Shortening of Corporate Term to Dissolve a Corporation

Voluntary dissolution by the shortening of corporate term is effected by the amendment of the articles of incorporation.  Therefore, the procedure outlined under the law for the amendment of the articles of incorporation should also be complied with, and the application with the SEC. 

Under the old Corporation Code, SEC’s internal rules required the following [SEC Opinion, 5 July 1979, the XIII SEC Quarterly Bulletin 3 (No. 04, October 1979)]:

1.    Notice of the dissolution of the corporation by shortening of the corporate term shall be published in a newspaper of general circulation for three consecutive weeks;

2.    Filing with the SEC of the list of corporate creditors, with their consent to the shortening of the corporate term;

3.    Submission of the following with the SEC:

a.    Undertaking under oath by the majority shareholders or principal officers that they shall personally answer for any outstanding obligations of the corporation;

b.    Latest audited financial statements of the corporation which must not be earlier than the date of the shareholders’ or membership meeting approving the amendment to the articles of incorporation; and

c.    BIR clearance on the tax liabilities of the corporation.

Please note that under our Tax Code, Section 106 (B) (4), retirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation of business is a Transaction Deemed Sale, therefore, subject to VAT. The tax base is the lower between cost or the current market value of the inventory. So always take into consideration this particular aspect when your business retired.

Going back, the SEC had opined that if the proposed shortened term expires before its approval by the SEC, the corporation will not be automatically dissolved upon such expiration but only upon SEC approval of the amendment. On the other hand, if the SEC gives its approval before such shortened term expires, the dissolution can take effect only upon the expiration of such shortened term. [SEC Opinion No. 06-20, 13 March 2006]  Does this SEC Opinion affected when the Revised Corporation Code take effect? What does the law say?

Dissolution by Expiration of Corporate Term

Section 136 of the RCC now expressly provides that in the case of expiration of corporate term, dissolution shall automatically take effect on the day following the last day of the corporate term stated in the articles of incorporation, without the need for the issuance by the SEC of a certificate of dissolution. Because of this particular provision in the RCC - Section 136, the SEC Opinion dated March 2006 was in fact becomes nugatory.

Under the Old Corporation Code, the Supreme Court had ruled that when the corporate life stated in its articles of incorporation is allowed to expire, without extension, the corporation is deemed dissolved by such expiration without need of further action on the part of the corporation or the State. [PNB vs CFI of Rizal, Pasig, Br. XXI, 209 SCRA 294 (1992), paragraph cited in Majority Stockholders of Ruby Industrial Corp v. Lim, 650 SCRA 461, 514 (2011)]

Under the Revised Corporation Code where the default rule is perpetual corporate term, situations of expiration of corporate term would become rare occurrences; and that in fact would not present a real corporate crisis, since the rules on revival of an expired corporation under Section 11 would afford a more convenient scheme to revive a corporation the specific term of which had inadvertently been allowed to expire.

As stated in the Guidelines issued by the SEC on Dissolution by Shortening Corporate Term Under Section 136 of the RCC (Paragraph B). – A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of the RCC.

Section 1. Documentary Requirements. – The following must be submitted to the CRMD or SEC Extension Office:

For amendment to shorten corporate term where the proposed expiration of the corporate term is one year or more than one year from approval of the application for amendment under Corporate and Partnership Registration Division (CPRD) of CRMD or SEC Extension Office –

1.    Cover Sheet;

2.    Notarized Directors’ Certificate signed by majority of the directors or trustees and the corporate secretary, attesting that:

a.    The dissolution by shortening of corporate term was approved by majority of the board of directors/trustees and ratified by at least 2/3 vote of the stockholders representing the outstanding capital stock including the holders of non-voting shares / members of the corporation;

b.    Date and place of the stockholders’ or members’ meeting; and

c.    The tax identification number of the signatories which shall be place below their names;

3.    Amended Articles of  Incorporation;

4.    Compliance Monitoring Division (CMD) Monitoring Clearance;

5.    Notarized Secretary’s Certificate of no pending case involving intra-corporate dispute;

6.    Clearance / Favorable recommendation from other Departments of the Commission or from the appropriate regulatory agency, when necessary (under Section 4 hereof).

For amendment to shorten corporate term where the proposed expiration of the corporate term is less than one year, from approval of the application for amendment under Financial Analysis and Audit Division (FAAD) of CRMD or SEC Extension Office. -

1.    Cover Sheet;

2.    Notarized Directors’ Certificate signed by majority of the directors or trustees and the corporate secretary, attesting that:

• The dissolution by shortening of corporate term was approved by majority of the board of directors/trustees and ratified by at least 2/3 vote of the stockholders representing the outstanding capital stock including the holders of non-voting shares / members of the corporation;

• Date and place of the stockholders’ or members’ meeting; and

• The tax identification number of the signatories which shall be place below their names;
  

3.    Amended Articles of  Incorporation;

4.    AFS as of last fiscal year, except:

a.    Where the applicant has ceased operations of at least one year, submit:

1)    AFS as of the last year of operation; and

2)    Affidavit of non-operation certified under oath by the President.

b.    Where the applicant has no operation since incorporation, submit:

1)    Balance Sheet certified under oath by the President and Treasurer;

2)    Affidavit of Non-Operation certified under oath by the Pres. and Treas.;

3)    Certificate of Non-Registration issued by the BIR.

Where the applicant corporation is (stock or non-stock) is with total assets or liabilities of less than Six Hundred Thousand Pesos (P600,000), it shall submit its Balance Sheet as of last preceding fiscal year certified under oath by the President and Treasurer.

5.    Affidavit executed under oath by the President and Treasurer that:

a.    The dissolution is not prejudicial to the interest of the creditors; and

b.    There is no opposition from any creditors from the time of publication of the notice of dissolution up to the filing of the dissolution with the Commission;

6.    BIR Tax Clearance Certificate;

7.    Publisher’s Affidavit of Publication of the Notice of Meeting (once);

8.    Notarized Secretary’s Certificate of no pending case involving intra-corporate dispute;

9.    Clearance / Favorable recommendation from other Departments of the Commission or from the appropriate regulatory agency, when necessary.

Section 2. The proposed expiration of corporate term for all applications for amendment filed under Section 136 of the RCC must contemplate a future date. No application for amendment under Section 136 of the RCC shall be accepted if the proposed expiration of corporate term had already lapsed at the time of filing of the application.

Section 3. Effectivity of Dissolution. – Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of the Corporation Code on liquidation.  Dissolution shall automatically take effect on the day following the last day of the corporate term stated in the amended articles of incorporation, without the need for the issuance by the Commission of a certificate of dissolution.

Dissolving a corporation is indeed tedious and it will be advisable to seek the help of those experts on the matter such as a lawyer. Always consult your lawyer to make sure that everything is legally in order.

The above post does not create a lawyer-client relationship between you and me. While I am a lawyer, I am not your lawyer. It is still best for you to engage the services of your lawyer to address your specific legal concerns, if there is any.

Finally, the write ups stated above was written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future legal developments on the subject matter under discussion.

Thank you for dropping by. I hope we can spend time together here in my website during your coffee break.