According to the Corporation Code of the Philippines, a corporation is defined as “an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.”
It is recognized “legally as a person.” But unlike real people, its death is not governed by the laws of nature but by laws written in accordance with the Constitution.
The circumstances of a corporation’s death are detailed in “Methods of Dissolution” under Title XIV, Section 117 of the Corporation Code of the Philippines.
When a corporation’s original owners and shareholders change or die, the corporation doesn’t change or dissolve with them. All responsibilities and liabilities such as taxes still apply.
A corporation can potentially live forever; it has no natural death. However, it can be “killed” by competition or at the discretion of the owners themselves.
To dissolve a corporation, its articles of dissolution must be submitted to all government organizations it is registered with including the SEC, the BIR, SSS, and the Mayor’s Office.
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Here are a few examples of how corporations formed under the Corporation Code can be voluntarily or involuntarily dissolved:
By voluntary dissolution
This voluntary act of corporate dissolution taken on by incorporators, initial directors, and shareholders fall under three types:
Where no creditors are affected (Section 118)
With no harm done to creditors with claims against the corporation, this form of dissolution can be initiated via:
- A majority vote by the corporation’s board of trustees
- A resolution from the approving vote of the stockholders that own at least two-thirds of the outstanding shares or by at least two-thirds of the members of a meeting called by the directors or trustees
Where creditors are affected (Section 119)
If the company owes its creditors money, the formal petition for dissolution with the SEC needs to:
- Be signed by a majority of its board of directors or trustees or other officers that manage its affairs
- Be verified by its president or secretary or one of its directors or trustees that all claims and demands against the corporation were confirmed by stockholders at a meeting about its dissolution.
Shortening corporate term (Section 120)
This is the most common method of corporate dissolution in the Philippines and involves amending a corporation’s articles of incorporation to shorten its lifespan.
The amended articles of incorporation should then be approved by a majority vote of the board of its directors/trustees and ratified at a meeting of its stockholders.
The stockholders must have:
- At least two-thirds of the outstanding shares
- Or two-thirds of the members in non-stock corporations
These amendments are subject to rejection if deemed objectionable by the SEC according to Section 17 of the Code. A reasonable amount of time shall be given for corrections.
By involuntary dissolution (Section 121)
A corporation can be dissolved by the SEC after a verified complaint is filed against the company and following the proper notice and hearing.
The following are grounds for dissolution:
- When a corporation becomes inoperative for a minimum of five years as stated in Section 22 called “Effects on non-use of corporate charter and continuous inoperation of a corporation”
- When the company fails to file the required reports in appropriate forms prescribed by the SEC
- Director’s certificate. Must be notarized and signed by the majority of directors and corporate secretaries. Here’s a sample form from the SEC
- List of creditors, if any, and their consent. In case of creditor’s consent not being secured, the application should take the form of a petition that must be filed with the SEC’s Office of General Counsel. A corporation should also prepare a certificationed
- BIR tax clearance
of non-existence of creditors if there are none
- Complete financial statements audited after a stockholder’s meeting for approving the dissolution
- Articles of corporation as amend
- Affidavit from the publisher of the publication of dissolution
- Relevant clearances and endorsements from other government agencies