TITLE XIV: DISSOLUTION

Dissolution – signifies the extinguishment of its franchise to be a corporation and the termination of its
corporate existence.
Power to dissolve corporation – a corporation may come to an end and its life extinguished only by the
act or with the approval of the sovereign power by which it was established.
Methods or causes of corporate dissolution:
1. Voluntary
 vote of the majority of the board of directors/trustees and majority of the stockholders
representing the outstanding capital stock or majority of the members where no
creditors are affected (SEC 134)
 judgement of the SEC after hearing of a petition for voluntary dissolution, where
creditors are affected (SEC 135)
 amending the articles of incorporation to shorten corporate term (SEC 136)
 in the case of a corporation sole, by submitting to the SEC a verified declaration of
dissolution for approval (SEC 113)
2. Involuntary
 Expiration of the specific corporate term when provided for in the articles of
incorporation
 Legislative enactment
 Dissolution by quo warranto proceedings (SEC 19)
 Order of the SEC in case of deadlock or mismanagement of close corporations (SEC 103
and 104)
 The methods of involuntary dissolution under (SEC 138)
Methods of voluntary dissolution:
 Where no creditors are affected (SEC 134)
A. How effected
- A private corporation may be dissolved voluntarily without the necessity of
going to court in case the dissolution does not affect the rights of any creditor
against such corporation. The dissolution is affected by the mere majority vote
of the board of directors/trustees and by a resolution adopted by the affirmative
vote of the majority of the outstanding capital stock or members.
B. Issuance of certificate of dissolution
- The dissolution shall take effect only upon the issuance by the SEC of a
certificate of dissolution
C. Favorable recommendation
- No application for dissolution of banks, banking, and quasi-banking institutions,
preneed, insurance and trust companies, NSSLAs, pawnshops, and other
financial intermediaries shall be approved by the SEC unless accompanied by a
favorable recommendation of the appropriate government agency.
 Procedure for voluntary dissolution where no creditors are affected (SEC 134)
A. Initiated by a resolution adopted by the majority vote of the board of directors or trustees.
B. A meeting to be held on the call of the directors or trustees. At least 20 days prior to the
meeting, notice shall be given to each shareholder or member of record personally, by
registered mail, or by any means authorized under its bylaws. Notice of time, place, and
object of the meeting shall be published once prior to the date of the meeting in a

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 newspaper published in the place where the principal office of said corporation is located, or
if no newspaper is published in such place, then in a newspaper of general circulation in the
PH.
C. The resolution to dissolve must be approved by the affirmative note of the stockholders
owning at least majority of the outstanding capital stock or at least majority of the members.
D. A verified request for dissolution shall be filed with the SEC:
1. The reason for the dissolution
2. The form, manner, and time when the notices were given
3. Names of the stockholders and directors or members and trustees who approved
the dissolution
4. The date, place, and time of the meeting in which the vote was made
5. Details of publication
E. The corporation shall submit the ff to the SEC:
1. Copy of the resolution authorizing the dissolution, certified by a majority of the
board of directors of trustees and countersigned by the secretary of the corporation
2. Proof of publication
3. Favorable recommendation from the appropriate regulatory agency
F. Submission to the SEC of the verified request for dissolution, resolution, and other
accompanying documents. Within 15 days from the receipt of the request for dissolution,
and in the absence of any withdrawal within the said period, the SEC shall approve the
request and issue the certificate of dissolution.
 Where creditors are affected (SEC 135)
A. How effected
- This form of dissolution contemplates a situation where the consent of the
creditors to dissolve the corporation cannot be obtained. Initiated by a petition
filed with the SEC which shall render judgment after due notice and hearing.
B. Issuance of a certificate of Dissolution
- The SEC, after finding that the material allegations in the petition are true and
after resolving objections, shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts of the corporation or in
summary, take charge of the liquidation of the corporation.
 Procedure for voluntary dissolution where no creditors affected (SEC 135)
A. A petition for dissolution shall be signed a majority of the board of directors or trustees,
verified by its president or secretary or one of its directors or trustees, and shall set forth all
claims and demands against the corporation.
CONTENTS OF THE PETITION:
1. The reason for the dissolution
2. The form, manner, and time when the notices were given
3. The date, place, and time of the meeting in which the vote was made.
Accompanying documents to the petition for dissolution:
1. A copy of the resolution authorizing the dissolution, certified by a majority of the board of
directors or trustees and countersigned by the secretary of the corporation.
2. A list of all its creditors.
 A meeting of the stockholders or members called for the purpose

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  Approval of the petition for dissolution by the affirmative vote of the stockholders representing at
least 2/3 of the outstanding capital stock or by at least 2/3 of the members.
 Submission to the SEC of the petition for dissolution, the SEC shall order reciting the purpose of the
petition, fix a deadline for filing objections to the petition which date shall not be less than 30 days
or more than 60 days after the entry of the order.
 Before such date, a copy of the order shall be published at least once a week for 3 consecutive
weeks in a newspaper of general circulation published in the municipality or city where the principal
office of the corporation is situated. A similar copy shall be posted for 3 consecutive weeks in 3
public places in such municipality or city.
 Upon 5 days’ notice, given after the date on which the right to file objection fixed in the order has
expired, the SEC shall proceed to hear the petition and try to issue raised in the objections filed, it
shall render judgment dissolving the corporation and directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.
Dissolution by shortening corporate term (SEC 136)
A. How effected
- The articles of incorporation is amended to shorten the corporate term and such
amended articles of incorporation is submitted to the SEC. Upon approval of the
SEC of the amended articles of incorporation or by the expiration of the
shortened term, as the case may be, the corporation shall be deemed dissolved.
B. Publication of notice of dissolution
- Affidavit of publication of notice of dissolution of the corporation must be
executed by the publisher of the print medium. The publication of the notice of
dissolution serves as a protection of the rights of existing creditors of the
dissolving corporation who enjoy the preference in the distribution of assets
before the stockholders are finally entitled to a return of their investments.
Rules regarding withdrawal of request for dissolution (SEC 137)
1. The withdrawal of the request for dissolution shall be made in writing, duly verified by any
incorporator, director, trustee, shareholder, or member and signed by the same number of
incorporators, directors, trustees, shareholders, or members necessary to request for dissolution
as set forth in sec 134 of the RCCP.
2. The withdrawal shall be submitted no later than 15 days from receipt by the SEC of the request
for dissolution.
3. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the
request for dissolution and shall, after investigation:
- Make pronouncement that the request for dissolution is deemed withdrawn
- Direct a joint meeting of the board of directors/trustees and the stockholders or
members for the purpose of ascertaining whether to proceed with dissolution
- Issue such other orders as it may deem appropriate
Withdrawal of petition for dissolution (SEC 137)
o A withdrawal of the petition for dissolution shall be in the form of a motion and similar in
substance to a withdrawal of request for dissolution but shall be verified and filed prior to
publication of the order setting the deadline for filing objections to the petition.
Methods of involuntary dissolution:

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 Dissolution by expiration of term:
A. How effected
- A corporation is dissolved upon the expiration of the period as fixed in the
original articles of incorporation, unless said period is extended by an
amendment of the articles of inc.
B. Extension of corporate existence or reincorporation
- It ceases to exist de facto or de jure except only for purposes connected with
winding up or liquidation
Dissolution by legislative enactment:
A. Reserved power of congress to dissolve corporations
- The power of the congress to dissolve corporations is still reserved, albeit
impliedly, by SEC 184 subject to the limitations therein and the constitutional
prohibition against laws impairing the obligations of contracts.
B. Limitations of the power to dissolve corporations by legislative
1. Amendment, alteration, or repeal of the corporate franchise of a public utility shall be made
only “when the common good so requires”
2. Shall be removed or impaired either by the subsequent dissolution of said corporation or by
a subsequent amendment or repeal of this code.
Dissolution by quo warranto proceedings – authorizes the solicitor general to bring a quo warranto
proceeding against a (de facto) corporation claiming in good faith to be a corporation to oust it from the
exercise of corporate powers and ultimately to have it dissolved.
 Involuntary dissolution under SEC 138
A. How effected – corporation may be dissolved by the SEC motu proprio or upon filing of a
verified compliant by any interest party.
B. Forfeiture involuntary dissolution – its assets, after payment of its liabilities, shall petition of
the SEC with the appropriate court, be forfeited in favor of the national government. Such
forfeiture shall be without prejudice of the rights of innocent stockholders and employees
for services rendered.
C. Corporations under the regulatory agencies – The SEC shall give reasonable notice to, and
coordinate with, the appropriate regulatory agency prior to the involuntary dissolution of
companies under their special regulatory jurisdiction.
 Grounds for involuntary dissolution
a. By non-use of corporate charter and failure to formally organize and commence its business
within 5 years from the date of incorporation
b. By continuous inoperation of a corporation for a period of at least 5 consecutive years and
failure to cause the lifting of delinquent status.
- A delinquent corporation shall have period of 2 years to resume operations and
comply with all requirements that the SEC shall prescribe. The SEC shall issue an
order lifting the delinquent status. Failure to comply with the requirements and
resume operations within the period given by the SEC shall cause the revocation
of the corporation’s certificate of inc.
c. Upon receipt of a lawful court order dissolving the corporation.
d. Upon finding by final judgment that the corporation procured its incorporation through
fraud.
e. Upon finding by final judgment that the corporation:

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  Was created for the purpose of committing, concealing or aiding the commission
of securities violations, smuggling, tax evasion, money laundering, or graft and
corrupt practices.
 Committed or aided in the commission of securities violations, smuggling, tax
evasion, money laundering, or graft and corrupt practices, and tis stockholders
knew.
 Repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts by its directors, trustees, officers, or
employees.
Liquidation – winding up of the affairs of the corporation by reducing its assets in money, settling
with creditors and debtors, and apportioning the amount of profit and loss.
Methods of corporate liquidation:
 Liquidation by the corporation itself (SEC 139)
 Liquidation by a duly appointed receiver.
 Liquidation by a trustee to whom the corporation had conveyed the corporate assets (SEC 139)
Liquidation by the corporation itself
- The normal method or procedure is for the corporation through the directors or
trustees and executive officers to have charge of the winding-up operations.
- The corporation will remain as a body corporate for 3 years after the effective
date of dissolution, for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, dispose of and convey its
property, and distribute its assets.
- The claims by and against it not presented and settled within that period
become unenforceable as there exists no longer a corporate entity against which
they can be enforced.
Liquidation by a duly appointed receiver
- The SEC is authorized to appoint a receiver to collect its assets and the debts of
the corporation.
- The receivership shall exist indefinitely until the affairs of the dissolved
corporation shall have been completely settled and liquidated. During its
continuance, claims can be presented and allowed if they are not barred by the
statute of limitations.
- The appointment of a receiver is discretionary with the court and the SEC is not
made except upon proper showing that such appointment is necessary.
- Where corporate directors are guilty of breach of trust, minority stockholders
may ask for receivership.
Liquidation by trustees to whom the board of directors or trustees conveyed the corporate assets (SEC
139)
- The liquidation of the corporation may be placed in the hands of the trustee or
assignee to whom the corporate assets are conveyed.
- Any time during the 3-year liquidating period, the corporation is authorized and
empowered to convey all of its property to trustees for the benefit of the
stockholders, members, creditors and other persons in interest. The trustee
becomes the legal owner of the property subject to the beneficial interest

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 therein of the creditors, stockholders or members, and other persons in interest.
The trustee may sue and be sued as such in all matters connected with the
liquidation.
Distribution of Corporate Assets
A. General rule/exceptions – except by decrease of its capital stock as provided in Sec 37 and as
otherwise allowed by the RCCP (SEC 8,9,40,103,104), no corporation shall distribute any of its
assets or property except upon lawful dissolution and after payment of all its debts and liabilities
(SEC 139)
B. Trust fund doctrine – the subscribed capital as a trust fund or equity in trust for the payment of
the debts of the corporation, to which the creditors look for satisfaction. Until the liquidation of
the corporation, no part of the subscribed capital may be returned or released to the stock
holder (except in the redemption of redeemable shares) without violating this principle.
Priority of Application of Assets – the question of the right of a claimant against the assets of a
corporation that is being dissolved and liquidated to priority in the payment of his claims becomes of
importance only when the assets of the corporation are not sufficient to pay all claims.
a. The assets of the corporation are distributed first to the creditors according to their
rights and priorities.
b. Payment of stockholders or members, directors or trustees, or officers of the
corporation who are also its creditors as a result of a legitimate or proper loan or
claim.
c. Remaining assets are then to be distributed among the stockholders or members
proportion to their shareholdings or interest. Holders of preferred stock as to assets
have a preference over the common stockholders in the distribution of the surplus
proceeds of the assets.
d. Except as otherwise provided for in SEC 93 and 94 regarding assets of non-stock
corporations, upon the winding up of corporate affairs, any asset distributable to any
creditor or stockholder or member who is unknown or cannot be found shall be
escheated in favor of the national government (SEC 139).
e. Until the liquidation of the corporation, the subscribed capital cannot be returned or
distributed to the stockholders pursuant to the trust fund doctrine.

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