In the Philippine corporate landscape, the cessation of business operations does not equate to the dissolution of corporate existence. Many stakeholders mistakenly believe that once a company stops "doing business," its obligations to the Securities and Exchange Commission (SEC) also terminate. On the contrary, until a corporation is formally dissolved, it remains a creature of law with perpetual existence—and perpetual compliance requirements.
Failure to navigate these requirements can lead to a "delinquent" status, hefty administrative fines, or the ultimate "corporate death penalty": the revocation of the Certificate of Registration.
1. Defining the "Non-Operational" Corporation
Under the Revised Corporation Code (RCC) of the Philippines (Republic Act No. 11232), a corporation may be considered non-operational in two primary contexts:
- Non-use of Charter: If a corporation does not formally organize and commence its business within five (5) years from the date of its incorporation.
- Continuous Inoperation: If a corporation has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years.
2. The Fundamental Reporting Requirements
Even if a corporation has zero revenue and no employees, it must continue to file its annual reports. The SEC requires these to monitor the status of the entity and ensure transparency for potential creditors and the public.
A. General Information Sheet (GIS)
The GIS must be filed annually within thirty (30) days from the date of the annual stockholders’ meeting. For non-operational companies, this remains mandatory to update the SEC on the current directors, officers, and shareholders.
B. Annual Financial Statements (AFS)
All corporations must file an AFS. However, the level of complexity depends on the company's total assets or liabilities:
- Audited Financial Statements: Required if the corporation’s total assets or total liabilities exceed .
- Non-Audited (Pro-forma): If the assets/liabilities are below the threshold, the corporation may file financial statements certified under oath by the Treasurer or the President.
Note: Even with zero activity, the AFS must reflect the company’s standing (e.g., remaining capital, existing liabilities, or organizational costs).
C. SEC MC No. 28, Series of 2020
All corporations, active or otherwise, must designate and create an official and alternate email address and a mobile phone number for transactions with the Commission. Failure to comply results in the corporation being unable to file any reports.
3. The Consequences of Non-Compliance
The RCC introduced stricter penalties for "dormant" or non-compliant corporations to declutter the SEC’s registry of inactive entities.
The Delinquency Status
If a corporation fails to file its reportorial requirements for a period of five (5) consecutive years, the SEC may, after due notice and hearing, place the corporation under delinquent status.
- A delinquent corporation is given a period of two (2) years to resume operations and comply with all SEC requirements.
- During this period, the SEC will not issue a "Certificate of Good Standing."
Revocation of Registration
If a corporation fails to resume operations and comply with reportorial requirements within the two-year grace period following its delinquency, the SEC may revoke its Certificate of Incorporation. Revocation triggers the mandatory three-year period for liquidation.
4. SEC Memorandum Circular No. 19, Series of 2020
This specific circular provides the guidelines on the declaration of delinquent status. It emphasizes that:
- Notice is mandatory: The SEC must notify the corporation of its pending delinquency.
- Petitions to Lift: A corporation can petition to lift the delinquency status by showing proof of resumed operations and paying all accumulated fines.
5. Formal Dissolution vs. Mere Inactivity
If the board and stockholders decide that the corporation will no longer pursue its purpose, "idleness" is a dangerous strategy. The proper legal route is Formal Dissolution, which can be:
- Voluntary: Where no creditors are affected, through a majority vote of the board and a resolution by the stockholders.
- Involuntary: Initiated by the SEC due to fraud, serious misrepresentation, or continuous inoperation.
6. Summary of Compliance Checklist
| Requirement | Frequency | Impact of Non-Activity |
|---|---|---|
| GIS | Annual | Mandatory; must reflect current board. |
| AFS | Annual | Mandatory; may be non-audited if below threshold. |
| MC 28 | One-time/Updated | Required for all electronic filings. |
| Tax Filings | Monthly/Quarterly | Must file "No-Activity" returns with the BIR. |
Key Takeaway: In the Philippines, a corporation is a "going concern" in the eyes of the law until it is legally dissolved. Non-operational corporations must maintain a skeleton compliance framework—specifically the GIS and AFS—to avoid being struck off the registry and to preserve the limited liability protection for its stockholders.