Review of corporate papers
THE COMING months will be hectic for the corporate secretaries of many of the country’s private companies, especially those whose stocks are listed on the stock exchange, otherwise called public companies.
This is the time of the year corporations usually hold their annual stockholders meeting.
For blue chip companies, it’s a once-a-year event when the corporate gods descend from their executive suites to hobnob with or share some time with their stockholders and the representatives of institutional investors and credit institutions.
These affairs are carefully orchestrated. The company’s top honchos are assigned specific roles and speak from cue cards.
Their statements are precise to avoid inadvertent booboos. Adlibs are allowed to lighten up the mood of the meeting.
If certain motions have to be made from the floor, the people who will make them are selected ahead of time and positioned near the microphones so they can do their spiel promptly.
For public relations purposes, questions are allowed from the audience, subject to time limitations. Barring any hitches, the meetings are over and done with in an hour or two.
Documents
Since it is conducted every year, preparations for the stockholders meeting often become routine.
Unless something happened during the preceding year that adversely affected the company’s bottom line or there has been a major change in management, these events are cut and dried.
Thanks to modern technology, the documents required to be filed with the regulatory authorities and furnished to the stockholders can be easily prepared and distributed.
The annual report, including the audited financial statements, and other required notices can be sent by e-mail or bundled in a computer disk.
With the activities already on a “template,” a feeling of complacency sometimes sets in on the people tasked with the conduct of this corporate ritual.
Three items in the company’s organic documents—the Articles of Incorporation and By-laws—are often assumed to be in order in the run-up to the meeting.
These are the date of the meeting, the place of the meeting and the term of the corporation.
The law requires the meeting to be held on the date specified in the by-laws, and not earlier. Ahead of that meeting, prior notice (depending on the number of days indicated in the by-laws) should be given to the stockholders.
Meeting venue
However, if the date falls on a nonworking day or holiday, or when majority of the stockholders are unavailable, the meeting can, under the existing rules of the Securities and Exchange Commission (SEC), be held on any day within 30 days from the date stated in the by-laws.
And not later than 30 days after the date of the actual meeting, the appropriate General Information Sheet describing the company’s stock profile should be filed with the SEC.
The choice of the venue of the meeting sometimes poses a pleasant problem for companies that consider the annual corporate ritual an opportunity to show to their stockholders and the public that they have arrived.
If money is not a problem, only the best or most prestigious address in the commercial district would suffice for that “coming out” event.
The rules on where to hold that meeting are specific: If practicable, it should be in the principal office of the corporation as stated in the by-laws, otherwise it should be in the city or municipality where that office is located.
The restriction is aimed at giving the stockholders the opportunity to attend the meeting with the least inconvenience on their part.
So, if the principal office of a company is, say, in Baliuag, Bulacan, it cannot conduct its meeting in any of the posh hotels in the cities of Makati and Taguig.
Failure to comply with the venue requirement is a ground to question the validity of the actions taken in that meeting.
Liquidation
Perhaps, the worst thing that can happen while preparing for the stockholders meeting is finding that the term of the corporation has already ended.
There have been instances of lawyers, some coming from prestigious law offices, learning about the expiration of the term of their client—corporation in the course of their review of the documentary requirements for this event.
The omission is understandable. The standard term of corporations is 50 years. That information is indicated at the bottom of the Article of Incorporation in words, not in numerals.
It is something that’s easy to overlook. Unless the corporate secretary or custodian of corporate records concerned maintains an efficient reminder system, the term could expire without any of them noticing it.
Once its term expires, the corporation is considered, for all intents and purposes, inexistent. Except to undergo the process of liquidation, it loses all the rights and powers it is entitled to as a juridical person.
The concept of Lazarus or the Phoenix rising from the dead does not apply to corporations whose terms have already expired. There is no Second Coming or Easter resurrection for dead corporations.
For obvious reasons, a dead corporation cannot hold any stockholders meetings; its directors and stockholders can only discuss the smooth termination of its affairs.
Under these circumstances, the company has three years to liquidate its affairs and distribute its remaining assets, first, to its creditors to settle existing obligations, and, second, to the stockholders.
A lawyer can be forgiven for ignorance of the law, but not negligence. Keeping a client’s corporate papers in order is part of his fiduciary responsibilities.
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