Corporate disputes emerge when friction threatens an entity’s governance structure, ownership rights, and management directives. Disagreements surrounding the alienation or encumbrance of corporate assets often serve as flashpoints, directly testing the boundary between statutory board authority and shareholder protections under the Revised Corporation Code (R.A. 11232).

Dear Atty. Duran-Schulze,

Our family-owned corporation’s board intends to sell our main real estate asset. However, minority shareholders representing 35% of the outstanding capital stock strongly object to the transaction.

We need to clarify whether this sale requires a simple majority vote of the board of directors or the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock.

Also, we need to understand our corporate rights and what legal remedies are available to stop the sale if the board proceeds anyway.

Concerned Shareholder

Dear Concerned Shareholder,

Thank you for reaching out. While the corporate dispute you mentioned may seem complex, your rights and available legal remedies are guided primarily by Section 39 of the Revised Corporation Code (R.A. 11232), as well as rules on minority shareholder remedies and SEC regulations.

Section 39, Revised Corporation Code (R.A. 11232)

In the Philippines, sales and other dispositions of corporate assets are governed by Section 39 of the RCC, which provides: 

“Section 39. Sale or Other Disposition of Assets. – Subject to the provisions of Republic Act No. 10667, otherwise known as the “Philippine Competition Act,” and other related laws a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge, or otherwise dispose of its property and assets, upon such terms and conditions and for such consideration, which may be money, stock, bonds, or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient.

A sale of all or substantially all of the corporation’s properties and assets, including its goodwill, must be authorized by the vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members, meeting duly called for the purpose.

In nonstock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section.

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 property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose of which it was incorporated.

Written notice of the proposed action and of the time and place for the meeting shall be addressed to stockholders or members at their places of residence as shown in the books of the corporation and deposited to the addressee in the post office with postage prepaid, served personally, or when allowed by the bylaws or done with the consent of the stockholder, sent electronically: Provided, That any dissenting stockholder may exercise the right of appraisal under the conditions provided in this Code.

After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge, or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members.

Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of the corporation or if the proceeds of the sale or other disposition of such property and assets shall be appropriated for the conduct of its remaining business.”

Board Approval for Regular Asset Transactions

As the default rule in the provision, the management of corporate property (i.e., sale, lease, exchange, mortgage, pledge, and other disposition) is vested in the board of directors or trustees. 

For ordinary asset transactions—such as selling a single parcel of land out of many, mortgaging equipment, or disposing of obsolete assets—a simple majority vote of the board of directors or trustees is sufficient to legally bind the corporation.

In these standard scenarios, stockholders do not possess a statutory right to vote on or block the transaction, as the board acts within its inherent management powers to execute business decisions, as also generally provided under Section 22 of the RCC.

2/3 Stockholder Approval for Substantial Sales

However, when a transaction escalates to a sale or disposition of “all or substantially all” of the corporate properties and assets (including goodwill), the power shifts from the board alone to the body of stockholders.

In such cases, the board’s majority vote must be explicitly ratified by stockholders representing at least two-thirds (2/3) of the outstanding capital stock (or 2/3 of members in a voting nonstock corporation) at a meeting duly called for that purpose. For nonstock corporations lacking voting members, a majority vote of the trustees currently in office suffices.

“All or Substantially All” Explained

Now, to eliminate ambiguity over what constitutes “substantially all” of the corporation’s properties and assets, the provision established two definitive tests—a financial test and a functional test. 

1. The General Statutory Standard (For Unlisted and Family Corporations)

      • Financial Test: Computed based on the corporation’s net asset value, as shown in its latest financial statements. 
      • Functional Test: A sale or disposition is legally deemed to cover substantially all corporate property if, as a result, the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.  

 

2. The SEC 51% Bright-Line Rule (Exclusively for Publicly-Listed Companies). Under SEC Memorandum Circular No. 12, Series of 2020 (Shareholder’s Approval on Sale of Corporate Assets), the SEC established a quantitative rule specifically for Publicly-Listed Companies (PLCs):

“(1) The sale or disposal of corporate property and assets amounting to 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 (1) year from the date of the first transaction (aggregate sale transactions).” (emphasis supplied)

(Note: For private, unlisted, or family-owned corporations, the transaction is evaluated strictly under the Financial and Functional tests under Section 39 of the RCC.)

The Bulk Sales Law (R.A. 3952)

While the Revised Corporation Code (RCC) specifically governs stockholder approval for the sale or disposition of “all or substantially all” corporate properties and assets, the Bulk Sales Law (R.A. 3952) protects creditors by requiring the seller to provide an advance list of all creditors and apply sale proceeds to their debts. Failure to do so makes the transfer void against those creditors. 

So, based on Section 39 of the Revised Corporation Code (R.A. 11232), whether the board of your family-owned corporation can approve the sale on their own or requires a two-thirds (⅔) stockholder vote depends entirely on the nature of the transaction. 

If it escalates to a sale of “all or substantially all” of the corporate properties and assets (including goodwill), then it requires the approval of at least ⅔ of the outstanding capital stock. Now, because your minority block holds a 35% shareholding—which is greater than one-third—you hold a decisive statutory veto power. Because the remaining majority (65%) cannot reach the required ⅔ threshold, they cannot legally pass the shareholder approval.

If the board ignores this mandatory requirement and attempts to proceed with the sale via a simple board majority vote without stockholder ratification, your minority block can file an intra-corporate suit. Alternatively, if the transaction is properly submitted to a vote and passes over your objection, you can exercise your statutory appraisal right to surrender your shares and demand full cash payment for their fair market value. To validly exercise your appraisal right, you must (1) vote against the proposed sale at the duly called stockholders’ meeting, and (2) make a written demand on the corporation for payment of the fair value of your shares within thirty (30) days after the vote was taken.  

I hope this provides a clear explanation and initial guidance. For any further clarification or assistance with corporate matters in the Philippines, feel free to contact our team at Duran & Duran-Schulze Law. We are located just in Bonifacio Global City (BGC), Taguig, Metro Manila. You may call us at (02) 8478-5826 (landline) or +639171940482 (mobile), or email info@duranschulze.com.