Business Mirror

Atty. Mabel L. Buted discusses the amendment introduced by the Revised Corporation Code with respect to the corporate term of a corporation.

Corporate Term under the Revised Corporation Code

By Atty. Mabel L. Buted

ONE of the significant changes introduced by the Revised Corporation Code of the Philippines in the corporation law is a modification on the provision on corporate term. Under this RCC, a corporation shall have perpetual existence unless its articles of incorporation provides otherwise. This means that a corporation shall have unlimited life unless its articles of incorporation provides for a specific period of existence, in which case, its life can only be extended through an amendment of the articles of incorporation.

This is a sharp modification from the rule in the old Corporation Code (Batas Pambansa Bilang 68), which provided a corporate term of not exceeding 50 years from the date of incorporation unless said period is extended. Because of the term limit prior to the RCC, a corporation whose life is about to expire has to extend the same through an amendment of the articles of incorporation. Accordingly, when the corporate life as stated in the articles of incorporation expired, without a valid extension having been effected, the corporation was deemed dissolved by such expiration without need of further action on the part of the corporation or the State. (GR 165887 and 165929, June 6, 2011)

With the difference in the rules under the old Corporation Code and the RCC, a question now arises relative to the corporate term of corporations existing prior to the effectivity of the RCC. Which law should govern? Will the corporate life indicated in the articles apply, which would require an amendment to extend corporate life? Or should the perpetual existence be followed?

To date, no formal guideline has been issued to clarify the application of “perpetual existence” to already existing corporations. In an opinion, however, that was recently issued by the Securities and Exchange Commission in SEC-OGC Opinion No. 19-16, April 15, 2019, the SEC answered in the affirmative a query as to whether the corporate term of a company whose term was about to expire was deemed amended to that of perpetual existence. Quoting the new provision of the RCC, the SEC noted that the corporate term of a corporation existing prior to, and which continues to exist upon the effectivity of the RCC, shall be automatically deemed perpetual without any further act on the part of the corporation. In essence, the corporate term of the corporation is deemed amended to that of perpetual existence. This puts to rest the issue as to whether or not a corporation existing prior to the effectivity of the RCC and whose term is about to expire should be required to amend its articles to extend the life.

Even with the SEC opinion, I think it would still be better if the SEC will include in the formal guidelines specific statement about the “deemed” perpetual existence of these existing corporations, without any further action on their part. In the meantime, those entities whose corporate terms are about to expire may opt to secure a similar opinion from the SEC.

Note that in the said opinion, there is a notation that the same was rendered based solely on the facts and circumstances disclosed and relevant solely to the particular issue raised. It shall not be used in the nature of a standing rule binding upon the SEC in other cases or upon the courts whether of similar or dissimilar circumstances. Prudence, therefore, dictates that corporations whose corporate lives are about to expire should secure opinion from the SEC confirming the automatic application of the perpetual existence.

Because of the automatic application of the perpetual existence, it also follows that if the corporation does not intend to extend its corporate life, majority of its shareholders should notify the SEC of the fact that it is retaining the corporate life stated in the articles. This will result in the dissolution of the corporation upon the expiration of such life.