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A corporation may sell its assets
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In selling corporate assets, a majority vote of its board of directors or trustees is required
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If the sale is of all or substantially all of the corporation’s properties and assets, it must be authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or of the members
Moral principles do not depend on a majority vote. Wrong is wrong, even if everybody is wrong. Right is right, even if nobody is right. – Fulton J. Sheen
The Revised Corporation Code provides for the disposition of corporate assets. This means that the corporation, stock or non-stock, may sell, lease, exchange, mortgage, or pledge its corporate assets. For the purpose of this article, the term “sell” includes lease, exchange, mortgage and pledge.
What is the requirement before a corporation may sell its corporate assets?
The law says:
You have to consider what kind of transaction; is it a sale of all or substantially all of the corporation’s properties and assets? Or, is it a sale in the ordinary course of its business?
If the sale is reasonably necessary in the usual and regular course of its business, a corporation may, by a majority vote of its board of directors or trustees, sell or otherwise dispose of its property and assets, upon such terms and conditions and for such consideration as its board of directors or trustees may deem expedient.
If the sale is all or substantially all of the corporation’s properties and assets, including its good will, said sale must be authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members shall also be required.
What does it mean by “sale of all or substantially all” of the corporations’ properties and assets?
The law says:
The determination of whether or not the sale involves all or substantially all of the corporation’s properties and assets must be computed based on its net asset value, as shown in its latest financial statements.
A sale or other disposition shall be deemed to cover substantially all the corporate properties and assets if the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.
However, on April 15, 2020, the Securities and Exchange Commission (SEC) issued Memorandum Circular No. 12, Series of 2020 and adopted the following rules for publicly listed companies:
- The sale or disposal of at least 51% of the corporation’s total assets shall be considered as sale of all or substantially all of corporate property and assets, whether such sale accrued in a single transaction or in several transactions taking place within one year from the date of the first transaction (aggregate sale transactions).
- In sale of corporate assets falling under the preceding paragraph, the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock shall be required prior to the execution of the sale transaction.
- In aggregate sale transactions, shareholder approval shall be required for the sale transaction that breaches the 51% corporate asset threshold.
- Whether the sale amounts to at least 51% of the corporation’s assets is determined based on its total assets as shown in its latest audited financial statements; the computation may also be based on the latest quarterly financial statement or a special purpose financial statement prepared in connection with the transaction.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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