Atty. Elizabeth R. Padron

November 21, 1990 Atty. Elizabeth R. Padron 2294 Pasong Tamo Extension Makati, Metro Manila M a d a m : This refers to your letter dated November 14, 1990 requesting opinion on the query posed therein. As stated, a Joint Venture Agreement was entered into by A and B corporations to form X Shipping Agency Corporation which was thereafter incorporated. Among other things, it was expressly agreed upon that neither of the two corporations nor any of their subsidiaries or associates, while they hold shares in X Corporation, shall become a stockholder of another corporation, company or firm or carry on any business which directly or indirectly compete with that of X Corporation. Your query: May the stockholders of X Corporation, during its liquidation period, organized another corporation with a competing business alleging that the same is prohibited in the joint venture agreement? It is your view that during the liquidation period, neither A nor B can engage in any business or form another corporation which will compete with X Corporation. In connection therewith, please be advised that the "liquidation period" referred to under Section 122 of the Corporation Code presupposes that the corporation has already been dissolved pursuant to law. While under said Section a dissolved corporation shall be continued as a body corporate for three (3) years after the time when it would have been dissolved for the purpose of winding up and liquidation, it cannot continue the business for which it was established . The Law provides: "SECTION 122. Corporate liquidation . Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affair, to dispose of and convey its property and to distribute its assets but not for the purpose of continuing the business for which it was established ." (Emphasis supplied) Thus, the dissolution of a corporation terminates its power to continue business as a going concern .This is so, even though a statute continues its existence for a definite or indefinite time to wind up the business (16 A Fletcher 8118).Assuming therefore that the corporation referred to in your letter is already dissolved pursuant to law, the same can no longer operate its business. Consequently, should any of its stockholders, after its formal dissolution, form another corporation which will engage in the same line of business, even if it is done during the liquidation period, we believe that no more competition would result. In the light of the foregoing, your query is answered in the affirmative. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner