POWERS OF CORPORATIONS

Corporation has the powers expressly

granted by RA 11232 and those which are
implied or incidental to its existence.

Generally, powers of the corporation are

exercised by the BOD or BOT and its
corporate officers, except those which are
reserved to the SH/M.
Sec. 35. Corporate powers and Capacity
Every corporation incorporated under this Code has the power and capacity:

(a) To sue and be sued in its corporate name;

(b) To have perpetual existence unless the certificate of incorporation provides otherwise;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation in accordance with the provisions of this Code;
(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in
accordance with this Code;
(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock
corporation;
(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of
the lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
(h) To enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement
with natural and juridical persons;
(i) To make reasonable donations, including those for the welfare of for hospital, charitable, cultural,
scientific similar purposes: Provided, that no foreign corporation Give donations in aid or any political party
or candidate or purposes of partisan political activity;
(J) To establish pension, retirement, and other plans for the of its directors, trustees, officers, and
employees; and
(k) To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as
stated in the articles incorporation.
Classification of Corporate Powers

1. Those expressly granted or authorized by

law;
2. Those incidental to its existence;
3. Those that are necessary to the exercise of
the express or incidental powers (Implied)
1. Express powers
- The powers expressly conferred upon the corporation by
law (special law or RCC)

2. Incidental Powers
- Powers which a corporation can exercise by the mere fact
of its being a corporation or powers which are necessary to
corporate existence.

3. Implied Powers
- Those powers which are reasonably necessary to exercise
the express powers to accomplish or carry out the purpose
for which the corporation was formed
Power to sue and be sued

1. Corporation de Facto may sue or be sued

2. A corporation NOT duly registered in
accordance with law has NO legal capacity to
SUE as such
3. Foreign corporation without the necessary
license from SEC may NOT SUE in the
Philippine courts;
4. MORAL DAMAGES.
Power to acquire and convey property

Corporation may acquire properties or assets to

carry on its business, subject to constitutional and
statutory limitations.

i.e.
Art. XII, Sec 3. – Corporation may not hold alienable
lands of the public domain except by lease for a
period of not exceeding 25 years, renewable for not
more than 25 years, and shall not exceed 1,000
hectares in area.
 Derivative Suit
A derivative suit is an action brought by a stockholder on behalf the
corporation to enforce corporate rights against the corporation’s
directors, officers or other insiders.

Under Sections 23 and 363 of the Corporation Code (Now Section 22

and 35, Revised Corporation Code) the directors or officers, as
provided under the by-laws, have the right to decide whether or not a
corporation should sue.

Since these directors or officers will never be willing to sue

themselves, or impugn their wrongful or fraudulent decisions,
stockholders are permitted by law to bring an action in the name of
the corporation to hold these directors and officers accountable.

In derivative suits, the real party in interest is the corporation while

the stockholder is a mere nominal party.
 Section 36. Power to Extend or Shorten Corporate Term.
A private corporation may extend or shorten its term as stated in the
articles of incorporation when approved by a majority vote of the
board of directors or trustees, and ratified at a meeting by the
stockholders or members representing at least two-thirds (2/3) of the
outstanding capital stock or of its members. Written notice of the
proposed action and the time and place of the meeting shall be sent to
the stockholders or members at their respective place of residence as
shown in the books of the corporation, and must be deposited to the
addressee in the post office with postage prepaid, served personally, or
when allowed in the bylaws or done with the consent of the
stockholder, sent electronically in accordance with the rules and
regulations of the Commission on the use of electronic data messages.
In case of extension of corporate term, a dissenting stockholder may
exercise the right of appraisal under the conditions provided in this
Code.
Power to Extend or Shorten Corporate Term Requirements:

1. Approval by a majority vote of the board of

directors or trustees, and

2. Ratification by the stockholders representing

at least 2/3 of the out-standing capital stock or
by at least 21.3 of the. members in case of non-
stock corporations.
APPRAISAL RIGHT

Appraisal right means that a stockholder who

dissented and voted against the proposed
corporate action, may choose to get out of the
corporation by demanding payment of the fair
market value of his shares.
 Section 37. Power to increase or Decrease Capital Stock; Incur, Create
or Increase Bonded Indebtedness.
No corporation shall increase or decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of directors and by two-thirds (2/3) of
the outstanding capital stock at a stockholders' meeting duly called for the purpose. Written notice
of the time and place of the stockholders' meeting and the purpose for said meeting must be sent to
the stockholders at their places of residence as shown in the books of the corporation served on the
stockholders personally, or through electronic means recognized in the corporation's bylaws and/or
the Commission's rules as a valid mode for service of notices.
A certificate must be signed by a majority of the directors of the corporation and countersigned by
the chairperson and secretary of the stockholders' meeting, setting forth:
(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock;
(c) In case of an increase of the capital stock, the amount of capital stock or number of shares of no-
par stock thereof actually subscribed, the names nationalities and addresses of the persons
subscribing, the amount of capital stock or number of no-par stock subscribed, the names,
nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-
par stock subscribed by each, and the amount paid by each on the subscription in cash or property,
or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if
such increase is for the purpose of making effective stock dividend therefor authorized;
(d) Any bonded indebtedness to be incurred, created ot increased;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or decrease of capital stock, or incurring, creating or increasing
of bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the Commission and where appropriate, of the Philippine
Competition Commission. The application with the Commission shall be made within six (6) months
from the date of approval of the board of directors and stockholders, which period may be extended
for justifiable reasons.

Copies of the certificate shall be kept on file in the office of the corporation and filed with the
Commission and attached to the original articles of incorporation. After approval by the Commission
and the issuance by the Commission of its certificate of filing may declare: Provided, That the
Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by
a sworn statement of the treasurer of the corporation accompanied by a sworn statement of the
treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing
that at least twenty-five percent (25%) of the increase in capital stock has been subscribed and that at
least twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the
corporation or that property, the valuation of which is equal to twenty-five percent (25%) of the
subscription, has been transferred to the corporation: Provided, further, That no decrease in capital
stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.

Non-stock corporations may incur, create or increase bonded indebtedness when approved by a
majority of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly
called for the purpose.
Bonds issued by a corporation shall be registered with the Commission, which shall have the authority
to determine the sufficiency of the terms thereof.
The Trust Fund Doctrine
Provides that the subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for the
satisfaction of their claims.

This doctrine is the underlying principle in the procedure for the

distribution of capital assets, embodied in the Corporation Code,
which allows the distribution of corporate capital only in three
instances:
(I) amendment of the Articles of Incorporation to reduce the
authorized capital stock;
(2) purchase of redeemable shares by the corporation regardless of
the existence. of unrestricted retained earnings and
(3) dissolution and eventual liquidation of the corporation
Power to increase or decrease capital stock

An increase or decrease in the capital stock

involves a fundamental change in the
corporation.

Even holders of a NON VOTING shares are

entitled to vote on such matter.
Limitations on the power
1. As a general rule, a corporation cannot lawfully decrease its
capital stock if such decrease will have the effect of relieving
existing subscribers from the obligation of paying for their
unpaid subscriptions without a valuable consideration for such
release as such an act of the corporation constitutes an
attempted withdrawal of so much capital of the corporation
upon which corporate creditors are entitled to rely.
2. A corporation cannot issue stock in excess of the amount
limited by its articles of incorporation; such issue is ultra vires
and the stock so issued is void even in the hands of a bona fide
purchaser for value.
3. A reduction or increase of the capital stock can take place only
in the manner and under the conditions prescribed by law
Necessity for increasing capital stock

1. Increase of corporate assets. – An increase of

the amount of the stated capital may be for
the purpose of effecting an increase in the
corporate assets. It may be effected:
a. by authorizing the creation of new shares
to be offered and issued at a fixed valuation; or
b. without any corresponding increase in the
corporate assets, by the issuance of stock
dividends
Incurring, Creating or Increasing Bonded Indebtedness.

Bonded Indebtedness
- It is a long-term indebtedness secured usually
by real property.
 Section 38. Power to Deny Preemptive Right.

All stockholders of a stock corporation shall enjoy preemptive

right to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings, unless
such right is denied by the articles of incorporation or an
amendment thereto: Provided, That such preemptive right
shall not extend to shares issued in compliance with laws
requiring stock offerings or minimum stock ownership by the
public; or to shares issued in good faith with the approval of
the stockholders representing two-thirds (2/3) of the
outstanding capital stock in exchange for property needed for
corporate purposes or in payment of previously contracted
debt.
Pre-emptive Right

It is the preferential right of all stockholders of a

Stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion
to their respective shareholdings
Reason for the grant of right
The rule aims to safeguard the right of a stockholder to
preserve his proportionate influence and interest in the
corporation and the relative value of his holdings.

The purpose of the right is to protect from impairment

and dilution the basic rights of the stockholder in the
corporation, such as the voting control, dividend
payments and sharing net assets of the corporation.

This right may be WAIVED by the stockholders.

Power to deny pre-emptive right

1. Shares specified by law

a. Shares to be issued in compliance with the laws
requiring stock offerings or minimum stock ownership
by the public;
b. Shares to be issued in good faith with the approval of
the stockholders representing 2/3 of the outstanding
capital stock in exchange for property needed for
corporate purposes; and
c. Shares to be issued in good faith with the approval of
the stockholders representing 2/3 of the outstanding
capital stock in payment of previously contracted debt.
2. Remaining unsubscribed shares – If the shares
corresponding to one stockholder are not subscribed or
purchased by him within the period fixed for the
exercise of his pre-emptive right, it does not follow that
said shares should again be offered on a pro-rata basis
to the other stockholders.

Such remaining shares shall be offered to the public on

first-come, first-served basis or to any person acceptable
to the corporation without violating the preemptive
rights of such stockholders.
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 non-stock 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.
Power to SLEMPO all or substantially all corporate assets.

A corporation, by the action of its BOD or BOT

ratified by the vote of the shareholders or
members, may sell, lease, exchange, mortgage,
pledge, or otherwise dispose of all or
substantially all of its property and assets
including its goodwill.
Requisites for the validity of SLEMPO

1. The SLEMPO must be approved by the BOD

or BOT;
2. The action of the BOD or BOT must be
authorized by the vote of SH representing
2/3 of the outstanding capital stock or 2/3 of
the members, as the case may be; and
3. The authorization must be done at a
stockholders’ or members’ meeting duly
called for that purpose after written notice.
SUBSTANTIALLY all of the corporate assets

A SLEMPO 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 for which it was
incorporated.
When ratification of SH/M not required for the validity of SLEMPO

1. If the same is necessary in the usual ad

regular course of business of said
corporation; or
2. If the proceeds of the sale or other
disposition of such property and assets be
appropriated for the conduct of its remaining
business.
Section 40. Power to Acquire Own Shares
Provided, That the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase
or acquire its own shares for a legitimate corporate purpose or
purposes, including the following cases:
(a) To eliminate fractional shares arising out of stock dividends;
(b) To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold
during said sale; and
(c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
Instances When A Corporation May Acquire Its Own Shares

I. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale;
3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code;
4. To acquire treasury shares;
5. Redeemable shares regardless of existence of retained earnings;
6. To effect a decrease of capital stock; and
7. In close corporations, when there is a deadlock in the
management of the business, the SEC may order the purchase at
their fair value of the shares of any stockholder by a corporation
regardless of the availability of unrestricted earnings in its books, or
by the other stockholders.
Fractional shares
Fractional shares are shares which are less than one share.

General rule:
The corporation may only acquire its own stocks in the
presence of unrestricted retained earnings.

Exceptions:
1. Redeemable shares may be acquired even without
surplus profit for as long as it will not result to the
insolvency of the Corporation; and
2.In a close corporation.
Section 41. Power to Invest Corporate Funds in Another
Corporation or Business or for Any Other Purpose.
Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation, business, or for any purpose other than the primary purpose
for which it was organized, when approved by a majority of the board of directors
or trustees and ratified by the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, or by at least two-thirds (2/3) of the outstanding
capital stock, or by at least two-thirds (2/3) of the members in the case of non-stock
corporations at a meeting duly called for the purpose. Notice of the proposed
investment and the time place of residence as shown in the books of the
corporation and deposited to the addressee in the post office with the postage
prepaid. Served personally, or sent electronically in accordance with the rules and
regulations of the Commission on the use of electronic data message, when
allowed by the bylaws or done with the consent of the stockholders: Provided, That
any dissenting stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in the articles of
incorporation, the approval of the stockholders or members shall not be necessary.
Investment is or in the primary purpose

Requisites:
1. Approval of the majority of the BOD/BOT
2. SH/M’s approval NOT required.
 Investment other than the primary purpose
Requisites for validity:
1. Approval of the majority of BOD/BOT;
2. Ratification by the SH representing 2/3 of the outstanding capital stock,
or by 2/3 of the members in a meeting duly called for such purpose;
3. Written notice of the proposed investment and the time and place of
the meeting shall be addressed to each stockholder or member or
served personally, or sent electronically in accordance with the rules
and regulations of the Commission on the use of electronic data
message, when allowed by the bylaws or done with the consent of the
stockholders;
4. Any dissenting stockholder shall have appraisal right, and
5. The ratification must be made at a stockholder's or member's meeting
duly called for the purpose.
Section 42. Power to Declare Dividends.
The board of directors of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, property, or in
stock to all stockholders on the basis of outstanding stock held by
them: Provided, That any cash dividends due on delinquent stock shall be first
be applied to the unpaid balance on the subscription plus costs and expenses,
while stock holders until their unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the approval of
stockholders representing at least two-thirds (2/3)of the outstanding capital
stock at a regular or special meeting duly called for the purpose.

Stock corporations are prohibited from restraining surplus profits in excess of

one hundred percent (100%} of their paid-in capital stock, except: (a) when
justified by the definite corporate expansion projects or programs approved
by the board of directors; or (b) when the corporation is prohibited under any
loan agreement with financial institutions or creditors, whether local or
foreign, from declaring dividends without their consent, and such consent has
not yet been secured; or (c) when it can be clearly shown that such retention
is necessary under special circumstances obtaining in the corporation, such as
when there is need for special reserve for probable contingencies.
Retained Earnings

The accumulated profits realized out of normal

and continuous operations of the business after
deducting therefrom distributions to
stockholders and transfers to capital or other
accounts.
UNRESTRICTED RETAINED EARNINGS

The retained earnings which have not been

reserved or set aside by the board of directors
for some corporate purpose.
DIVIDENDS

It is the part or portion of the profits of a

corporation set aside, declared and ordered by
the directors to be paid ratably to the SH on
demand or at a fixed time.
When dividends may be declared

1. Existence of URE
2. Resolution of the BOD
3. For stock dividend, vote of 2/3 of outstanding
capital stock.
Limitations on Dividends

1. The right to dividend is based on duly recorded stockholdings.

2. Dividends among stockholders of the same class must always
be pro rata equal and without discrimination and regardless of
the time when the shares were acquired. The right of the
stockholder to be paid dividends accrues as soon as the
declaration is made.
3. The right to dividend accrues even if there is no SEC approval.
4. Declaration of dividends is discretionary upon the board of
directors.
5. Dividends cannot be declared out of paid-in surplus and
revaluation surplus.
6. Treasury shares cannot be declared as stock or cash dividends.
General Rule:
Stock corporations are prohibited from retaining surplus profits
in excess of 100% of their paid-in capital stock.

Exceptions:
1. When justified by definite corporate expansion projects or
programs approved by the board of directors;
2 When the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or
foreign, from declaring dividends without its/his consent, and
such consent has not yet been secured; or
3. When it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such
as when there is need for special reserve for probable
contingencies secured.
 Section 43. Power to Enter into Management Contract. 
No corporation shall conclude a management contract with another corporation unless
such contract is approved by the board of directors and by the stockholders owning at least
the majority of the outstanding capital stock, or by at least a majority of the members in
the case of a non-stock corporation, or both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (a) where a stockholder or
stockholders representing the same interest of both the managing and the managed
corporations own or control more than one-third (1/3) of the total outstanding capital
stock entitled to vote of the managing corporation; or (b) where a majority if the members
of the board of directors of the managing corporation also constitute a majority of the
members of the board of directors of the managed corporation, then the management
contract must be approved by the stockholders of the managed corporation owning at
least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least
two-thirds (2/3) of the members in the case of a non-stock corporation.

These shall apply to any contract whereby a corporation undertakes to manage or operate
all or substantially all of the called services contracts, operating agreements or
otherwise: Provided, however, That such service contracts or operating agreements which
relate to the exploration, development exploitation or utilization of natural resources may
entered into such periods as may be provided by the pertinent laws or regulations.
No management contracts shall be entered into for period longer that five (5) years for any
one term.
Management contract

It is an agreement whereby a corporation

delegates the management of its affairs to
another corporation for a certain period of time.
No management contract shall be entered into
for a period longer than five years for any one
term. (except those relating to the exploration,
development, exploitation or utilization of natural
resources may be entered into for such periods as
may be provided by pertinent laws or
regulations.)
Requirements:

1. Approval by the majority of the quorum of the

board of directors;
2. Ratification by the stockholders owning at
least the majority of the outstanding capital
stock, or by at least a majority of the members
in the case of a non-stock corporation, of both
the managing and the managed corporation, at
a meeting duly called for the purpose; and
3. Approval by the stockholders of the managed corporation
owning at least two-thirds (2/3) of the total outstanding capital
stock entitled to vote, or by at least two-thirds (2/3) of the
members in the case of a non-stock corporation, in cases of:
a. Interlocking stockholders where a stockholder or
stockholders representing the same interest of both the
managing and the managed corporations own or control more
than 1/3 of the total outstanding capital stock entitled to vote of
the managing corporation.

b. Interlocking directors where a majority of the members of

the board of directors of the managing corporation also
constitute a majority of the members of the board of directors of
the managed corporation.
Section 44. Ultra Vires Acts of the Corporations.

 No corporation shall possess 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.
Ultra vires act

Acts which are not within the corporate powers

conferred by the Corporation code or articles of
incorporation or not necessary or incidental in
the exercise of the powers so conferred.