7.2.

13 Merger and consolidation

7.2.13.1 Definition and concept

GENERAL RULE:
A corporation that purchases the assets of another will not be liable for the debts of the
selling corporation, provided the former acted in good faith and paid adequate consideration for
such assets.

EXCEPTIONS:
When any of the following circumstances is present:
1. Where the purchaser expressly or impliedly agrees to assume the debts,
2. Where the transaction amounts to a consolidation or merger of the corporations,
3. Where the purchasing corporation is merely a continuation of the selling corporation, and
4. Where the transaction is fraudulently entered into in order to escape liability for those debts.

MERGER
-two (2) or more corporations may merge into a single corporation which shall
be one of the constituent corporations.
- In a merger, a corporation absorbs another corporation and remains in
existence while the other is dissolved. It signifies the absorption of one
corporation which shall be one of the constituent corporations.
CONSOLIDATION
- Two (2) or more corporations may consolidate into a new single corporation
which shall be the consolidated corporation.
- In consolidation, both corporations lose their respective corporate identities
and are consolidated into a new corporate identity.

CHARACTERISTICS MERGER CONSOLIDATION

A union whereby one or more The union of two (2) or more
existing corporations are corporations into a single new
absorbed by another corporation, called the
DEFINITION corporation that survives and consolidated corporation, all
continues the combined the constituent corporations
business. thereby ceasing to exist as
separate entities.
All constituent corporations, All constituent corporations are
DISSOLVED CORPORATION except the surviving dissolved and absorbed by the
corporation, are dissolved. new consolidated enterprise.
CREATION OF NEW No new corporation is created. A single new corporation is
CORPORATION emerges.
The surviving corporation shall The new corporate entity shall
acquire the rights, properties obtain all the assets of the
ACQUISITION OF RIGHTS AND
and liabilities of the disappearing corporations, and
LIABILITIES
disappearing corporation/s. likewise assume all their
liabilities.

Merger and consolidation involve fundamental changes in the corporation, the rights of
stockholders and creditors. There must be an express provision of law that authorizes them. Otherwise,
such combinations are ultra vires. With the approval of the Corporation Code, such express authority has
been granted. (Campos)

7.2.13.2 Distinguish: constituent and consolidated corporation

CONSTITUENT CORPORATION CONSOLIDATED CORPORATION

The parties to a merger or consolidation The new single corporation created through
consolidation.

7.2.13.2 Plan of merger or consolidation

Two (2) or more corporations: (Sec 75, par. 1)

(a) May merge into a single corporation which shall be one of the constituent corporations or;
(b) May consolidate into a new single corporation which shall be the consolidated corporation.

The board of directors or trustees of each corporation, party to the merger or consolidation, shall
approve a plan of merger or consolidation setting forth the following: (Sec 75, par. 2)
(a) The names of the corporations proposing to merge or consolidate;
(b) The terms of the merger or consolidation and mode of the carrying the same into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the surviving corporation in
case of merger; and
 In case of consolidation, all the statements required to be set forth in the articles of
incorporation for corporations organized under this Code; and
(d) Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.

According to Section 76 of the Revised Corporation Code of the Philippines, the plan for merger of
consolidation must be:
1) must be approved by the majority vote of the Board Of Directors or Board Of Trustees.
2) must be ratified by the affirmative vote of the 2/3 of the shareholder representing the outstanding
capital stock or 2/3 of the membership.
3) approval shall be done separately by the corporation intending to merge or consolidate.

7.2.13.3 Articles of merger or consolidation

THE ARTICLES OF MERGER OR CONSOLIDATION

- refers to the instrument, legal documents, that must be prepared and submitted as part of
the merger or consolidation process.

Essential Requisites of Articles of Merger or Consolidation:

1. Shall be executed by each of the constituent corporations,
2. Signed by the president or vice president and;
3. Certified by the secretary or assistant secretary of each corporation

Contents of Articles of Merger or Consolidation:

a) The plan of the merger or the plan of consolidation;
b) As to stock corporations, the number of shares outstanding, or in the case of nonstock
corporations, the number of members;
c) As to each corporation, the number of shares or members voting for or against such plan,
respectively;
d) The carrying amounts and fair values of the assets and liabilities of the respective companies as of
the agreed cut-off date;
e) The method to be used in the merger or consolidation of accounts of the companies;
f) The provisional or pro-forma values, as merged or consolidated, using the accounting method; and
g) Such other information as may be prescribed by the Commission.

Note:
For a valid merger or consolidation, the approval of the Securities and Exchange Commission
(SEC) of the Articles of Merger or Consolidation is required.

7.2.13.4 Procedure, effectivity, limitations and effects

STEPS TO ACCOMPLISH A MERGER OR CONSOLIDATION

1. The board of each corporation draws up a plan of merger or consolidation (Sec. 75)
Such plan must include any amendment, if necessary, to the articles of incorporation of
the surviving corporation, or in case of consolidation, all the statements required in the articles
of incorporation of a corporation.

2. Submission of plan to stockholders or members of each corporation for approval

A meeting must be called and at least twenty-one (21) days’ notice must be sent to all
stockholders or members, personally or by registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds(2/3) of the members or of stockholders representing
two-thirds (2/3) of the outstanding capital stock will be needed. Appraisal rights, when proper,
must be respected.

3. Execution of the formal agreement, referred to as the Articles of Merger or Consolidation by the
corporate officers of each constituent corporation

4. Submission of said Articles of Merger or Consolidation to the SEC for approval

5. Action by SEC, conduct hearing or issue certificate (Sec. 78)

If, upon investigation, the Securities and Exchange Commission has reason to believe
that the proposed merger or consolidation is contrary to or inconsistent with the provisions of
this Code or existing laws;
○ If necessary, the SEC shall set a hearing, notifying all corporations concerned
with written notice of the date, time and place of the hearing at least 2 weeks
before.
○ The SEC shall thereafter proceed as provided in this Code.
6. Issuance of the certificate of merger or consolidation (Sec. 78)
Upon issuance of the certificate, such merger or consolidation shall become effective.

EFFECTS OF MERGER OR CONSOLIDATION (Sec. 79)

a) The constituent corporations shall become a single corporation.
b) The separate existence of the constituent corporations shall cease, except that of the surviving or
the consolidated corporation;
c) The surviving corporation (in case of merger) or the consolidated corporation (in case of
consolidation) shall possess all the rights and privileges, immunities and franchises of the
constituent corporation. Moreover, the personal and real property, choses in action and other
interests of the constituent corporation shall be transferred to the surviving or new corporation;
d) The surviving corporations shall be liable for all the liabilities and obligations of each of the
constituent corporations as if it itself has procured it.