TITLE IV- POWERS OF CORPORATION -provided that no foreign corp shall give

donations in aid of any political party or

1. CORPORATE POWERS ARE CLASSIFIED: candidate or for purposes of partisan political
- a corporation has no power except: activity
 establish pension, retirement and other plans
 Those expressly conferred on it by the -for the benefit of its D,T, O and E
Corporation Code  exercise such other powers as may be
 Those that are implied or incidental to its essential or necessary to carry out its
existence purpose(s)
-a corporation exercises said powers through its -as stated in the Art. Of Inc.
BOD, and/ its duly authorized officers and agents 3. EXPRESSED POWERS OF THE CORP
-the power of the corporation to sue and be sued in -power of a corp to sue
any court is lodged with the BOD (that exercises its
corporate powers  Derivative Suit
-an action brought by a stockholder on behalf
-the physical acts of the corporation (signing of of the corp to enforce corp rights against the
documents) can be performed only by natural corp’s D, O or other insiders
persons duly authorized for the purpose by
corporate by-laws or by a specific act of the BOD -(sec 23 and 36 of the Corp Code) the D or T, as
provided under the by-laws, have the right to decide
2. (SAMPLES OF) IMPLIED POWERS OF THE whether or not a corporation should sue
CORPORATION
-since these D or O will never be willing to sue
-to: themselves, or impugn their wrongful or fraudulent
decisions, stockholders are permitted by law to bring
 Sue and be sued
an action in the name of the corp to hold them
-in its corporate name
accountable
 have perpetual existence
-unless the Cert. of Inc. provides otherwise -parties involved:
 adopt and use a corporate seal
 amend its Art. Of Inc.  Real party in interest- corp
-in accordance with the provisions of the  Nominal party- stockholder
code 4. CORPORATE TERM BE EXTENDED OR
 adopt by-laws SHORTENED?
-not contrary to law, morals or public policy
-and to amend or repeal the same in -Yes, as stated in the Art of Inc
accordance with this code
-req:
 (stock corp) issue or sell stocks to
subscribers and to sell TS  Approval by a majority vote of the BOD or
-in acc. With the provisions of this code BOT
 (non stock) Admit members to the corp  Ratification by the stockholders representing
 Purchase, receive, take or grant, hold, at least 2/3 of the outstanding capital stock or
convey, sell, lease, pledge, mortgage and members (non-stock corp)
otherwise deal with such real and personal
property -additional:
-including securities and bonds of other  Written notice of the proposed action and
corporations the time and place of meeting
-as the transaction of the lawful business of -shall be sent to stockholders or
the corp may reasonably and necessarily members at their respective place of
require residence (as shown in the books of the
-subject to the limitations prescribed by the corp)
law and the Constitution -must be deposited to the addressee in
 Enter into a: the post office with postage prepaid
o partnership -served personally, or when allowed (in
o joint venture the by-laws or with the consent of the
o merger stockholder) sent electronically in acc.
o consolidation with the rules and regulations of the
o or any other commercial agreement Commission on the use of electronic data
-with natural and juridical persons messages

 make reasonable donations - in case of extension of corp term: a dissenting

-inc. those for the public welfare or for stockholder may exercise the right of appraisal
hospital, charitable, cultural, scientific, civic under the conditions provided in the code
or similar purposes
5. MAY THE REDUCTION OR EXTENSION BE -detailed or long form report of the certifying
APPROVED MERELY BY ASSENT OF 2/3 OF auditor
OUTSTANDING CAPITAL STOCK OR 2/3  Treasurer’s affidavit
MEMBERS? -showing that at least 25% of the increased
capital stock has been subscribed and at
-No. (&) least 25% of the amount subscribed has
6. IF THE CORPORATE TERM IS REDUCED, been paid
WILL THAT BRING A VOLUNTARY 11. MAY NON-STOCK CORP INCUR, CREATE OR
DISSOLUTION? INCREASE BONDED INDEBTEDNESS?
-No. -Yes, when approved by:
7. APPRAISAL RIGHT  Majority of the BOT and
-a stockholder who dissented and voted against the  at least 2/3 of the members in a meeting duly
proposed corp action, may choose to get out of the called for the purpose
corp by demanding payment of the fair market value 12. BOND INDEBTEDNESS
of his shares
-long-term indebtedness secured usually by real
-done in case of shortening or extension of corp term property
8. INSTANCES OF DISTRIBUTION OF CORP -bonds issued by a corp shall be registered with the
CAPITAL Commission, which shall have the authority to
-Trust Fund Doctrine provides that subscription to determine the sufficiency of the terms thereof
the capital stock of a corporation constitute a fund to 13. HOW MUCH REAL PROPERTY OR REAL
which creditors have a right to look for the ESTATE MAY A CORP HOLD?
satisfaction of their claims; underlying principle in the
procedure for the distribution of capital assets 14. SHAREHOLDERS’ PRE-EMPTIVE RIGHT

 Amendment of the Art of Inc -the preferential right of all stockh. Of a stock corp to
-to reduce the authorized capital stock subscribe to all issues or disposition of shares of any
 Purchase of redeemable shares by the corp class, in proportion to their respective shareholdings
-regardless of the existence of unrestricted
15. What are the purposes of the pre-emptive
retained earnings
right of stockholders?
 Dissolution and eventual liquidation of the
corp  To enable the shareholders to retain his
9. VOTE NECESSARY TO INCREASE OR proportionate control in the corporation
DECREASE CAPITAL STOCK OR CREATE  To subscribe to all issues or disposition of
BONDED INDEBTEDNESS shares of any class, in proportion to their
respective shareholdings
 Majority vote of the BOD
 2/3 of the outstanding capital stock at a
stockholders’ meeting duly called for the 16. To what case may a stockholder exercise his
purpose pre-emptive right?

10. REQUIREMENTS THAT MUST BE MET FOR  All issues or disposition of shares of any
THE INCREASE OR DECREASE IN CAPITAL class
STOCK  General rule: pre-emptive right is
recognized with respect to new issues of
 Written notice of the proposed increase or shares (see p. 297)
diminution of the capital stock
*and time and place of the stockh. Meeting
-must be addressed to each stockh. 17. To what cases is the pre-emptive right not
 No decrease of the capital stock shall be applicable?
approved if its effect shall prejudice the rights  POWER TO DENY PRE-EMPTIVE RIGHT
of the corp. creditors (preemptive right is not applicable to):
 Approval by a majority vote of the BOD o Shares issued in compliance with laws
 Ratification by the stockh. Holding at least requiring stock offerings or minimum
2/3 of the outstanding capital stock stock ownership by the public
 Certificate must be signed by a majority of o Shares issued in exchange for property
the D of the corp needed for corporate purposes or in
-and countersigned by the chairperson and payment of a previously contracted debt
sec of the stockh. Meeting o Shares issued in good faith with the
 Approval by the SEC approval of the stockholders
-FS duly certified by an independent CPA as representing the 2/3 of OCS, in exchange
of the latest date possible
 for property needed for corporate 23. In cases of disposition of corporate assets in
purposes or in payment of debt the course of business done by the BOD (or
 General rule: pre-emptive right is not trustees), do they require the approval of the
recognized with respect to additional issues of stockholders or members?
originally authorized shares (see p. 297)
 NO, approval is not needed
o The sale does not involve all or
18. What are the limitations on the power of the substantially all of the corporate
corporation to sell or dispose all or substantially assets
all its corporate assets including goodwill? o Also applies if the proceeds of the
sale or disposition shall be
 Must be authorized by the vote of the SH appropriated for the conduct of its
representing at least 2/3 of the OCS (or at remaining business
least 2/3 of the members) o Ratification is not required
o In a SH or members’ meeting duly
called for the purpose
24. Suppose all or substantially all the corporate
property or assets shall be disposed of, is the
19. What is the test to apply in order to determine corporation dissolved?
whether the disposition is for all or substantially
all the assets of the corporation?  Wala ko kabalo hilak nlng ta

 Compute based on its net asset value (as

shown in latest FS) 25. Do stockholders of close corporations enjoy
 Substantially all the assets – if thereby the the same pre-emptive right?
corporation would be rendered incapable of
 The preemptive right of stockholders in close
continuing the business or accomplishing the
corporations shall extend to all stock to be
purpose for which it was incorporated.
issued, including reissuance of treasury
shares, whether for money, property or
personal services, or in payment of corporate
20. What may be the consideration for such sale debts, unless the articles of incorporation
or disposition? provide otherwise.

 Written notice of the proposed action and of

the time and place for the meeting 26. To what cases shall such pre-emptive right in
o Addressed to the SH/M at their close corporations extend?
places of residence
 all stock to be issued, including reissuance
 Deposited to the addressee in
of treasury shares, whether for money,
the post office with postage
property or personal services, or in payment
prepaid
of corporate debts
 Served personally
o unless otherwise provided in the AoI
 Sent electronically (if allowed
by bylaws or with SH’s
consent) 27. May the pre-emptive right of stockholders in
close corporations be limited?
21. In case there are no members with voting  YES, if provided in the AoI
rights in a non-stock corporation who may
approve the same disposition as mentioned?
28. What are fractional shares?
 A vote of the majority of the trustees in
office  Shares which are less than one share

22. May such disposition after having been 29. When may a corporation be allowed to
approved by the required vote of stockholders or acquire its own shares?
members be abandoned? a. To eliminate fractional shares arising out of
 YES stock dividends
o BOD/T may, in its discretion, abandon b. To collect or compromise an
such sale or disposition, subject to the indebtedness to the corporation, arising
rights of third parties under any contract out of unpaid subscription, in a delinquency
relation thereto, without further action or sale, and to purchase delinquent shares sold
approval by the SH or members. during said sale
c. To pay dissenting or withdrawing SH
entitled to payment for their shares
 d. To acquire treasury shares 33. May a corporation invest its corporate funds
e. Redeemable shares regardless of in another corporation or for a purpose other
existence of RE than its main purpose?
f. To effect a decrease of capital stock
g. (In close corporations) as ordered by the 🡺 Requisites:
SEC when there is a deadlock in the I. TO ACCOMPLISH ITS PRIMARY PURPOSE
management
o Purchase at FV of shares or of any 1) Approval of the majority of the BOD/BOT;
SH regardless of the availability of and
unrestricted RE 2) Approval of the stockholders/members shall
not be necessary
30. What basic conditions must be met before a II. TO ACCOMPLISH A PURPOSE OTHER THAM
corporation can acquire its own shares? THE PRIMARY PURPOSE
 The corporation must have unrestricted 1) Approval of the majority of the BOD/BOT;
retained earnings in its books to cover the 2) Ratification by the stockholders
shares to be purchased or acquired representing at least 2/3 of the outstanding
capital stock, or by at least 2/3 of the
members in the case of non-stock
31. Basis of unrestricted retained earnings
corporation, at a stockholder’s/member’s
🡺 SEC has exclusive supervision, control and meeting dully called for the purpose
regulatory jurisdiction to investigate whether the 3) Written notice of the proposed investment
corporation has unrestricted RE to cover the and the time and place of the meeting shall
payment for the shares and whether the purchase be addressed to each stockholder/member
is for legitimate corporate purpose. by mail or served personally, or sent
🡺 Provisions of the CC should be deemed written electronically in accordance with the rules
into the agreement between the corporation and and regulations of the Commission on the
stockholder even if there is no express reference to use of electronic data message, when
them in the promissory note allowed by the bylaws or done with the
consent of the stockholders
🡺 Requirement: unrestricted RE to cover the 4) Any dissenting (publicly disagree)
shares is based on Trust Fund Doctrine – capital
stockholder shall have appraisal right; and
stock, property and other assets of a corporation
5) The ratification must be made at a
are regarded as equity in trust for the payment of
stockholder’s /member’s meeting dully
corporate creditors.
called for the purpose
🡺 Preferred corporate creditors then stockholders
***FUNDS – any corporate property to be used in
🡺 Any disposition of corporate funds to the furtherance of business***
prejudice of creditors is null and void
34. May such investment be made even without
32. Instances of distribution of corporate capital the approval of the stockholders/members?
🡺 3 INSTANCES OF DISTRIBUTION OF 🡺 No.
CORPORATE CAPITAL
35. Define dividend
⇨ The Trust Fund Doctrine provides that
subscriptions to the capital stock of a 🡺 Corporate profits set aside, declared, and
corporation constitute a fund to which the ordered to be paid by the directors for distribution
creditors have a right to look for the among stockholders at a fixed time
satisfaction of their claims. This doctrine is 36. Who has the power to declare dividends in a
the underlying principle in the procedure for corporation?
the distribution of capital assets, embodied
🡺 BOD of a stock corporation may declare
in the Corporation Code, which allows the
dividends
distribution of corporate capital only in 3
instances: 37. From what source shall dividends be
⇨ 1) Amendment of the AOI to reduce the declared?
authorized capital stock
🡺 Out of unrestricted RE / “Surplus profits arising
⇨ 2) Purchase redeemable shares by the from its business”
corporation, regardless of the existence of
unrestricted RE 38. In what forms shall dividends be declared?
⇨ 3) Dissolution and eventual liquidation of the 🡺 Cash dividends, Property dividends or Stock
corporation dividends
39. Which stockholders are entitled to 1) When justified by definite corporate
dividends? expansion projects or programs
approved by the BOD; or
🡺 To ALL stockholders on the basis of outstanding
stock held by them 2) When the corporation is prohibited under
any loan agreement with financial
40. May delinquent stocks earn dividends? institutions or creditors, whether local or
🡺 Yes, Provided, that any cash dividends due on foreign, from declaring dividends without
delinquent stock shall first be applied to the unpaid their consent, and such consent has not yet
balance on the subscription plus cost and been secured; or
expenses, while stock dividends shall be withheld 3) When it can be clearly shown that such
from the delinquent stockholders until their unpaid retention is necessary under special
subscription is fully paid circumstances obtaining in the corporation,
such as when there is need for special
41. Can the Board alone declare stock
reserve for probable contingencies
dividends?
🡺 No, Provided further, that no stock dividend shall 45. Is stock dividend taxable income to the
be issued without the approval of stockholders stockholder?
representing at least 2/3 of the outstanding 🡺 Forced to exchange the monetary value of their
capital stock at a regular/special meeting duly dividend for capital stock, and the monetary value
called for the purpose they forego is considered the actual payment for
🡺 Dividends to a stockholder is not a matter of right the original issuance of the stocks given as
but a matter of consensus dividends

42. May stock corporations retain surplus 46. Can stock dividends be issued to a person
profits without declaring them into dividends? who is not a stockholder in payment for services
rendered?
🡺 General Rule: Stock corporations are prohibited No. The right to dividend is based on duly
from retaining surplus profits in excess of 100% of recorded stockholdings.
their paid-in capital stock, except: 47. Can dividends be declared out of capital?
Yes
1) When justified by definite corporate Stock corporations may declare out of the
expansion projects or programs unrestricted retained earnings
approved by the BOD; or
2) When the corporation is prohibited under 48. What is a wasting assets corporation?
Wasting Assets Corporation is a corporation
any loan agreement with financial
engaged in mining or cutting timber or some
institutions or creditors, whether local or such business, so that dividends are in fact paid
foreign, from declaring dividends without out of capital, the assets being consumed in the
their consent, and such consent has not yet regular course of operations.
been secured; or Wasting assets doctrine
3) When it can be clearly shown that such  Under this doctrine, a wasting asset
retention is necessary under special corporation or an entity engaged in the
extraction of a natural resource can legally
circumstances obtaining in the corporation,
return shareholders during the lifetime of the
such as when there is need for special corporation.
reserve for probable contingencies  Accordingly, a wasting asset corporation can
pay dividend not only to the extent of the
retained earnings but also to the extent of the
43. When may SEC compel corporations to accumulated depletion. The amount paid in
declare dividends? excess of the retained earnings is accounted
for a liquidating dividend or return of capital.
🡺 Declaration of dividends is dependent upon the
The wasting asset doctrine is therefore an
availability of surplus profit or unrestricted RE
exception to the trust fund doctrine.
🡺 BOD has the discretion to determine whether or 49. Can dividends be declared out if re-appraisal
not dividends are to be declared surplus?
Dividends cannot be declared out of re-appraisal
44. What are the valid reasons acceptable to the (revaluation) surplus
SEC for retaining surplus profits in excess of
100% of paid-in without having to declare said 50. May cash dividends be declared out of paid-
excess into dividends? in or premium surplus?
Dividends cannot be declared out of paid-in or
🡺 Except: premium surplus

51. May dividend declaration be revoked?

A dividend properly declared by the directors of a special laws.17
corporation cannot subsequently be revoked.
In legal parlance, "ultra vires" act refers to one which
52. May a corporation be managed by another is not within
corporation?
Yes. the corporate powers conferred by the Corporation
Management contract is an agreement whereby a Code or articles of
corporation delegates the management of its affairs
to another corporation for a certain period of time. incorporation or not necessary or incidental in the
exercise of the powers so
53. What two basic regulatory conditions are
required before a corporation conclude a
conferred.
management contract with another сoгрoration? 56. What is an ultra-vires act?
 Approved by the majority of the quorum of
the BOD
The term ultra vires refers to an act outside or
 Approved by stockholders owning at least beyond corporate powers, including those that may
majority of outstanding capital stock, or by at ostensibly be within such powers but are, by general
least a majority of the members in the case or special laws, prohibited or declared illegal.
of a nonstock corporation, at a meeting duly
called for the purpose
The Corporation Code defines an ultra vires act as
54. When shall a bigger vote of stockholders or
one outside the powers conferred by the Code or by
members be required to approve such
the Articles of Incorporation, or beyond what is
management contract?
necessary or incidental to the exercise of the powers
so conferred.
a. Interlocking stockholders
57. Is an ultra-vires act necessary illegal?
Where a stockholder or stockholders representing Ultra vires (literally “beyond the powers”) is not
the same interest of both the managing and the limited to illegal acts, although it encompasses
managed corporations own or control more than 1/3 actions barred by statute as well as by the corporate
of the total outstanding capital stock entitled to vote charter.
of the managing corporation.
58. What is an intra-vires act?
b. Interlocking directors An act is said to be intra vires (“within the power”) of
a person or corporation when it is within the scope
Where a majority of the members of the board of of his or its powers or authority.
directors of the managing corporation also constitute
a majority of the members of the board of directors 59. What is the effect if an ultra-vires act is
of the managed corporation. executory on both sides?
If the contract was fully executory, the defense of
55. What is the vote required in the above two ultra vires might be raised by either party.
cases?
Approval by the stockholders of the managed 60. Can an ultra vires act be ratified?
corporation owning at least two-thirds (2/3) of the An ultra vires transaction cannot be ratified by
total outstanding capital stock entitled to vote or by shareholders, even if they wish it to be ratified.
at least two-thirds (2/3) of the members in the case
of a non- stock corporation.

SEC. 44. Ultra Vires Acts of Corporations. - No

corporationpossess or exercise corporate powers
other than those conferred by this

Code or by its articles of incorporation and except as

necessary or

incidental to the exercise of the powers conferred.

What is ultra vires act?

Moreover, spe

laws governing certain classes of corporations, like

the Condominium A

also grant specific corporate powers to corporations

falling under such