On Corporate Combinations: Acquisitions, Merger and Consolidation of Corporations

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Republic Act No. 11232, or otherwise known as the Revised Corporation Code (“Revised Corporation Code”) expressly provides that corporation incorporated under the Code has the power and capacity to enter into a merger, consolidation, or any other commercial agreement with natural and juridical persons.

What are the different unions of corporations?

The Revised Corporation Code allows a union of corporations and the union may be effected by 1) one corporation selling all or substantially all of its assets to another, 2) by one corporation, without being dissolved, leasing its property to another corporation for which the lessor merely receives rental paid by the lessee, and 3) by sale of stocks where a holding company acquires a sufficient amount of the stock of another corporation for the purpose of acquiring control.

In the latter union, the acquiring corporation is called the parent or holding company, which is defined as a super corporation which owns or at least controls such a dominant interest in one or more other corporations that it is enabled to dictate their policies through voting power, or which is in position to control or materially to influence the management of one or more companies by virtue, in part at least, of its ownership of securities in the other company or companies. On the other hand, the corporation whose stocks are acquired is known as the subsidiary corporation.

In all the foregoing three cases of corporate combinations, the legal identity of each corporation is retained, unlike in merger and consolidation.

However, the sale of the assets for stock, if followed by dissolution, has the effect of a merger.

What are merger and consolidation?

Merger is a situation where two (or more) corporations unite, one corporation which retains its corporate existence absorbing or merging in itself the other which disappears as a separate corporation. It is the absorption of one corporation by another which survives.

Consolidation, on the other hand, happens when two (or more) corporations unite, giving rise to a new corporate body and dissolving the constituent corporations which cease to exist as separate corporations.

The Revised corporation code provided that two (2) or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation.

What is the procedure involved in merger or consolidation?

There should be a plan of merger or consolidation which shall set forth the following:

(a) The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent corporations;

(b) The terms of the merger or consolidation and the mode of 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 the Revised corporation code; and

(d) Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable.

The plan of merger or consolidation must be approved by a majority vote of each of the board of directors or trustees of the constituent corporations, party to the merger or consolidation.

The plan of merger or consolidation shall also be submitted for stockholders’ or members’ approval of each of such corporations at separate corporate meetings duly called for the purpose. Notice of such meetings shall be given to all stockholders or members of the respective corporations in the same manner as giving notice of regular or special meetings. The notice shall state the purpose of the meeting and include a copy or a summary of the plan of merger or consolidation.

The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of nonstock corporations shall be necessary for the approval of such plan.

Nevertheless, even if voting rights are not enjoyed, holders of nonvoting shares shall be entitled to vote in case of merger or consolidation of the corporation with another corporation or other corporations.

After the approval by the stockholders or members, articles of merger or articles of consolidation shall be executed by each of the constituent corporations, to be signed by the president or vice president and certified by the secretary or assistant secretary of each corporation setting forth:

(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 Securities and Exchange Commission.

What are the effects of Merger or Consolidation?

The merger or consolidation shall have the following effects:

(a) The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

(b) The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

(c) The surviving or the consolidated corporation shall possess all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

(d) The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and franchises of each constituent corporation; and all real or personal property, all receivables due on whatever account, including subscriptions to shares and other choses in action, and every other interest of, belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and

(e) The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each constituent corporation as though such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any constituent corporation may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of such constituent corporations shall not be impaired by the merger or consolidation.

Holders of nonvoting shares shall nevertheless be entitled to vote. Nevertheless, even if voting rights are not enjoyed, holders of nonvoting shares shall be entitled to vote in case of merger or consolidation of the corporation with another corporation or other corporations.

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