Effect of Non-Use of Corporate Charter (Section 21, Revised Corporation Code)

Summary

Attorney Marie Chris Bataan's video script explores the consequences for corporations that fail to formally organize or commence business within five years of receiving their certificate of incorporation. As per Section 21 of the Revised Corporation Code, such corporations risk having their certificate revoked, losing their corporate status and powers. The script also discusses the implications for corporations that become inactive for five consecutive years, facing potential delinquent status and a two-year window to resume operations and comply with SEC requirements to avoid revocation.

Takeaways

• 📜 The video discusses the consequences for corporations that fail to formally organize after obtaining a certificate of incorporation.
• 🕒 According to Section 21 of the revised corporation code, a corporation has five years to formally organize and commence business from the date of incorporation.
• 📝 If a corporation does not start its business within the five-year period, its certificate of incorporation is considered revoked the day after the period ends.
• 🏢 Formal organization involves filing bylaws, electing a board of directors, establishing a principal office, and other activities to transact legitimate business.
• ❌ A revoked certificate of incorporation means the state withdraws the corporation's legal personality and powers granted at the time of incorporation.
• 📅 The five-year period starts from the date the certificate of incorporation was issued, and non-compliance results in automatic revocation.
• 🔄 However, if a corporation has commenced business but then becomes inactive for five consecutive years, it may be placed under delinquent status by the commission.
• 🚫 Delinquent corporations are given a two-year period to resume operations and comply with the commission's requirements to avoid revocation.
• 📋 Compliance includes meeting all prescribed requirements set by the Securities and Exchange Commission to maintain the corporation's status.
• 🛑 Failure to comply within the two-year period results in the revocation of the corporation's certificate of incorporation.
• 🏛 Creating a corporation is a privilege, and maintaining its status requires substantial compliance with the state's and the commission's regulations.

Q & A

What is the main focus of Attorney Marie Chris Bataan's YouTube channel?

The main focus of Attorney Marie Chris Bataan's YouTube channel is to simplify the law by discussing concepts and principles of law in under 10 minutes.

What happens to a corporation that fails to formally organize after receiving a certificate of incorporation?

If a corporation fails to formally organize and commence its business within five years from the date of incorporation, its certificate of incorporation is deemed revoked as of the day following the end of the five-year period.

What are some activities that constitute the formal organization or commencement of a corporation's business?

Formal organization or commencement of a corporation's business includes filing the bylaws with the Securities and Exchange Commission, electing their board of directors, establishing a principal office or principal place of business, and any other activity that enables the corporation to transact legitimate business or accomplish its purpose.

What does it mean when a corporation's certificate of incorporation is revoked?

When a corporation's certificate of incorporation is revoked, it means that the state is stripping the corporation of its legal personality and the powers it was granted when the certificate was issued.

Can a corporation become a de facto corporation if its certificate of incorporation is revoked?

No, a corporation cannot become a de facto corporation if its certificate of incorporation is revoked because a de facto corporation requires a valid certificate of incorporation.

What is the consequence for a corporation that has commenced its business but becomes inoperative for at least five consecutive years?

If a corporation has commenced its business but becomes inoperative for at least five consecutive years, the Securities and Exchange Commission may place the corporation under delinquent status after due notice and hearing.

What is the status of a corporation that has been placed under delinquent status by the Securities and Exchange Commission?

A corporation that has been placed under delinquent status is referred to as a delinquent corporation and must comply with the requirements prescribed by the Securities and Exchange Commission to continue its operations.

How long does a delinquent corporation have to resume operations and comply with the requirements set by the Securities and Exchange Commission?

A delinquent corporation has a period of two years to resume operations and comply with all requirements prescribed by the Securities and Exchange Commission.

What happens if a delinquent corporation fails to comply with the requirements and resume operations within the two-year period?

If a delinquent corporation fails to comply with the requirements and resume operations within the two-year period, its certificate of incorporation will be revoked.

What is the significance of the five-year period mentioned in the script for a corporation's operations?

The five-year period is significant because it is the time frame within which a corporation must formally organize and commence its business after receiving its certificate of incorporation. Failure to do so results in the revocation of the certificate.

Why is it important for a corporation to comply with the requirements set by the Securities and Exchange Commission?

It is important for a corporation to comply with the requirements set by the Securities and Exchange Commission to maintain its corporate status and privileges granted by the state, as failure to comply can lead to the revocation of the corporation's certificate of incorporation.

Outlines

00:00

📜 Certificate Revocation for Non-Organized Corporations

Attorney Marie Chris Bataan introduces the topic of corporations that have been legally created but fail to formally organize within five years of receiving their certificate of incorporation. According to Section 21 of the Revised Corporation Code, such corporations will have their certificate revoked, effectively losing their corporate status. The video explains the necessity for corporations to file bylaws, elect a board of directors, and establish a principal office to be considered formally organized. The consequences of non-compliance are highlighted, including the loss of corporate powers and the revocation of the certificate on the day following the five-year period from the date of incorporation.

05:00

🕒 Impact of Inactivity on Corporate Status

This paragraph delves into the scenario where a corporation has commenced its business but then becomes inactive for at least five consecutive years. The Securities and Exchange Commission (SEC) has the authority to place such corporations under delinquent status after due notice and hearing. The video clarifies that a delinquent corporation has a two-year period to resume operations and meet the requirements set by the SEC. Failure to do so within the given timeframe results in the revocation of the corporation's certificate of incorporation. The importance of maintaining corporate activity and compliance with SEC regulations is emphasized to retain the privilege of corporate status.

10:02

⏳ Timeframe for Delinquent Corporations to Resume Operations

The final paragraph of the script addresses the fate of delinquent corporations, which are given a two-year window to resume operations and fulfill the necessary requirements as dictated by the SEC. If a corporation fails to comply within this period, its certificate of incorporation will be revoked. The video underscores the responsibility of corporations to adhere to the state-granted privilege of their corporate status by ensuring substantial compliance with SEC regulations. A reminder is given to viewers to engage with the content by liking, subscribing, and activating notifications for future uploads, concluding the educational segment on corporate compliance and legal consequences.

Keywords

💡Virtual Classroom

A virtual classroom refers to an online learning environment where students and teachers interact through digital platforms. In the video, Attorney Marie Chris Bataan uses the term to describe her YouTube channel as an educational space where she simplifies the law for her audience. The concept is central to the video's theme of making legal education accessible remotely.

💡Certificate of Incorporation

A certificate of incorporation is a legal document issued by a government authority, such as the Securities and Exchange Commission, that certifies the creation of a corporation. In the video, the certificate is a critical component of a corporation's legal existence, and its revocation is discussed as a consequence of a corporation's failure to organize or commence business within a specified period.

💡Formal Organization

Formal organization in the context of corporations refers to the process of establishing a legal and operational framework for the corporation to conduct business. The video explains that this includes filing bylaws, electing a board of directors, and establishing a principal office. It is a key step that must be completed to maintain the corporation's legal status.

💡Commencement of Business

Commencement of business indicates the start of a corporation's operations or activities that generate revenue or serve its intended purpose. The video emphasizes that a corporation must engage in such activities within five years of receiving its certificate of incorporation to avoid revocation of its legal status.

💡Revocation

Revocation, in the context of the video, refers to the cancellation or withdrawal of a corporation's certificate of incorporation by the state due to non-compliance with legal requirements. The script discusses the specific conditions under which a certificate may be revoked, such as failure to organize or commence business within the stipulated time frame.

💡Delinquent Status

Delinquent status is a designation given by the Securities and Exchange Commission to a corporation that has become inactive for a period of at least five consecutive years. The video explains that such corporations are given a two-year period to resume operations and comply with regulatory requirements, or else face revocation of their certificate of incorporation.

💡Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is a government agency responsible for regulating corporations and the securities industry. In the video, the SEC is depicted as the authority that issues certificates of incorporation, oversees the organization of corporations, and has the power to revoke them under certain conditions.

💡Bylaws

Bylaws are the rules and regulations that govern the internal operations of a corporation. They must be filed with the SEC as part of the formal organization process. The video script uses the term to illustrate one of the necessary steps a corporation must take to legally commence its business activities.

💡Board of Directors

A board of directors is a group of individuals elected by the shareholders of a corporation to oversee the corporation's management and make major decisions. The video mentions the election of a board of directors as a critical step in the formal organization of a corporation.

💡Principal Office

The principal office is the main place of business for a corporation, where its central operations are conducted. In the video, establishing a principal office is listed as one of the activities that indicate a corporation's formal organization and readiness to conduct business.

💡Corporation by Estoppel

A corporation by estoppel refers to a situation where a corporation may continue to be recognized as such for the benefit of third parties, even if it has failed to meet certain legal requirements. The video briefly mentions this concept, suggesting that a corporation may still have some legal standing despite the revocation of its certificate of incorporation.

Highlights

Introduction to the YouTube channel by Attorney Marie Chris Bataan, focusing on simplifying the law.

Discussion on the creation of corporations and the issuance of a certificate of incorporation by the Securities and Exchange Commission.

Exploration of the consequences for corporations that fail to formally organize after receiving their certificate of incorporation.

Section 21 of the Revised Corporation Code's explanation of what happens to corporations that do not use their corporate charter.

Clarification that a corporation's certificate of incorporation is revoked if it does not commence business within five years of incorporation.

Definition of formally organizing and commencing business, including filing bylaws and electing a board of directors.

Explanation of the revocation of the certificate of incorporation as the state stripping the corporation of its legal personality.

Illustration of the five-year period's calculation from the date of issuance of the certificate of incorporation.

Differentiation between a revoked certificate of incorporation and the concept of a de facto corporation.

Introduction of the term 'corporation by estoppel' for the protection of third persons.

Discussion of the second scenario where a corporation becomes non-operative for five consecutive years and the implications.

Mention of the Securities and Exchange Commission's power to place a corporation under delinquent status after due notice and hearing.

Description of the two-year period given to a delinquent corporation to resume operations and comply with requirements.

Consequence of a corporation's failure to comply within the two-year period, leading to the revocation of its certificate of incorporation.

Emphasis on the importance of complying with the state's requirements to maintain corporate status.

Closing remarks encouraging viewers to like, subscribe, and turn on notifications for new video uploads.

Transcripts

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hi i am attorney marie chris bataan

this is my virtual classroom welcome to

my youtube channel

in this channel i shall aim to simplify

the law i will discuss concepts and

principles of law in under 10 minutes

hi again everyone welcome back to our

virtual classroom so what shall we talk

about in this video so in my other

videos if you have watched them we have

been talking about the creation of the

corporation how we create them how they

come into being now for this video i

want to talk about corporations that

were actually created they have been

issued a certificate of incorporation by

your securities and exchange commission

however

they were unable to formally organize

after getting or securing the

certificate of incorporation in other

words they failed to use their corporate

charter so what would happen to them now

this is what we are going to talk about

in this video

section 21 of the revised corporation

code actually tells you what happens to

corporations

who failed to use their corporate

chapter

let's read the first paragraph of

section 21

it states

if a corporation does not formally

organize and commence its business

within five years from the date of its

incorporation its certificate of

incorporation shall be deemed revoked as

of the day following the end of the

five-year period so what does that tell

you

it tells you that if a corporation

after having been given a personality by

the state through the securities and

exchange commission through the issuance

of the certificate of incorporation

fails to formally organize and commence

its business

then they will lose their right to them

being a corporation because under the

first paragraph it tells you that the

certificate of incorporation is revoked

now let's break this first part

paragraph into two parts

first let's discuss what does it mean to

formally organize or commence the

business

and second what does it mean when the

certificate of incorporation is your

vote

so let's discuss first the first part of

the first paragraph and that is the

formal organization and commencement so

what does that mean when the corporation

has to formally organize or commence its

business

this would mean that the corporation has

started doing something to get ready for

transacting into business or transacting

business itself so how does the

corporation do that

the corporation must file the bylaws

with the securities and exchange

commission they must have already

elected their board of directors

they must have already established a

principal office or principal place of

business and any other activity that

would enable the corporation to transact

legitimate business or accomplish the

purpose for which it was created so if

the corporation have not done any of

these activities or things

that would amount to formally organizing

or commencing the business

then

paragraph one of section 21 will tell

you

that the certificate of incorporation is

deemed revoked

what does that mean

when the certificate of incorporation

gets revoked it means now that the state

is tripping the corporation from its

personality it is stripping the

corporation from the powers that it was

given when the certificate of

incorporation was issued

so when is it considered revoked it is

considered revoked the day following the

expiration of the five year period

five year period counting from when from

the time that the certificate of

incorporation was issued so let's say

abc corporation was issued a certificate

of incorporation

on january 15

2020.

now they were issued a certificate of

incorporation but they failed to do any

activity that would formally organize or

commence the business of the corporation

they did not elect their board of

directors they did nothing after the

certificate of incorporation was issued

and they did so for five years so in our

example

if your

abc corporation's certificate of

incorporation was issued and dated on

january 15 2020

the five-year period will end on january

14

2025

and if from that period

they did not do any activity they did

not enter into any transaction or did

not do anything to formally organize

their business or commence their

business

then

your first paragraph of section 21 will

tell you that their certificate of

incorporation is now revoked the day

following the expiration of that five

year period

as i've mentioned they are now being

stripped from the personality that was

granted to them by the state through

your securities and exchange commission

do they now become a de facto

corporation no they're not even a de

facto corporation because then there is

already no certificate of incorporation

if you have watched my other video on de

facto corporations i will put the link

down below

you would have learned

that for a de facto corporation to

become one you must have a certificate

of incorporation

so

if you fail to use your charter your

charter rather because you failed to

formally organize or commence the

business five years from the time

the certificate of incorporation was

issued then by law

your certificate of incorporation is

revoked

as i've said you are stripped of the

personality of a corporation

you lose your corporate powers

however

the corporation may still be a

corporation by estopel

for the protection of third persons

what is a corporation by estopal i have

also discussed that in another video and

i will put the link down below or the

link up there

now how about

if

the corporation was issued a certificate

of incorporation they were able to

formally organize after that

but they became an operative for five

consecutive years

will their certificate of incorporation

also be revoked just like the earlier

scenario

the answer to that question is under the

second paragraph of section

21. let's read the second paragraph

it states

however if a corporation has commenced

its business but subsequently becomes an

operative for a period of at least five

consecutive years the commission may

after do notice and hearing place the

corporation under delinquent status so

unlike the first scenario where the

corporation failed to formally organize

right after securing a certificate of

incorporation they the their certificate

of incorporation is deemed revoked a day

following

the

expiration of the five year period in

the second scenario the corporation was

able to organize only that they became

an operative for at least five years so

what happens to them

your revised corporation code says

that your securities and exchange

commission will put them on delinquent

status after do notice and hearing

now once they're on delinquent status of

course they will now be called a

delinquent corporation if they want to

continue with the operation of their

business then they have to comply with

the requirements prescribed by the

commission and that is the third

paragraph of section 21

it says

a delinquent corporation shall have a

period of two years to resume operations

and comply with all requirements that

the commission shall prescribe upon

compliance by the corporation the

commission shall issue an order lifting

the delinquent status failure to comply

with the requirements and resume

operations within the period given by

the commission shall cause the

revocation of the corporation so your

revised corporation code

gives the delinquent corporation or a

corporation in a delinquent status

two years within which to resume

operations and to comply with all the

requirements that the securities and

exchange commission

will require of them

if they fail to comply within the

two-year period

then their certificate of incorporation

will also be

revolt

you have to remember

that creating a corporation is a

privilege granted to you by the state

and therefore you must ensure that you

have substantially complied with all the

requirements

that are put forth by your securities

and exchange commission so that your

corporate status will continue because

if not then your securities and exchange

commission is granted the power by the

state to revoke your certificate of

incorporation just like in the scenarios

we have discussed in this video

that is it for this video i hope again

you have learned from this video and i

will see you in the next

so if you find this video helpful please

click like subscribe and that

notification bell so that you will be

notified of new video uploads

thank you for watching see you next time

in mbl classroom

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