In the dynamic landscape of Philippine business, a merger is a strategic tool for expansion, synergy, and enhanced market competitiveness. Under the Revised Corporation Code of the Philippines (Republic Act No. 11232), a merger occurs when one or more corporations are absorbed by a single surviving corporation.
The process is rigorous, requiring strict adherence to the procedural and documentary mandates of the Securities and Exchange Commission (SEC).
I. The Legal Framework: Key Procedural Steps
The path to a successful merger involves a series of corporate actions and regulatory filings. Unlike a simple contract, a merger results in the "legal death" of the absorbed corporation(s) and the transfer of all assets and liabilities to the survivor by operation of law.
1. Board Approval
The Board of Directors of each participating corporation must approve a Plan of Merger. This document is the "charter" of the transaction, outlining the terms, the mode of carrying the merger into effect, and any amendments to the Articles of Incorporation of the surviving entity.
2. Stockholder Ratification
Following board approval, the plan must be submitted to the stockholders (or members, in non-stock corporations) for vote.
- Requirement: An affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock (or 2/3 of members).
- Notice: A notice of the meeting must be sent to all stockholders of record, regardless of whether they have voting rights, at least 21 days prior to the meeting.
3. Execution of the Articles of Merger
Once approved by the stockholders, the Articles of Merger must be executed by each corporation, signed by the President or Vice-President, and certified by the Corporate Secretary.
4. SEC Filing and Approval
The Articles of Merger and the Plan of Merger are submitted to the SEC. The merger becomes effective only upon the issuance of the Certificate of Merger by the Commission.
II. Documentary Requirements
The SEC requires a comprehensive set of documents to ensure transparency and protect the interests of creditors and minority stockholders.
Primary Documents
| Document | Description |
|---|---|
| Articles of Merger | Signed and attested by the respective officers of the constituent corporations. |
| Plan of Merger | The detailed agreement setting forth the terms of the combination. |
| Certificates of Adoptions | Notarized certifications by the Corporate Secretaries and Presidents of each corporation attesting to the board and stockholder approvals. |
Supporting Financial and Legal Documents
- Audited Financial Statements (AFS): The most recent AFS of all constituent corporations, usually as of a date not earlier than 120 days prior to the filing (to ensure the SEC reviews current financial health).
- Long-form Audit Report: For the surviving corporation, specifically if the merger results in a significant increase in capital.
- List of Creditors: A verified list of creditors of each corporation, with their respective addresses and the amounts owed.
- Affidavit of Publication: Proof that a notice of the proposed merger was published once a week for two consecutive weeks in a newspaper of general circulation.
- Consent of Creditors: While not always mandatory for the filing itself, the SEC may require evidence that creditors have been notified or have consented, particularly if the merger significantly affects the debt-to-equity ratio.
Regulatory Clearances
- BIR Tax Clearance: A "Certificate Authorizing Registration" (CAR) or a tax clearance from the Bureau of Internal Revenue is crucial, as mergers often involve the transfer of real properties and shares.
- PCC Clearance: If the transaction meets the "Size of Person" and "Size of Transaction" thresholds, the parties must obtain clearance from the Philippine Competition Commission (PCC) to ensure the merger does not lead to a "Substantial Lessening of Competition."
III. Legal Effects of the Merger
Upon the issuance of the Certificate of Merger by the SEC:
- Single Existence: The constituent corporations become a single entity (the survivor).
- Cessation of Entities: The separate existence of the absorbed corporations ceases.
- Transfer of Rights: The survivor possesses all rights, privileges, immunities, and powers of the constituent corporations.
- Assumption of Liabilities: The survivor is responsible for all liabilities and obligations of the absorbed corporations. Any pending claim or legal action may be prosecuted against the survivor.
Note on Appraisal Right: > Stockholders who dissent from the merger have the Appraisal Right. This allows them to demand payment of the fair value of their shares, provided they voted against the merger and made a written demand within 30 days of the vote.
IV. Common Pitfalls to Avoid
- Inconsistent Financials: Ensure that the "Interim Financial Statements" used for the merger match the books of all constituent companies.
- Notice Failures: Failing to provide the 21-day notice to stockholders can be a ground for the SEC to reject the application.
- Unresolved Creditor Claims: Significant opposition from creditors can delay SEC approval unless their interests are sufficiently protected or the survivor assumes the debt.
Would you like me to draft a template for the Articles of Merger or a checklist for the Secretaries' Certificate required for this application?