Corporation Law: The Revised Corporation Code of the Philippines - Sec 15

    THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE II -  INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS


SEC. 15. Amendment of Articles of Incorporation.
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. The articles of incorporation of a nonstock corporation may be amended by the vote or written assent of majority of the trustees and at least two-thirds (2/3) of the members. 

The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Amendments to the articles shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees, with a statement that the amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Commission.

The amendments shall take effect upon their approval by the Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

NOTES

1. Amendments. 
  • Section 15 of the RCCP pertains to the amendments in general.
    • For instance, amendments of the Articles of Incorporation to change the corporate name, the place of the principal office and the purpose of the corporation must comply with Section 15.
  • There are, however, other sections of the RCCP that provide special rules on the amendment of specific provisions of the Articles of Incorporation.
    • For example:
    • Section 36 specifically deal with amendment to extend or shorten the corporate term
    • Section 37 deals with amendments to increase or decrease the authorized capital stock of the corporation.
2. Requirements. 
  • Section 15 of the RCCP imposes certain requirements for the amendment of the Articles of Incorporation:
    1. The amendment must be for legitimate purposes and must not be contrary to other provisions of the Revised Corporation Code and special laws; 
    2. The amendment must be approved by a majority vote of the board of directors or trustees;
    3. There must be a vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of a non-stock corporation, the vote or written assent of at least two-thirds (2/3) of the members;
    4. The original and amended articles together shall contain all provisions required by law to be set out in the Articles of Incorporation. The amendments to the Articles of Incorporation shall be indicated by underscoring the change or changes made;
    5. A copy of the Amended Articles shall be duly certified under oath by the corporate secretary and a majority of the directors or trustees, stating the fact that the amendment or amendments have been duly approved by the required vote of the stockholders or members. The Amended Articles with the certification shall be submitted to the Securities and Exchange Commission (SEC);
    6. The amendment must be approved by the SEC.
  • A corporation cannot provide for a different procedure for the amendment of the Articles of Incorporation other than the procedure provided in Section 15 of the RCCP. 
    • While the Board of Directors of a corporation can adopt rules and regulations to govern the affairs of the corporation, the same should be in consonance with and not repugnant to or in contravention of the RCCP. 
    • For example, while the Board of Directors may create a committee tasked to draft amendments to the Articles of Incorporation, the power of the committee can only be recommendatory.
3. Express and Implied Approval. 
  • General Rule: The amendments shall take effect upon their approval by the SEC
  • However, express approval is not indispensable
  • Exception: The amendments shall take effect from the date of filing with the said Commission if not acted upon within six months from the date of filing for a cause not attributable to the corporation. 
4. Documentary Requirements.
  • The registration requirements for Amended Articles of Incorporation  for stock and non-stock corporations prescribed by the SEC are as follows: 
    1. Amended Articles of Incorporation;
    2. Directors' or Trustees' Certificate
      • a notarized document signed by a majority of the directors or trustees and the corporate secretary, certifying:
        • the amendment of the Articles of Incorporation and indicating the amended provisions,
        • the vote of the directors or trustees and stockholders or members,
        • the date and place of the stockholders' or members' meeting, and 
        • the tax identification number of the signatories which shall be placed below their names;
    3. Monitoring Clearance issued by the Compliance Monitoring Division (CMD)
    4. Secretary's Certificate
      • notarized document signed by the corporate secretary certifying that no action or pleading has been filed or is pending before any Court or tribunal involving an intra-corporate dispute or claim by any person or group against the directors, officers or stockholders of the Corporation.
  • Indorsement/clearance from other government agencies is necessary in certain cases. 
    • For example, amendment of the Articles of Incorporation of a bank requires indorsement from the Bangko Central ng Pilipinas.
5. Provisions to be Amended. 
  • The amendment may involve a change of the corporate name, increase in the authorized capital stock, and other similar changes
  • Amendments cannot be allowed if they go against the nature of the corporation. 
    • For example, there can be no amendment of the Articles of Incorporation of a non-stock corporation to convert it into a stock corporation with the members as shareholders. 
    • This procedure will in effect allow the distribution of the assets of the non-stock corporation in favor of the members. Thus, the amendment is contrary to the provisions of the RCCP.
5.01. Accomplished Fact Rule.
  • There are provisions of the Articles of Incorporation that cannot be amended because they are accomplished facts
  • For example, the names of the incorporators cannot be changed and their number cannot be increased because the names and number of the original incorporators are accomplished facts. 
  • Similarly, there can be no change in the names of the original directors for the same reason.
6. Effect of Amendment.
  • Section 184 of the RCCP provides that no right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of the corporation or by any subsequent amendment or repeal of the RCCP or of any part thereof.  
  • The implication of this provision is that amendment of the RCCP and the Corporation Code may have the effect of amending the provisions of the Articles of Incorporation of existing corporations.  
  • The only reservation is that the amendment of the governing law must not affect vested rights, remedies or liabilities
    • For example, a requirement that the Articles of Incorporation must specify the city or municipality and province of the principal office may be imposed on the corporation since no vested right is affected. 
  • Section 184 is consistent with the rule that Congress has the plenary power to pass amendatory laws subject to the Constitutional limitation that no law impairing the obligation of contracts shall be passed.
7. Written Assent of Stockholders.
  • Silence or failure to object cannot be construed as approval by stockholders. 
  • The law requires the express approval of the stockholders through an affirmative vote or an assent that is in writing.
  • General Rule: The law does not require that the approval by the stockholders be made in a meeting duly called for the purpose. Written assent solicited by the board even without a meeting is sufficient.
  • Exception: In case of an amendment of the Articles of Incorporation to extend or shorten the corporate term and in case of an amendment involving an increase or decrease of the capital stock.
    • In the two cases mentioned, the applicable provisions require approval in a meeting of the shareholders
    • This should also be distinguished from amendment of the By-Laws, which requires a regular or special meeting of shareholders for its approval. 
8. Who can Question Amendments. 
  • Amendments to the Articles of Incorporation and By-laws can be questioned only by a real party-in-interest like a shareholder or member. 
  • Thus, in one case, petitioner UCCP was not allowed to question the validity of amendments to the Articles of Incorporation and By-laws of respondent BCCI because UCCP was not a member of BCCI.

Questions
Q: "X" company is a stock corporation composed of the Reyes family engaged in the real estate business. Because of the regional crisis, the stockholders decided to convert their stock corporation into a charitable non-stock and non-profit association by amending the Articles of Incorporation. 
a. Could this be legally done? Why? 
b. Would your answer be the same if at the inception, "X" company is a non-stock corporation? Why?

A: 
a. Yes, the Articles of Incorporation of X Company can be legally amended to convert it into a non-stock corporation. What this means that the stockholders are deemed to have waived their right to their respective shares in the profits of the corporation and that is a gain not a loss to the corporation. However, this should be without prejudice to the rights of creditors who may be affected. 

b. No, my answer will not be the same. In a non-stock corporation, the members do not have the right to the assets and profits of the corporation. The present and future profits of the corporation are devoted solely to charitable purposes and cannot be distributed to the members. If the non-stock corporation is converted to a stock corporation by a mere amendment of the Articles of Incorporation, the non-stock corporation is deemed to have distributed an asset of the corporation among its members. The only way to form a stock corporation is to dissolve the non-stock corporation and to re-incorporate as a stock corporation. (2001 Bar)

Q: Stockholders representing only 55% of the outstanding capital stock of A Corporation attended the scheduled meeting. Hence, the required two-thirds vote of the stockholders to approve the amendments to the Articles of Incorporation, which was previously approved by the Board, cannot be obtained. The directors propose two courses of action, namely: (1) to request the stockholders present during the meeting to approve the proposed amendment and then adjourn the meeting and allow the board to convene another meeting in order to get the required votes; and (2) to solicit the remaining balance of the required approval/votes by way of writing the absentee stockholders. Which of the two alternatives can be validly resorted to by A Corporation? 

A: Both alternatives may be validly resorted to. The law provides that the stockholders may assent to the amendment so long as the assent is in writing and the total written votes/approval should not be less than two-thirds of the outstanding capital stock of the corporation. (SEC Opinion dated August 16, 1999, SEC Bulletin Vol. XXXIII, No. 2, December 1999) However, if the amendments involve extending or shortening the corporate term and/or increasing or decreasing the capital stock, only the first alternative may validly be resorted to because Sections 36 and 37 of the RCCP require approval of said amendments in a stockholders' meeting.

Comments

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Commercial Laws 1: R.A. No. 11057 — Personal Property Security Act

Land Title and Deeds: Chapter 1 — What Lands are Capable of Being Registered