SEC issues guidelines on retaining, amending corporate terms

The Securities and Exchange Commission (SEC) has approved the guidelines for corporations opting to retain, shorten or extend their terms of existence.

The Commission issued the Guidelines on Corporate Term through SEC Memorandum Circular No. 22, Series of 2020 on August 18, in accordance with Republic Act No. 11232, or the Revised Corporation Code of the Philippines.

Section 11 of the Revised Corporation Code provides that a corporation shall have a perpetual term of existence unless its articles of incorporation provide a specific corporate term. 

The corporate term of a corporation organized under the old Corporation Code, Batas Pambansa No. 68, and which continues to exist, shall likewise be deemed perpetual without any action necessary on the part of the corporation.

Under the Guidelines, the corporation may amend its articles of incorporation to reflect its perpetual corporate term by a vote of majority of the board of directors or trustees and stockholders representing a majority of its outstanding capital stock, including the non-voting shares, or a majority of the members in the case of a nonstock corporation.

Meanwhile, a corporation organized under the old Corporation Code may retain its specific corporate term upon approval by a majority of the board of directors or trustees and a vote of stockholders representing a majority of the outstanding capital stock, including the non-voting shares, or a majority of the members in the case of a nonstock corporation, during a meeting duly held for such purpose. 

The corporation shall then file with the SEC a notice signed by at least a majority of the members of the board of directors or trustees and attested by the corporate secretary. It shall likewise submit a directors’ certificate on the approval of such action by the corporation’s board of directors or trustees and shareholders or members.

The notice must be submitted to the SEC Company Registration and Monitoring Department, any SEC Satellite Office or SEC Extension Office no later than February 23, 2021, pursuant to Section 185 of the Revised Corporation Code. A Certificate of Filing Notice to Retain Specific Corporate Term shall then be issued to the corporation.

The corporate term of corporations, which fail to comply with the required notification, shall be treated as perpetual.

A corporation, which opted for a specific corporate term, may extend or shorten its existence by amending its articles of corporation upon the vote or written assent of a majority of the board of directors or trustees and of stockholders representing at least two-thirds of the outstanding capital stock of the corporation.

The corporation may initiation the extension of its corporate term no more than three years prior to its expiration unless there are justifiable reasons. The extension shall take effect on the day following the expiration of the prior corporate term.

A corporation, which opted to retain its specific corporate term, may likewise adopt a perpetual term of existence later on by amending its articles of incorporation. Such a decision must be approved by vote or written assent of a majority of the board of directors or trustees and stockholders representing at least two-thirds of the outstanding capital stock of the corporation.

Conversely, a corporation with a perpetual existence may subsequently revert to a specific corporate term upon approval by a majority of the board of directors or trustees and stockholders representing at least two-thirds of the outstanding capital stock of the corporation.

Any change in the corporate term of a corporation pursuant to Section 11 of the Revised Corporation Code shall be without prejudice to the appraisal right of dissenting stockholders.

Prior to the enactment of the Revised Corporation Code, corporate terms were capped at 50 years. A corporation, however, could extend its existence for periods not exceeding 50 years by amending its articles of incorporation.