Mazars shares a blog explaining the overarching effects of the Revised Corporation Code, along with the Corporate Term, one of the code's most significant revisions
When the Revised Corporation Code took effect in February 2019, one of its major revisions was that of the corporate term.
Under the old Code, corporations carried a maximum term of 50 years from the approval of the Securities and Exchange Commission (SEC). This happens when the SEC issues the Certificate of Incorporation. If the corporation wanted to extend its term, it would have to file an application for amendment of the Articles of Incorporation within 5 years prior to the original expiry date, unless the SEC grants a request for an earlier extension. This so-called renewal of corporate term was limitless. The corporation could extend its term for as long as it was existing and operational and for periods not exceeding 50 years at any one time.
However, under the new Code, corporations now have perpetual term of existence. This update was in response to the Government’s Ease of Doing Business initiative where corporations did not have to keep extending their corporate existence prior to its expiry.
Effect of the 2019 law to existing corporations
Corporations existing prior to the new Code shall automatically have a perpetual term, on the condition that they continue to exist at the time the new Code had taken effect. Nevertheless, the stockholders still have the option to retain their specific term provided they notify the SEC that they elect to retain the same. They can then extend the term, this time within 3 years prior to the original expiry date, again, unless the SEC allows for an earlier application for extension. An application for extension can include adoption of a perpetual term subsequently.
Revival of corporate term
The new Code also benefited corporations whose terms have already expired. All the corporation needed to do was file an application for revival of corporate term with the SEC. Upon approval, their corporate term will, by default, be considered perpetual, unless they request for a specific term. This benefit, however, was not applicable to corporations whose dissolution was declared by the SEC or by the courts. An application for revival was also not applicable to corporations whose assets have already been liquidated and distributed to its shareholders.
In Memorandum Circular No. 23, Series of 2019, the SEC provided the guidelines for the revival of term of expired corporations. Under these guidelines, the following corporations are not allowed to file a Petition for Revival:
- An expired corporation which has completed the liquidation of its assets;
- A corporation whose Certificate of Incorporation has been revoked for reasons other than non-filing of reports
- A corporation dissolved by virtue of Sections 6(c) and 6(d) of Presidential Decree No. 902-A, as amended by Presidential Decree No. 1799; or
- An expired corporation which has already availed of re-registration in accordance with SEC Memorandum Circular No. 13, Series of 2019, or the Amended Guidelines and Procedures on the Use of Corporate and Partnership Names, or other memorandum circulars issued by the Commission pertaining to re-registration, except:
- The re-registered corporation has given its consent to the Petitioner to use its corporate name, and has undertaken to undergo voluntary dissolution immediately after the issuance of the Petitioner’s Certificate of Revival; or
- The re-registered corporation has given its consent to the Petitioner to use its corporate name, and has undertaken to change its corporate name immediately after the issuance of the Petitioner’s Certificate of Revival.
To Summarize the rules on corporate term:
- New corporations have a perpetual term of existence unless they elect a specific term.
- Existing corporations automatically carry the perpetual term unless they choose to retain their specific term.
- Corporations with an expired term can file an application for revival, except those expressly disallowed by SEC regulation.
Computation of corporate term
It is worth noting that SEC Memorandum Circular No. 21, Series of 2014 provides for the Guidelines Governing the Computation of Corporate Term. The Guidelines provide:
- “The first day of the corporate term is the date of incorporation, as stated in the Certificate of Incorporation, since it is the day when the existence of a corporation commences xxxx;
- The last day of the corporate term is the day before corresponding numbered day of the same month of incorporation in the last year of the existence of the corporation; and
- The above guidelines for the computation of corporate term, including the determination of the first and last days thereof, shall apply prospectively. xxx”
In relation to the new Code, these Guidelines are still relevant to corporations that carry a specific corporate term.