By: Euney Marie Mata-Perez on June 28, 2018

Reaching 50 years is no mean feat for a corporation and certainly a milestone worthy of a grand celebration.

However, from a corporation law standpoint, it can mean the “death” of the corporation when no application for extension or renewal of corporate term is timely filed prior to such 50th anniversary.

A corporation exists and has legal personality because the law, by “legal fiction,” grants corporations “juridical existence.” This life or juridical existence starts from the date the SEC issues a certificate of incorporation under its corporate seal.

The “life” or existence of a corporation, however, is not perpetual. Under our Corporation Code, the term of a corporation is limited to a period not exceeding 50 years from the date of incorporation unless dissolved earlier or such period is extended.

Our Corporation Code requires that a corporation must file for an extension of its corporate term before it expires. This rule is consistent with all period rules lawyers diligently follow—that an application or motion to “extend” a period (if extendible) under the law or rules of court must be done before the expiry or end of the period sought to be extended. Because what is there to extend if the period has expired?

So, what happens if a corporation fails to timely extend its expired corporate term? Is there a way to further extend such term or revive the corporation’s life or existence?

The answer is “no.” If no request for extension was filed with the SEC before the expiry of the corporate term, the corporation ceases to exist. Under current applicable law, there’s no way that such expired period can be “renewed” or “revived.”

There are serious consequences once the corporate term expires. Without the corporate juridical entity, the assets of the corporation are deemed transferred to the shareholders as if the corporation was dissolved or liquidated. Any liquidating gain could then be subject to the 30% regular corporate income tax. On top of that, the corporation ceases to be a legal person and thus incapable to enter into contracts and hold its licenses. It becomes a non-persona.

Such problems can be avoided if Senate Bill No. 1290, which proposes amendments to the Corporation Code, is passed into law. Such bill provides that a corporation whose term has expired may anytime apply for a “revival” of its corporate existence. Meaning, even after expiry of its term, a corporation can reacquire its juridical personality. This new feature will definitely provide relief to corporations whose terms expired.

Unfortunately, Senate Bill No. 1290 is languishing in the Senate. While it was subject of public hearings and several revisions, it’s not been marked as a priority bill of this and the last administration. In short, such amendments are on hold.

It’s notable that the latest draft of the TRAIN Law 2 (House Bill No. 7458) added “reincorporation” as a transaction which is income tax-free, on top of the usual tax-free transactions under Section 40(C)(2) of the Tax Code. While the bill doesn’t define what constitutes “reincorporation,” it could mean that a corporation whose term has expired may be “reincorporated” or its assets may be transferred to a new corporation (owned by the same stockholders) with no income tax consequences.

There’s no doubt that the above proposed amendments to the Corporation Code and the Tax Code will provide relief to corporations whose terms expired. However, until and unless such amendments are approved, the current Corporation Code provisions apply. There’s no way that a corporation whose term expired can be revived if no application for extension or renewal of the corporate term was duly filed with the SEC prior to expiry.

#Corporateterm #renewalcorporateterm #exipredcorporateterm #50years #reincorporation

Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com

From the The Manila Times Website  June 28, 2018

http://www.manilatimes.net/renewal-of-expired-corporate-term/413350/