stockholders in accordance with the provisions of the RCC.[15]

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[1] The Corporation Code of the Philippines [“Old Corporation Code”], B.P. No. 68,  1 May 1980, Section 11.

[2] Revised Corporation Code of the Philippines [“RCC”], Republic Act No. 11232, 20 February 2019, Section 11.

[3] SEC MC No. 22 s. 2020, Section 1.

[4] SEC MC No. 22 s. 2020, Section 2.

[5] Id.

[6] SEC MC No. 22 s. 2020 features a sample Notice format to guide corporations in their compliance.

[7] See Section 185 of the RCC which states: “A corporation lawfully existing and doing business in the Philippines affected by the new requirements of this Code shall be given a period of not more than two (2) years from the effectivity of this Act within which to comply.”

[8] SEC MC No. 22 s. 2020, Section 2.

[9] SEC MC No. 22 s. 2020, Section 3.

[10] See Section 36 of the RCC which states: “A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees, and ratified at a meeting by the stockholders or members representing at least two-thirds (2/3) of the outstanding capital stock or of its members.”

[11] RCC, Section 11.

[12] See old Section 11 of the OCC which states “no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s). (Emphasis supplied)

[13] SEC MC No. 22 s. 2020, Section 4.

[14] SEC MC No. 22 s. 2020, Section 5.

[15] Section 80. When the Right of Appraisal May Be Exercised. – Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of the shares in the following instances:

(a) In case an amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;

(b) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in this Code;

(c) In case of merger or consolidation; and

(d) In case of investment of corporate funds for any purpose other than the primary purpose of the corporation. (Emphasis supplied)