Points to keep in mind when computing for corporate life

THE LAW defines a corporation as an artificial being created by operation of law having the rights, powers, attributes and properties expressly authorized by law or incident to its existence. The very law which gives its life also dictates its demise by giving it a maximum period of 50 years unless shortened or extended. The corporate term is required to be expressly indicated in the corporation’s Articles of Incorporation (AOI) and may be shorter but may not be more than 50 years at any given time. It may, however, be extended several times.

One mode of extending the life of a corporation is by amending its AOI which must be approved by a majority vote of the Board of Directors or trustees and ratified by the stockholders representing at least two-thirds of the outstanding capital stock or by at least two-thirds of the members in case of a non-stock corporation.

The question of when to extend the life of a corporation has been dealt with in a few opinions issued by the Securities and Exchange Commission (SEC). In one such controversy resolved on Dec. 9, 2010, the SEC categorically declared that the extension must be done before the expiration date of the corporation. The rationale is that one can no longer resuscitate a legally dead entity as there is “no more life to prolong”. The SEC reiterated this position in an en banc case decided on Aug. 4, 2011 which also listed down the requirements for extending corporate terms.

The amended AOI to be filed with the SEC must underscore the changes to be made and must be supported by a document duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendments have been duly approved by the required vote of the stockholders and members.

These are important points to ponder for corporations with terms that are about to expire; hence, proper preemptive measures must be taken to prevent the automatic cessation of their business existence. This was the ruling in the case of Philippine National Bank vs. CFI, Pasig, et. al. (G.R. No. 63201 promulgated on May 27, 1992) in which the Supreme Court ruled that “when such period expires and no extension having been made, the corporation is dissolved automatically insofar as the continuation of its business.”

It would be doubly tragic if the term of the corporation expired unbeknownst to the persons concerned simply because no one bothered to check the AOI.

Due to the importance of the time when securing extensions, the SEC issued SEC Memorandum Circular No. 21 Series of 2014 last November providing guidelines in computing the corporate term.

It detailed, among others, the date when a corporation commences its corporate life and when it reaches its last day. We quote:

“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 pursuant to Section 19 of the Corporation Code and Section 31 Chapter VIII, Book I of the Administrative Code of 1987.”

The SEC Circular goes on to say:

“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 a corporation in accordance with the pronouncement of the Supreme Court in the case of Commissioner of Internal Revenue vs. Primetown Property Group.”

Confusing? We would have wished the SEC to have given us a simple example of how to determine the expiration date in the said circular instead of using circuitous legalese. Without reading the Supreme Court decision referred to above, a cursory reading of the SEC’s definition would lead most readers to conclude that the last day of the corporate term is simply the day before corresponding numbered day of the same month. Hence, the last day of a corporation having a term of 50 years would be April 29, 2065, if incorporated today ( April 30, 2015).

Seems straightforward when read in that way, right? A reading of the Supreme Court decision in the Primetown case, however, reveals that the computation may not be as simple as it seems and that a certain amount of pencil pushing may be necessary to compute the lifetime of a corporation.

In the cited Primetown decision, the Supreme Court said that the legal computation of a “year” should follow the provisions of Section 31, Chapter VIII, Book I of the Administrative Code of 1987 which defines a year to be “twelve calendar months” and a “calendar month” to be equivalent to thirty days, unless it refers to a specific calendar month which shall be computed according to the number of days the specific month contains.

The Supreme Court described one (1) month to be “the period of time running from the beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month, and if there is not a suffi- cient number of days in the next month, then up to and including the last day of that month.

The Supreme Court illustrated the computation as follows:

“One calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.”

The Court’s definition appears to diverge from the SEC Circular. If we were to apply the SEC guideline to the court’s example, one calendar month from December 31, 2007 should be counted from January 1, 2008 to January 30, 2008 (i.e. the day before the numbered day of the same month).

The difference is only one day, but those twenty four little hours could make all the difference, and hanging in the balance could be the life or death of a corporation.

Of course, the cautious way to approach the issue of corporate life is not to leave matters to chance. It would be prudent to verify one’s own computation with SEC specialists lest one miscalculate, resulting in the automatic death of a corporation.

The very law which gives its life also dictates its demise by giving it a maximum period of 50 years unless shortened or extended… is required to be expressly indicated in the corporation’s Articles of Incorporation.