Corporation Law: The Revised Corporation Code of the Philippines - Sec 11

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE II -  INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

SEC. 11. Corporate Term. –  A corporation shall have perpetual existence unless its articles of incorporation provides otherwise. 

Corporations with certificates of incorporation issued prior to the effectivity of this Code, and which continue to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate term pursuant to its articles of incorporation: Provided, that any change in the corporate term under this section is without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. 

A corporate term for a specific period may be extended or shortened by amending the articles of incorporation: Provided, That no extension may be made earlier than three (3) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Commission: Provided, further, That such extension of the corporate term shall take effect only on the day following the original or subsequent expiry date(s). 

A corporation whose term has expired may, at any time, apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities existing prior to revival. Upon approval by the Commission, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its application for revival provides otherwise. 

 No application for revival of certificate of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs), pawnshops, corporations engaged in money service business, and other financial intermediaries shall be approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency.

NOTES 

1. Basic Rules.

• Section 11 makes it clear that:
1. As a general rule, the corporate term is perpetual;
2. The Articles of Incorporation of new corporations can specify a fixed term - the incorporators can choose not to have a perpetual term and specify a fixed term in the Articles of Incorporation; 
3. Corporations duly incorporated prior to the effective date of the RCCP and still existing shall also automatically have perpetual term;
4. If existing corporations do not want a perpetual term, they must notify the SEC that they want to maintain their fixed term; 
5. A corporation with a fixed term may be dissolved by shortening its term;
6. Corporations with fixed terms may extend their term; and
7. No extension can be made earlier than three (3) years prior to the original or subsequent expiry date.
• Section 18 of the RCCP provides that a private corporation organized under the RCCP commences its corporate existence and juridical personality from the date the SEC issues the certificate of incorporation under its official seal and thereupon the incorporators, stockholders/members and their successors shall constitute a body corporate under the name stated in the Articles of Incorporation for the period of time mentioned therein, unless said period is extended or the corporation is sooner dissolved in accordance with law.
• It was further clarified that the first day of the term is the date of incorporation, stated in the Certificate of Incorporation, since it is the day the existence of a corporation commences Section 18 of the RCCP)and Section 31, Chapter VIII, Book 1 of the Administrative Code of 1987.
• If the corporation has a fixed term, the last day of the corporate term is the day before the corresponding numbered day of the same month of incorporation in the last year of the existence of the corporation.

2. Rationale for Perpetual Term

• The Philippines is one of the few countries that limit to the corporate term. 
• Limited term "leads to loss of income and livelihood for families, and loss of legacy and dreams for entrepreneurs and employees."
• The perpetual corporate term as the default option seeks to address this problem.
• It also allows corporations to develop long-term plans and to look into more sustainable and far-reaching strategies for more economic growth.
• However, corporations may opt to specify a term limit their Articles of Incorporation to give their stockholders an opportunity to assess the future of the corporation to determine at that point to wind up the affairs of the corporation or to extend the life of the corporation.
• It has been ruled that the previous limitation of corporate existence to a definite term under the Corporation Code was an exercise of control m the interest of the public.

3. Perpetual Term of Existing Corporation. 

• General Rule: Corporations with certificates of incorporation issued prior to the effectivity of the RCCP, and which continue to exist, shall have perpetual existence.
• Exception: If an existing corporation opts to have a fixed term, stockholders representing a majority of its outstanding capital stock must vote to retain its specific term and must notify the SEC that it elects to retain its specific corporate term pursuant to its Articles of Incorporation.
• In this event, the dissenting stockholders are entitled to appraisal right. 
• APPRAISAL RIGHT (Sec. 81, RCCP): If the proposed corporate action is implemented, the corporation shall pay the stockholder, upon surrender of the certificate or certificates of stock representing the stockholder’s shares, the fair value thereof as of the day before the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

• Existing corporations need not do anything if they want to have perpetual term because they will automatically be considered to have a perpetual term by virtue of the express wordings of Section 11 of the RCCP, notwithstanding the fixed term indicated in their existing Articles of Incorporation. 
• This is consistent with the intent of Congress to have perpetual corporate term as the default option for corporations. 

4. Option to have a Fixed Term. 

• New corporations may opt to have a fixed term by indicating such term in their Articles of Incorporation. 
• The choice to have a fixed term is now therefore given to the corporation. 
• When a new corporation indicates a fixed corporate term in its Articles of Incorporation, or when an existing corporation opts to retain its existing fixed term with notice to the SEC, the specific period may still be extended or shortened by amending the Articles of Incorporation.

4.01. Arbitrary Limit if the Term is Fixed.

• If a specified term is fixed in the Articles of Incorporation, the term so fixed serves as an arbitrary limit to the corporate life. Unless its existence is renewed or extended by proper proceedings, it dies forever. 
• At the day set, the corporation falls dead automatically by the wayside, its affairs must be wound up and a new corporation would then have to be created if those concerned wish to continue the business.

5. Extension of Term

• Extension cannot be sought after the expiration of term.
• There is no more term to extend in such a case. 
• The conditions must be complied with, and the steps necessary to effect the extension must be taken, during the life of the corporation, and before the expiration of the term of existence as originally fixed by its charter or the general law, since, as a rule, the corporation ceases ipso facto.
• No extension of the corporate term for a specific period may be made earlier than three (3) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the SEC.
• If the term of a corporation is 50 years, an application for extension of the term cannot be filed on the 40th year of the life of the said corporation.
• However, whether a corporation has a perpetual or a fixed term, it cannot be required by the SEC to file an application for the annual renewal of the certificate of registration of a corporation. 
• Renewal of the certificate of registration is not consistent with Section 11 of the RCCP that provides for a perpetual term; it is also not consistent with the fixed term stated in the Articles of Incorporation.

5.01. Doctrine of Relations. 

• The filing and recording of a certificate of extension after the expiration of the fixed corporate term cannot relate back to the date of the passage of the resolution of the stockholders to extend the life of the corporation. 
• However, the doctrine of relation or relating back doctrine applies if the failure to file the application for extension within the term of the corporation is due to the neglect of the (SEC) officer with whom the certificate is required to be filed or to a wrongful refusal on his part to receive it. 
•  The doctrine of relation or relating back doctrine was applied when the corporation's failure to file the application for extension was due to the "EDSA Revolution" that resulted in the closure of the Securities and Exchange Commission."
• The SEC clarified, however, that the doctrine does not apply if there was fault or negligence on the part of the corporation. 

6. Revival of Corporate Existence. 

• A remedy is now provided for under the RCCP for corporations whose terms already expired. 
• The RCCP provides for the remedy of application of revival of corporate existence. 
• A corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities existing prior to its revival. 
• Upon approval by the SEC, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its application for revival provides otherwise.
• The implementing regulation issued by the SEC is SEC Memorandum Circular No. 23, Series of 2019 dated November 21, 2019 entitled "Guidelines on the Revival of Expired Corporations."
• However, no application for revival of certificate of incorporation of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, nonstock savings and loan associations, pawnshops, corporations engaged in money service business, and other financial intermediaries shall be approved by unless accompanied by a favorable recommendation of the appropriate government agency.

Problem

Q: A corporation was organized for a term of 50 years, expiring in December 2006. Outline the steps to be taken in order that it may extend its corporate life.

A: The following steps should be taken for the extension of the corporate term:

1. The articles of incorporation shall be amended stating the term extension and the amendment must be approved by: (1) the majority vote of the board of directors or trustees and (2) the stockholders representing at 1east 2/3 of the outstanding capital stock or by at least 2/3 of the members, in case of a non-stock corporation. (Section 15, RCCP.) 
2. The approved amendment of the articles of incorporation shall be submitted to the Securities and Exchange Commission for approval not earlier than three (3) years under (Section 11, RCCP) prior to the original or subsequent expiry date. 
3. The amendment is deemed approved upon the inaction of the SEC for 6 months after submission due not the fault of the corporation or upon its approval. (Section 15, RCCP.) The effectivity of the amendment relates back to the date of its filing with the SEC.

Practice Questions:

Q: What is the general rule regarding the corporate term according to Section 11 of the RCCP?

A: The general rule is that the corporate term is perpetual, but new corporations can specify a fixed term in their Articles of Incorporation.

Q: Why does the RCCP allow corporations to have a perpetual term as the default option?

A: The perpetual corporate term allows for long-term planning and sustainable strategies, promoting economic growth and stability.

Q: What is the exception to the rule of perpetual existence for existing corporations under Section 11?

A: Existing corporations can opt for a fixed term by notifying the SEC. However, this choice must be approved by a majority of stockholders and may lead to appraisal rights for dissenting stockholders.

Q: Can a corporation seek an extension of its term after its expiration date?

A: No, extensions cannot be sought after the expiration of the term. The extension process must be initiated during the corporation's active existence, and no earlier than three years prior to the expiry date.

Q: What is the Doctrine of Relations, and when does it apply?

A: The Doctrine of Relation, or Relating Back Doctrine, applies when a corporation fails to file an extension application within its term due to the neglect or wrongful refusal of the SEC officer responsible for receiving it.

Q: What remedy does the RCCP provide for corporations whose terms have already expired?

A:  The RCCP provides for the application of the revival of corporate existence. Expired corporations can apply for revival, and upon approval, they regain perpetual existence, unless stated otherwise in the revival application.

Q: Are there specific conditions for the revival of certain types of corporations, such as banks and financial institutions?

A: Yes, specific conditions apply. Applications for the revival of banks, quasi-banking institutions, insurance companies, and other financial intermediaries require a favorable recommendation from the appropriate government agency.