Reducing Your Corporation’s Number of Directors

Many situations can lead to a reduced number of directors in a corporation. It can result from a director’s resignation, death, disqualification, or any other forms of cessation from their office. 

In such cases, writing a report to the Securities and Exchange Commission (SEC) is required. This should be submitted within seven days after the fact. But in addition to this report, changes must also be reflected through amendments to the corporation’s Articles for Incorporation. 

What are the Articles of Incorporation?

The Articles of Incorporation is a corporation’s main legal document with the SEC. According to Republic Act No. 11232 or the Revised Corporation Code (RCC), all corporations need to file articles of incorporation with the SEC in order to be lawfully recognized as an existing corporation. 

Why do you need to amend the Articles of Incorporation?

The information in the Articles of Incorporation cannot be officially changed or revised through mere corporate memorandums or notices. To change the number of directors – as well as other significant data such as corporate name, principal office address, or purpose of the corporation – the corporation must amend its Articles of Incorporation with the SEC to officially reflect those changes. 

Failure to do so can result in a penalization by the SEC, along with an initial fine of P10,000 for the first violation. 

Amendment of the Articles of Incorporation: A step-by-step process

The process for the amendment of the Articles of Incorporation is provided by Section 16 of the RRC.

“Sec. 16. 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, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.

The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended 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 stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission.

The amendments shall take effect upon their approval by the Securities and Exchange 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.”

The general procedure for the amendment is laid down as follows:

Step 1: Written assent of the stockholders 

For stock corporations, the amendment should first have a written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. This is done during a regular annual meeting or a special meeting held for this particular purpose. 

Step 2: Majority vote of the board of directors

The written assent of the stockholders must then be approved by most of the board of directors, then duly certified by the Corporate Secretary. Afterwards, the following documents must be procured and submitted to the SEC:

  • Original and amended Articles of Incorporation;
  • Notarized Directors’ Certificate, signed by the majority of the directors and stockholders and the corporate secretary;
  • Notarized Secretary’s Certificate, which confirms that there is no pending case of intra-corporate dispute; and
  • Compliance Monitoring Division (CMD) Clearance and/or clearance from any SEC department relevant to the corporation’s purpose.

Step 3: Approval by the SEC

Once the documents are filed and the amendments are approved by the SEC, a Certificate of Amendment of Articles of Incorporation will be issued.

However, under Section 16 of the RRC, SEC will reject the amendment if:

  • It does not adhere to the form prescribed in Sec. 14 (“Form of Articles of Incorporation”) of the RCC;
  • The purpose/s of the corporation are unconstitutional, illegal, immoral, or contrary to government rules and regulations; and/or
  • It does not follow the required percentage of Filipino ownership of the capital stock.

Let our legal experts help you navigate the intricacies of corporate law in the Philippines. Get in touch with Duran & Duran-Schulze Law today by calling (+632) 478 5826 or by sending an email to info@duranschulze.com.