PEA, Clyde Ian Brett C.

BBL112-1T JANUARY 27, 2015

Ordinandum rei Corporatus

Through many years, corporate acquisitions, business reorganizations, and
combinations and mergers have become more common across the business world.
Corporate acquisitions can be made through a variety of methods and techniques. An
acquisition may be achieved through a purchase of another corporations shares, assets
or entire business (assets and liabilities). The Corporation Code of the Philippines
governs the formation, organization and regulation of private companies, unless they
are owned or controlled by the government or its agencies. The Corporation Code also
governs mergers and other business combinations.

Mergers require a transfer of all the assets and liabilities of the absorbed
corporation to the surviving corporation. This is followed by the dissolution of the
absorbed corporation. In return for the transfer of all the assets and liabilities of the
absorbed corporation, the surviving entity issues a block of shares equal to the net
asset value transferred. These shares are in turn distributed to the stockholders of the
absorbed corporation. A legitimate business purpose for the merger is essential.
(KPMG, 2014)

A de facto merger is the acquisition by one corporation of all or substantially all

of the properties of another corporation solely for stock, usually undertaken for a bona
fide business purpose and not solely to escape taxation. For the acquisition to be
considered substantial, at least 80 percent of the assets acquired must have an element
of permanence; that is, not acquired for immediate disposal. Unlike a statutory merger,
where the absorbed corporation is automatically dissolved as a consequence of the
merger, in a de facto merger, the corporation the assets of which were acquired
survives after the transfer until it is later dissolved by another act. However, in a de facto
merger, the acquisition of assets does not automatically result in the dissolution of the
corporation the assets of which are acquired. (ibid.)

Unlike a merger, a consolidation of nonprofit entities involves the dissolution of

each of the corporations involved, and the creation of an entirely new corporation that
takes on the programs, resources, and activities of the former entities. Although the net
effect of a merger and consolidation are the same one surviving entity with all the
assets and liabilities of the two previous groups many associations prefer
consolidation over merger because it tends to lend the perception that no organization
has an advantage over the other. There is a new corporation which houses the
activities of the two and each is dissolved pursuant to the consolidation. (Venable LLP,
2010)

The objections to a merger or consolidation may arise from the desire to avoid
some of the requirements of the law. The main objection to a sale of assets arises in
connection with distributing the consideration received among the shareholders of the
selling corporation. Consolidations and mergers, being fundamentally alike, may, for
purposes of comparison, be considered together as one method of voluntary
reorganization, and a sale of assets may be considered separately as the other. In
either case there is a transfer of assets to another corporation and usually an
assumption of liabilities. In either case there may be an exchange of shares and
dissolution of the transferring corporations.

Their similarities and differences may be summarized as follows (Hills, 1931)

Merger Consolidation Sale of Assets

Requirements as The shareholders of The shareholders The purchasing
to vote or consent the surviving of all the corporation acts
of shareholders corporation & the constituent only through its
merged corporations corporations must board of directors;
are entitled to vote authorize the necessity for
and to exercise the agreement of shareholders'
rights of dissenting consolidation authorization is on
shareholders the selling
corporation
Transfer of Assets Assets of dissolved corporation are Assets of the
(The result is the transferred to the new corporation by selling corporation
same regarding the operation of law are transferred by
final position of the instruments of
assets) conveyance
Life of previous A new corporation is A new corporation A corporation is not
corporation created and one of is created and the dissolved, but it is
the constituents loses constituent customary to
its corporate corporations lose liquidate its affairs
existence their corporate and cause its
existence dissolution. Unless
dissolved the
corporation is a
hollow shell or an
inactive holding
corporation
Dealings with State statutes permitting corporations to A corporation may
Foreign consolidate do not as a rule permit the sell its assets to
Corporations consolidation of a domestic corporation with any other
a foreign corporation corporation,
domestic or
foreign.
Shares of Stock Require an exchange of the shares of all Does not disturb
the corporations involved. the shares of the
purchasing
corporation or
require an
 exchange or
substitution of
certificates

Based from the above mentioned details, the method of consolidation or merger is
inconvenient or undesirable for business reasons, and that a sale of assets is usually
preferable to any other procedure in spite of its difficulties. Accordingly it seems
desirable that adequate legal provisions should be made whereby a sale of assets may
have all of the benefits of a consolidation if the shareholders wish so. This cannot be
done without solving the problem of distribution.

REFERENCES:

KPMG. Taxation of Cross-Border Mergers and Acquisitions. 2014.

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/cross-border-
mergers-acquisitions/Documents/2014/philippines-2014.pdf

Venable, LLP. Combinations and Alliances Among Nonprofit Associations. 2010.

http://www.venable.com/combinations-and-alliances-among-nonprofit-associations-05-
07-2010/

George S. Hills, Consolidation of Corporations by Sale of Assets and Distribution of

Shares, 19 Cal. L. Rev. 349 (1931).