08-Corporate Powers

CHAPTER 8
CORPORATE POWERS AND AUTHORITY

Underlying Theory on Corporate Powers
Effects of Underlying Contractual Theory on Exercise of Corporate Powers
Corporate Powers and Capacity
Express Powers
Incidental Powers
Implied or Necessary Powers
Application of Ultra Vires Doctrine to Powers of Corporation
Power to Extend or Shorten Corporate Term
Appraisal Rights Issues
Nature of Power
Need to Amend Articles of Incorporation
Power to Increase or Decrease Capital Stock
Nature of Power
Appraisal Right Issues
No Appraisal Right in Increase of Capital Stock
No Appraisal Right in Decrease of Capital Stock
Implied Policy under Section 38
Effectivity of Increase of Capital Stock
Special Rules on Listed Shares
Power to Incur, Create, or Increase Bonded Indebtedness
Nature of a Bond
Requirements of Corporation Code
Particular Requirements of SEC
Nature of the Power
Power to Sell, Lease, Dispose or Encumber Assets
Nature of Power
Nature of Transactions Covered
Transactions Not Covered by Ratificatory Vote Requirement
Sale or Disposition of All Corporate Assets or Property
Sale or Disposition of Substantially All Corporate Assets or Property
Bulk Sales Law
Consequences of Contracts Entered Into Without Requisites Stockholders' Approval
Appraisal Right
Power to Purchase Own Shares
When Power May Be Exercised
Need for Unrestricted Retained Earnings
Rationale Behind Rule
Redeemable Shares
Power to Invest Corporate Funds in Another Corporation or Business
Rationale of Rule
Coverage of “Funds” under Section 38
Investment that Should Be Considered Within Primary Purpose
Investments Outside of Secondary Purposes
Consequences of Non-Obtaining of Ratificatory Vote
Power to Declare Dividends
Retention of Surplus Profits
Report to SEC
Restrictions on Banks
Power to Enter into Management Contract
Coverage of “Management Contract”
Ratification Requirements When There Is Common Control
of Involved Corporations
Rationale for Ratification Requirements
On Part of Managed Company
On Part of Managing Company
Cases Not Covered by Section 44
Power to Make Donations
Power to Provide Gratuities to Employees
Power to Enter Into Partnership
Jurisprudential Rule
SEC Rules
Reportorial Requirements When Exercising Specific Powers
——
This chapter will discuss the underlying theories and characterizations of

corporate powers in general, and discussions of the mechanical or procedural
aspects of particular powers granted to or exercised by a corporation. Many of
the particular powers discussed herein are also covered in other chapters of the
book as they are relevant to particular topics or issues discussed therein.
UNDERLYING THEORY ON CORPORATE POWERS

Under the Corporation Code, the underlying doctrine on corporate powers
and capacity is covered by the theory of concession, which looks at a corporation
simply as a mere creature of, and completely within the control, of the State.
Section 2 of the Code defines a corporation as only having "the powers,
attributes and properties expressly authorized by law or incident to its existence."
The treatment of the corporation as a creature of limited and expressed
powers is also covered under the ultra vires doctrine, now expressly covered
under Section 45 of the Code which provides that “[n]o corporation . . . shall
possess or exercise any corporate powers except those conferred by this Code
or by its articles of incorporation and except such as are necessary or incidental
to the exercise of the powers so conferred.”
Under the ultra-vires doctrine, a corporation has only three (3) types of
powers which result in intra vires contracts or transactions: express, implied, or
incidental powers. Strictly speaking, any contract or transaction of the corporation
that does not fall into any of these powers, is ultra vires.1
1
See more in-depth discussions of the ultra vires doctrine in Chapter 5, Corporate Contract
Law.
EFFECTS OF UNDERLYING CONTRACTUAL THEORY
ON EXERCISE OF CORPORATE POWERS
The primary rule under Section 23 of the Corporation Code is that "unless
otherwise provided in" the Corporation Code, all corporate powers shall be
exercised, and all corporate business shall be conducted, by the board of
directors of the corporation. The source of power of the board of directors is
therefore primary, and is not a delegated power from the stockholders or
members of the corporation.
Nevertheless, there are specified instances in the Corporation Code,
where the particular exercise of power of the corporation by the board, in order to
be binding and effective, requires the consent or ratification of the stockholders
or members, and on the part of the State. When the consent of all members of
the corporate relationships, i.e., the corporation acting through its board, the
stockholders or members, and the State, is required to be obtained in order to
validate or give legal effect to a corporate power, that shows that in each of those
specified instances, the underlying contractual relationship is being amended or
altered, and therefore, the approval or consent of all the parties concerned must
be obtained.
The principle of corporate power being primarily vested in the board of a
corporation is therefore circumscribed by the greater doctrine of the underlying
corporate contractual relationship between and among the members of a
particular corporate family, in line with the principle in Contract Law, that a party
to a contract cannot relieve himself from the contractual terms and conditions,
much less amend or alter them, without the consent or approval of the other
party or parties.
In the case of the group of stockholders or members, as constituting a
"party" to the contractual corporate relationship, there is a need to determine how
their consent or dissent on a particular amendment or alteration of the tenets of
the relationship, is deemed to be expressed, since they constitute of several
individuals. As a “party-group”, their consent or dissent is recognized either by
their majority vote or qualified two-thirds (2/3) vote, as the case may be, and their
decisions generally affect even those who did not vote for, or voted against, the
wishes of the majority. However, even between and among the stockholders or
members, although for efficiency of running of corporate affairs the "rule of the
majority" has been adopted, the Code still recognizes in certain instances that
one who does not agree with the decision of the majority and whose contractual
expectations has either been frustrated or altered by the decision of the majority,
should be given the right not to have to stay within confines of the corporate
contractual relationship and is granted an option to withdraw from such
relationship, by the exercise of appraisal right.
CORPORATE POWERS AND CAPACITY

1. Express Powers
Article 46 of the Civil Code of the Philippines provides that "[j]uridical
persons may acquire and possess property of all kinds, as well as incur
obligations and bring civil or criminal actions, in conformity with the laws and
regulations of their organization."
Section 36 of the Corporation Code expressly enumerates ten (10) powers
which corporations may exercise, namely:
(a) To sue and be sued in its corporate name;

(b) Power of succession by its corporate name for the period of
time stated in the articles of incorporation and the certificate
of incorporation;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation;
(e) To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same;
(f) In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks; 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;
(h) To enter into merger or consolidation with other
corporations;
(i) To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes; provided that no corporation, domestic or
foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity; and
(j) To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees.
The enumerated powers under Section 36 therefore are express powers

of corporations organized under the Corporation Code. Some of the powers
expressly granted under the section are considered to be inherent or incidental
powers, which means that even when not granted under the law expressly, such
incidental powers are deemed to be within the capacity of corporate entities,
such as the power to adopt and amend a set of by-laws.2
2
Gokongwei v. Securities and Exchange Commission, 89 SCRA 337 (1979).
There are other express powers granted to corporations in other sections
of the Corporation Code. In addition to the express powers granted under the
Code, a corporation's other express powers are those provided for in its articles
of incorporation, as recognized under Section 45 of the Code.
The sources of express powers of a corporation are therefore those
provided for by law and those enumerated in its charter.
The Supreme Court has held that even in the exercise of express powers
of the corporation, in the absence of an authority from the board of directors, no
person, not even the officers of the corporation, can validly bind the corporation.
In one case, the Court has ruled that in the absence of any board resolution
authorizing the filing of a suit for the corporation, then any suit filed on behalf of
the corporation should be dismissed; the power of the corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate
powers.3 The SEC has opined that investments of a corporation in another
corporation in the form of shares of stock constitute part of the assets or property
of the investor corporation, and cannot be legally disposed of by mere
endorsement of the President, since the such shares fall within disposition of
properties being part of the management powers of the board of directors. 4
It has also been held that as a rule, a corporation exercises its powers,
including the power to enter into contracts, through its board of directors; and that
while a corporation may appoint agents to enter into a contract in its behalf, the
agent should not exceed his authority.5
2. Incidental Powers
Incidental powers of the corporation, in addition to its express powers, are
recognized also under Section 2 of the Corporation Code which defines a
corporation as having "the powers, attributes and properties expressly authorized
by law or incident to its existence."
Powers incident to corporate existence are those that attach to a
corporation at the moment of its creation without regard to its express powers or
particular primary purpose, and may be said to be inherent in it as a legal entity
or a legal organization. These powers include the power to sue and be sued, to
grant and receive, in the corporate name; the power to purchase, hold, and
convey real and personal property for such purposes as are within the objects of
its creation; the power to have a corporate seal; the power to adopt and amend
by-laws for its government; and the power, in the proper cases, to disenfranchise
or remove members.
Powers that go into the very nature and extent of a corporation's juridical
entity cannot be presumed to be incidental or inherent powers. The juridical entity
3
Premium Marble Resources v. Court of Appeals, 264 SCRA 11, 76 SCAD 9 (1996); Bitong
v. Court of Appeals, 292 SCRA 503 (1998).
4
SEC Opinion, dated 21 August 1995, XXX SEC QUARTERLY BULLETIN 12 (No. 1, June
1996).
5
Assets Privatization Trust v. Court of Appeals, 300 SCRA 579, 101 SCAD 1028 (1998).
of a corporation is State-granted and cannot be altered or amended without State
authority. For example, the right of succession is not inherent or incidental power
of a corporation and does not exist by the fact that a corporation is granted a
juridical entity. The argument is that when the State grants to an aggregation of
individuals a separate juridical entity, such grant is specific and does not extend
to others not originally part of the group without a further grant by the State of the
power of succession. This is best demonstrated in the case of the partnership,
where, although a separate juridical entity is granted by law into the venture, no
power of succession is presumed to exist when a member of the group dies,
resigns or withdraws from the venture. In any event the power of succession is
expressly granted to corporations under Section 36 of the Corporation Code.
Another example would be the power to merge or consolidate with another
corporate entity. Such power cannot be implied to exist outside of State-grant
merely from the fact that a corporation has been granted juridical entity.
Corporations cannot, without State authorization, vary the composition of those
to whom it grants a juridical entities by merger or consolidation.
3. Implied or Necessary Powers

Section 36(11) of the Corporation Code provides that a corporation has
the power and capacity "[t]o exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in its articles of
incorporation." The sub-paragraph covers what are called the implied or
necessary powers of corporate entities, which exist as a necessary consequence
of the exercise of the express powers of the corporation or the pursuit of its
purposes as provided for in the articles of incorporation. The rule may thus be
stated that the management of a corporation, in absence of express restrictions,
has discretionary authority to enter into contracts or transactions which may be
deemed reasonably necessary or incidental to its business purposes.
To illustrate, the SEC has opined that a non-realty corporation has the
implied power to lease-out idle real property, ratiocinating that when the business
of the corporation is such as to render it necessary for it to own a certain kind of
property, and at times such property is not necessary to its business, it may
employ the property in a business or for a purpose which is not strictly within the
objects of its creation, in order to prevent the same from remaining idle and
unprofitable, provided it does not engage continually in such collateral
enterprise.6
4. Application of Ultra Vires Doctrine

to Powers of Corporation7
6
SEC OPINION, 9 NOVEMBER 1994, XXIX SEC QUARTERLY BULLETIN 2 (NO. 2, JUNE 1995),
CITING 16 FLECTHER SEC. 2535.
7
See Chapter 5 on Corporate Contract Law on more detailed discussions on ultra-vires
contracts.
Montelibano v. Bacolod-Murcia Milling Co., Inc.,8 clarified the extent of the
application of the ultra vires doctrine on the implied or necessary powers of a
corporation. At issue was the validity and binding effect on the corporation of an
amended milling contract that granted favorable terms to planters. Although the
favorable terms sought to be included in the amended milling contracts were
approved by the board of directors, it was interposed for the corporation that the
resolution was null and void ab initio, being in effect a donation since no
consideration was received for the favorable terms extended, and therefore was
ultra vires, beyond the powers of the corporate directors to adopt.
The Supreme Court upheld the authority of the board acting for the
corporation to modify the terms of the amended milling contract for the purpose
of making its terms more acceptable to the other contracting parties. It gave the
formula for determining the applicability of the ultra vires doctrine:
It is a question, therefore, in each case of the logical

relation of the act to the corporate purpose expressed in the
charter. If that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of
those ends, in a substantial, and not in a remote and fanciful
sense, it may fairly be considered within charter powers. The
test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly
incident to the express powers and reasonably necessary to
their exercise. If so, the corporation has the power to do it;
otherwise, not.9
The test uses the rather stringent terms "direct and immediate" only with
reference to the business of the corporation; whereas, it uses the rather liberal
terms of "fairly incident" and "reasonably necessary" with reference to powers of
the corporation.
When the business of a corporation is used as the reference point, much
latitude is given to the corporation to enter into various contracts as long as they
have a logical relation to the pursuit of such business. In one early case,10 the
Court upheld a purpose clause in the articles of incorporation which allowed the
corporation to engage in what were rather broadly worded activity as "mercantile
purposes." The Court construed that as meaning to "engage in such incidental
business as may be necessary and advisable to give effect to, and aid in, the
successful operation and conduct of the principal business."11
8
5 SCRA 36 (1962).
9
Ibid, at p. 42 quoting 6 FLETCHER CYC. CORP., Rev. Ed. 1950, pp 266-268. Emphasis
supplied.
10
Uy Siuliong v. Director of Commerce and Industry, 40 Phil. 541 (1919).
11
Ibid, at p. 544.
On the other hand, when the purpose clause of a corporation's articles of
incorporation has unwittingly used limiting words, such as describing its business
as "transportation by water," the Court will hold the corporation to such limited
business and will refuse to construe the same to allow the corporation to engage
in the land transportation business.12
As the Montelibano test showed, the attitude of courts towards corporate
acts and contracts which are not per se illegal or prohibited, is quite liberal. That
is because of two public policies, one in the realm of Contract Law, the other in
the realm of Corporate Law. The policies involving the ultra vires doctrine are
thoroughly discussed in Chapter 5 on Corporate Contract Law.
POWER TO EXTEND OR SHORTEN CORPORATE TERM

Under Section 37 of the Corporation Code, a private corporation may
extend or shorten its term of existence when approved by a majority vote of the
board of directors or trustees, and ratified at a meeting 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 members in the case of non-stock corporations.
Written notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.13
1. Appraisal Rights Issues

In case of extension of corporate term, any dissenting stockholder may
exercise his appraisal right to have his shares bought back at fair value by the
corporation.14 Nevertheless, under Section 81 of the Code, the appraisal right is
also available to a dissenting stockholder even when it covers the shortening of
the term of corporate existence.
The exercise of appraisal rights rightly belongs to a case of extension of
corporate term because extension actually novates the corporate contract with
each shareholder, which now seeks to extend the corporate relationship beyond
the original term provided for in the articles of incorporation.
The appraisal right should not be triggered when it comes to shortening of
corporate life, because there is really no violation of the original contractual intent
since, say if the dissenting stockholder had invested into the venture for say 50-
year corporate term, then he is presumed to be in it for a lesser period of time.
Therefore, the inclusion of the case of shortening of corporate life under Section
81 should not prevail over the specific provision under Section 37.
12
Luneta Motor Company v. A.D. Santos, Inc., 5 SCRA 809 (1962).
13
Sec. 37, Corporation Code.
14
Ibid.
2. Nature of Power
The power to extend corporate life is not a inherent power of a
corporation, since the corporate term is not only a matter that constitutes an
integral clause of the articles of incorporation, but also the State in granting
juridical personality to a corporation is presumed to have granted only for the
period of time provided in the corporation's charter.
On the other hand, the power to shorten corporate life, although an item
that would cover an amendment of the articles of incorporation, is for practical
purposes, an inherent right on the part of the corporation, since the decision to
shorten the business life of a business endeavor should really be addressed to
the business decision of the business venturers. Although the State would have
to approve formally the shortening of the original corporate term of a corporation,
for all practical purposes, the State really compels the underlying enterprise to go
on when the co-venturers have decided to cease operations. This goes into the
aspect of dissolution, as in fact Section 120 of the Corporation Code now
expressly recognizes shortening of corporate life as a means of dissolving the
corporation.
3. Need to Amend Articles of Incorporation

In addition, aside from the procedural requirements provided under
Section 37 on the extension or shortening of corporate life, the exercise of either
such power affects the clause in the articles of incorporation providing for the
original corporate term of the entity, and therefore would involve the application
of the process of amending the articles of incorporation as provided in Section 16
of the Corporation Code.
POWER TO INCREASE OR DECREASE CAPITAL STOCK

Under Section 38 of the Corporation Code, no corporation shall increase
or decrease its capital stock unless approved by a majority vote of the board of
directors, and at a stockholders' meeting duly called for the purpose, approved by
stockholders owning or representing at least two-thirds (2/3) of the outstanding
capital stock.
Written notice of the proposed increase or diminution of the capital stock
must be addressed to each stockholder at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post office
with postage prepaid, or served personally.15
A certificate in duplicate must signed by a majority of the directors of the
corporation and counter signed by setting forth;
(a) That the requirements of law on increasing or decreasing

capital stock have been complied with;
15
(b) The amount of the increase or diminution of the capital
stock;
(c) If 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 residences of the
persons subscribing, the amount of capital stock or number
of shares of no-par stock subscribed by each, and the
amount paid by each on his 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) The actual indebtedness of the corporation on the day of the
meeting;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increase of any bonded
indebtedness.16
Any increase or decrease in the capital stock shall require prior approval
of the SEC. The SEC shall not accept for filing any certificate of increase of
capital stock unless accompanied by the sworn statement of the treasurer of the
corporation showing that at least twenty-five percent (25%) of such increased
capital stock has been subscribed and that least twenty-five percent (25%) of the
amount subscribed has been paid either in actual cash to the corporation or that
there has been transferred to the corporation property the valuation of which is
equal to twenty-five percent (25%) of the subscription.17
More importantly, the section expressly provides that no decrease of the
capital stock shall be approved by the SEC, if its effect shall prejudice the rights
of the corporate creditors.18
From and after approval by the SEC and the issuance its certificate of
filing, the capital stock shall stand increased or decreased as the certificate of
filing may declare.19
1. Nature of Power
The power to increase or decrease capital stock is not an inherent power
of the corporation, not only because it touches upon an item expressly required
to be provided for in the articles of incorporation, but also the capital stock of a
corporation is governed by common law doctrines, such as the trust fund
16
Ibid.
17
Ibid.
18
Ibid.
19
Ibid.
doctrine, and pre-emptive rights. Therefore, in increasing or decreasing the
capital stock of the corporation, the corporation must not only comply with the
provisions of Section 38, but also with the provisions of Section 16 of the Code
governing the amendment of the articles of incorporation.
The formal procedures provided for in Section 38 clearly show that an
increase or decrease of the capital stock amends the underlying contractual
relationships between and among the members of the corporate family; which is
the reason for requiring the contractual parties to give their consent before the
exercise of such power can be validly implemented.
2. Appraisal Rights Issues
a. No Appraisal Right in Increase of Capital Stock

In the case of stockholders, an increase of the authorized capital stock
actually has the potential effect of diluting his proportionate interest in the
corporation. Even with the existence of the pre-emptive right to all stockholders in
case of increase of authorized capital stock (including those who dissented to the
measure), there is no guaranty that any stockholder can preserve his
proportional interests in the corporation since he might not have the personal
financial resources to exercise his pre-emptive right to the increase. And yet in
the case of dissenting stockholders, no right of appraisal is granted to them either
under Section 38 or Section 81 of the Code. The non-granting of appraisal right
to dissenting stockholders in case of increase of capital stock may be rationalized
on two (2) grounds.
Firstly, the increase is capital stock does not prevent any stockholder,
including a dissenting stockholder from opting out of the contractual relationship
by simply selling his shares in the corporation to any interested buyer. This is the
true with shares of publicly listed corporations; however, this is more theoretical
when it comes to shares of non-listed corporations, where there may be no
market for the shares to allow a dissenting stockholder to withdraw from the
corporate relationship.
On the other hand, the exercise of appraisal right when available affords
the dissenting stockholder to obtain the reasonable value of his shares. In
addition, if feature of free-transferability of shares of stock is the basis for not
granting the appraisal right in this case, then the appraisal right should not be
granted also in all other cases provided for in Section 81 of the Code, since also
in those cases, the dissenting stockholder theoretically has a way of getting-out
of the corporate set-up by selling his shares.
Secondly, the grant of appraisal right in case of increase of capital stock
would defeat the very purpose for which the power is exercised, i.e., to raise
funds for the operation or even survival of the corporate business. The reason
why a corporation would undertake to increase its capital stock is to raise the
working capital of the corporation, and if dissenting stockholders were granted
the appraisal right, then it would in fact dilute the attempted increase, since the
corporation would have to pay-out the fair value of the shares of the dissenting
stockholders. This seems to be the more rationale basis for the non-granting of
appraisal right in case of increase of capital stock.
b. No Appraisal Right in Decrease of Capital Stock

The decrease of the capital stock of a corporation should not trigger the
exercise of the appraisal right for precisely, the decrease of capital stock would
result in returning part of the investments of the stockholders, including those
stockholders who dissented.
c. Implied Policy under Section 38

The policy embodied in Section 38 of the Corporation Code therefore,
although it recognizes that an increase in authorized capital stock redefines the
contractual relations in the corporate setting as it requires the approval of
stockholders owning or representing two-thirds (2/3) of the outstanding capital
stock, does not include the appraisal right on the part of the dissenting
stockholders, in the sense that every stockholder should come into the corporate
setting fully aware that the expediencies of corporate life may require that
eventually the corporation may need to increase capitalization to fund its
operations or expansions, and needs to look primarily into its equity investors to
fund the same.
3. Effectivity of Increase in Capital Stock

Prior to SEC approval of the increase in the authorized capital stock of the
corporation, and despite the board resolution approving the increase in capital
stock, and the receipt of payment on the future issues of the shares from the
increased capital stock, such funds do not constitute part of the capital stock of
the corporation until approval of the increase by the SEC.
In Central Textile Mills, Inc. v. National Wages and Productivity
Commission,20 the Supreme Court held that: "These payments cannot as yet be
deemed part of the [corporation's] paid-up capital, technically speaking, because
its capital stock has not yet been legally increased. . . Such payments constitute
deposits on future subscriptions, money which the corporation will hold in trust for
the subscribers until it files a petition to increase its capitalization and a certificate
of filing of increase of capital stock is approved and issued by the SEC."
4. Special Rules on Listed Shares

The SEC Rules in the case of corporations whose securities are listed in
the stock exchange or registered under the then Revised Securities Act (now
covered by the Securities Regulation Code), is that no announcement of an offer
of rights to acquire share or to issue stock dividends to stockholders shall be
made after an increase of capital stock without a definite fixed date for the
exercise of such right or issuance of stock dividends. The rule is meant to avoid
20
260 SCRA 368, 73 SCAD 109 (1996).
delays in the issuance of rights or distribution of stock dividends after an increase
of capital stock.21
POWER TO INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS

1. Nature of a Bond
The SEC Interim Guidelines for the Registration of Bonds22 define a
"bond" as a security "representing denominated units of indebtedness issued by
a corporation to raise money or capital obliging the issuer to pay the maturity
value at the end of a specified period which should be not less than 360 days,
and where applicable, payment of interest on stipulated dates." It also expressly
provides that bonds "secured by mortgage on specific corporate property shall be
created under Section 38 of the Corporation Code prior to registration" with the
SEC.
In one opinion,23 the SEC has limited the term "bonded indebtedness" to
cover only indebtedness of the corporation which are secured by mortgage on
real or personal property, as distinguished from "debentures" which are
unsecured corporate indebtedness. Debentures are issued on the basis of the
general credit of the corporation and are not secured by collaterals, and therefore
do not constitute bonded indebtedness and will not require approval of the
stockholders.24
2. Requirements of Corporation Code

Under Section 38 of the Corporation Code, no corporation shall incur,
create or increase any bonded indebtedness unless approved by a majority vote
of the board of directors, and at a stockholders' meeting duly called for the
purpose, two-thirds (2/3) of the outstanding capital stock shall favor the incurring,
creating or increasing of any bonded indebtedness. Non-stock corporations may
incur or create bonded indebtedness, or increase the same, with the approval by
a majority vote of the board of trustees and of at least two-thirds (2/3) of the
members in a meeting duly called for the purpose.25
Written notice of the proposed incurring, creating, or increasing of any
bonded indebtedness is to be considered, must be addressed to each
stockholder at his place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage prepaid, or served
personally.26
21
Sec. 1, Rules Requiring Definite Dates for the Exercise of Pre-Emptive or Other Rights or
For the Issuance of Stock Dividends (1973).
22
XXII SEC QUARTERLY BULLETIN 92-96 (No. 1, March 1988).
23
SEC Opinion, 29 April 1987, XXI SEC QUARTERLY BULLETIN 21-22 (No. 3, Sept. 1987).
See also SEC Opinion, 6 April 1990, XXIV SEC QUARTERLY BULLETIN 28-29 (No. 3, Sept. 1990).
24
Ibid.
25
26
Ibid.
Any incurring, creating or increasing of bonded indebtedness shall require
prior approval of the SEC. The same requirements for registration with the SEC
for the increase or decrease of capital stock practically applies to the exercise by
the corporation of the power to incur, create or increase bonded indebtedness.
The SEC is expressly granted authority to determine the sufficiency of the terms
thereof.
3. Particular Requirements of SEC

Under the SEC Interim Guidelines, an application for the registration and
issuance of bonds can only be filed by the issuing corporation which has a
minimum net worth of P25.0 Million at the time of the filing of the application, and
must have been in operation for three (3) years. In addition, it must fulfill the
financial ratios mandated by the SEC in the Interim Guidelines.
Among the supporting documents specified by the SEC in the Interim
Guidelines, an issuing corporation must execute and submit a Trust Indenture
with a trustee bank and an Underwriting Agreement, together with the printed
prospectus and titles covering the securities for the bonded indebtedness.
4. Nature of Power
The power to incur or create liabilities is an inherent power on the part of
business corporations, since it is presumed that they would need to incur or
create liabilities as part of the normal operations of the business and the pursuit
of the purpose of the corporation. Such power is also part of the express powers
granted to all corporations organized under the Corporation Code, under Section
36 thereof.
Ordinarily, the incurring, creating or increasing of indebtedness really does
not go into or amend the corporate contractual relationship between and among
the members of the corporate family. However, when it comes to bonded
indebtedness, Section 38 imposes the same procedural requisites as the
increase or decrease of capital stock, since they create special burdens on the
corporation, such as the need to provide for a sinking fund to answer for the
maturity value of the bonds and the creation of first liens of important assets of
the corporation. Usually bonded indebtedness involve very large amounts and
the burdens created on the operations of the corporation usually covers a long
period of time.
The rationale for the rather strict requirements under the Code for the
incurring, creating or increasing of bonded indebtedness is to ensure that not
only the board of directors alone can bind the corporation to such burdensome
affairs, but that the qualified concurrence of the stockholders or members should
be obtained.
Note also that no appraisal right is granted to dissenting stockholders
when the corporation either validly incurs, creates or increases bonded
indebtedness since, the granting of such appraisal right under such
circumstances would drain the corporation of financial resources contrary to the
purpose for which the power is exercise to raise funds for corporate affairs. Also,
the incurring, creation or increasing of bonded indebtedness does not really go
into the original intent or corporate relationship of the stockholders or members
with the corporation. Even when such indebtedness is not bonded under the
principles of the trust fund doctrine, corporate creditors have priority over the
assets of the corporation; therefore, adding the feature of being a bonded
indebtedness did not really take anything from the position of the stockholders or
members that they would have had if the indebtedness were not a bonded
indebtedness.
POWER TO SELL, DISPOSE, LEASE OR ENCUMBER OF ASSETS

Under Section 40 of the Corporation Code, subject to the provisions of
existing laws on illegal combinations and monopolies, a corporation may, by a
majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose "of all or substantially all of its property
and assets," including its goodwill, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds or other instruments for the
payment of money or other property or consideration, as its board of directors or
trustees may deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in case
of non-stock corporation, by the vote of at least to two-thirds (2/3) of the
members, in a stockholders' or members' meeting duly called for the purpose.
In non-stock corporations were 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 such transaction.
Written notice of the proposed action and of the time and place of the
1. Nature of Power
The exercise of the power to sell or dispose of all or substantially all of the
assets of the corporation is deem to undermine the contractual relationship of
two members of the corporate relationship, namely, the corporation acting
through its board on one hand, and the group of stockholders, on the other hand.
The exercise of such power does not really affect the relationship of the
corporation with the State, since it not only goes into the exercise of the business
judgment of the board of what best to do with the affairs of the corporation, but
more so since a corporation in such instance does not really lose its juridical
entity.
In other words, the exercise of such a power really affects the business
enterprise level of corporate set-up, an area much left by the State to the
27
judgment of the managers, and does not in any way affect or alter the juridical
entity granted by the State. Consequently, nowhere is the consent of the State
required or referred to under Section 40 when the corporation sells or disposes of
all or substantially all of its assets.
2. Nature of Transactions Covered

The sale, disposition or encumbrance of all or substantially all of the
assets of the corporation does not render it empty, since the corporation is still
left with assets received in exchange, albeit cash or other forms of assets, and
neither does it change its primary purpose indicated in its articles of
incorporation. Section 40 specifically enumerates transactions which are onerous
contracts, as contrasted from gratuitous contracts, and therefore in each
instance, the corporation always receives something of equal value to what has
been sold, disposed or encumbered.
Theoretically, there is no change in the basic relationship between the
corporation and the stockholders, other than as if the corporation were again at
the starting point of it business life. The reason why a stockholders' ratification is
required when the board sells, disposes or encumbers all or substantially all of
the corporate assets is that it recognizes the stockholders right to the nature and
status of the corporate business, as well as future developments proceeding
therefrom, when they put their investments into the corporation. When the
corporation, through its board, attempts to alter or dispose of such level, even
when the corporation ends up with the same value covering the cash or other
form of consideration received for the sale or disposition, it must get the
confirmation of the stockholders.
One way of looking at it is that, since stockholders through their
investments directly suffer the risks of business failure for the current business of
the corporation, they deserve also all the profits and benefits that are likely to
proceed from such business, and the Board before it abandons such business,
must as a matter of fairness and equity get the conformity of the stockholders.
3. Transactions Not Covered by

Ratificatory Vote Requirement
Section 40 expressly provides that nothing therein 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 in any of the following circumstances:
(a) If it is necessary in the usual and regular course of

business of such corporation; or
(b) If the proceeds of the sale or other disposition of
such property and assets be appropriated for the
conduct of its remaining business.
Under any of the two conditions, a sale, lease, exchange, mortgage,
pledge or disposition of property or asset is deemed to be within the business
judgment of the board of directors, and would not require stockholders' or
members' ratification.
It is important to consider that Section 40 does not deal with the primary
or secondary purposes of the corporation as provided for in its articles of
incorporation. The tests provided therein have to do with the "business
enterprise" of the corporation.
By way of illustration therefore, if a corporation decides to sell all of its
present business which is a losing venture, and with the proceeds still intends to
set-up anew and pursue the same business, the sale or disposition is still subject
to ratification by the stockholders or members, simply because such a
transaction is by its very nature an unusual or extraordinary transaction, which
requires stockholders' or members' approval. On an ordinary basis, business are
not sold entirely in order to start anew.
This position is bolstered by the use under Section 40 of the qualifying
phrases "in the usual and regular course of business of such corporation" and
"for the conduct of its remaining business."
To illustrate, Lopez Realty v. Fontecha,28 held that providing gratuity pay
for its employees is one of the express powers of a corporation under the
Corporation Code, and cannot be considered to be ultra vires to avoid any
liability arising from the issuance of resolution granting such gratuity pay. It held
that such resolution did not also require the ratification of the stockholders under
Section 40 of the Code Corporation because such provision is applicable to the
sale, lease, exchange or disposition of all or substantially all of the corporation's
assets, including its goodwill.
4. Sale or Disposition of All Corporate Assets or Property

The determination of a sale, disposition or encumbrance "of all" of the
corporate property or assets is a quantitative test, which when covered would
require the necessary stockholders' or members' approval.
Such a sale, disposition or encumbrance cannot be covered by the
exemption provided in Section 40 where no stockholders' or members' approval
is necessary because the sale of all of the assets or property of a business can
never be "in the usual and regular course of business of such corporation," nor
can it be argued that the proceeds of the sale or other disposition of such
property and assets be appropriated for the conduct of its remaining business,
since the sale or disposition of "all" assets or property means there is no
remaining business to conduct.
5. Sale or Disposition of Substantially All

the Corporate Assets or Property
28
247 SCRA 183, 192, 63 SCAD 494, 503 (1995).
Section 40 likewise provides for a formula where the ratificatory vote of
stockholders or members is required in the sale, lease, mortgage, pledge or
disposition of "substantially all" of the property or assets by the corporation: 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:
(a) Continuing the business; or

(b) Accomplishing the purpose for which it was
incorporated.
Note that the foregoing formula is applicable only when determining

whether the sale or disposition is "substantially all of the corporate property and
assets," and has no application when the sale or disposition is "of all . . . of its
property and assets."
The test on whether a sale, disposition or encumbrance is substantial is a
qualitative, rather than a quantitative, test. This means that sale of one piece of
machinery, if it is essential in the continuation of the business, amounts to sale of
substantially all assets. Sale of several parcels of land, on the other hand, if not
disruptive of the corporation's business, is not a substantial sale of all corporation
assets. In the former, approval of qualified majority of the outstanding capital
stock is needed; in the latter, a mere board resolution would be sufficient.
However, unlike in the other tests provided under Section 40 which limit
themselves to the "business" of the corporation, the formula for sale or
disposition of "substantially all" corporate assets or property includes a test of
whether it would render the corporation incapable of accomplishing the "purpose
for which it was incorporated." The purpose of a corporation is found in its articles
of incorporation.
This particular test presents difficulties, since the sale of all or substantially
all of the assets or property of a corporation does not affect the purpose clause in
the articles of incorporation, and since the disposition in each case is onerous,
the corporation is always entitled to receive proceeds from the transaction by
which it is always in a position to start anew and pursue its corporate purpose
delineated in its articles of incorporation. The only time when this is clear is when
the purpose clause of the business is conditioned upon the corporation having a
valuable formula without which the purpose can no longer be practically
achieved. Strictly speaking therefore, a sale or disposition of substantially all of
the corporate asset or property, which by its nature always allows the corporation
to pursue its purpose, would never require stockholders' or members' approval.
Such a position would make the formula absurd. Therefore, the test is one of
practicality in being able to pursue the primary purpose of the corporation.
Since the formula of a sale or disposition of "substantially all" of the
corporate assets or property is a qualitative test, then it should stand to reason
that the test that the transaction renders the corporation incapable of pursuing its
purpose would be qualified by the intent of the corporation: if the intention is not
only to abandon the particular business but also to desist from pursuing the
purpose for which the corporation is registered, then even if financially the
corporation is still in a position to pursue its corporate purpose, the transaction is
covered by the need to get the ratificatory vote of the stockholders or members.
In addition, any disposition of corporate asset or property, even if it does not
involve all such corporate assets or property, which is not in the usual course of
business of the corporate, would be within the covered transactions under
Section 40 which would require stockholders' or members' approval, even when
practically the corporation as an entity is still capable of pursuing its charter
purpose.
Finally, the disposition of a line of business or department of the
corporation, when it does not prevent the corporation from pursuing the main
business for which it is organized would not seem to be covered by the
requirement under Section 40 requiring stockholders or members' ratificatory
vote.29
6. Bulk Sales Law

Aside from the requirements under Section 40, the sale of all or
substantially all of the corporate assets or property may require compliance with
the Bulk Sales Law,30 when the transaction falls within the classification of the
Law as "sale in bulk" and would require the seller to execute a sworn statement
listing the corporate creditors and the amount and nature of their claims, giving of
notice of the sale, and applying the proceeds of the sale proportionately to the
payment of the listed obligations.
Under the Bulk Sales Law, failure to comply with its requirements renders
the transaction void and fraudulent, irrespective of the intentions of the parties to
the transaction.31
7. Consequences of Contracts Entered Into

Without the Requisite Stockholders' Approval
Section 40 does not provide for the legal consequence to contracts or
transactions entered into by the corporation, through its board, without obtaining
the ratificatory votes of the stockholders or members.
What the section provides is that even when such ratification of the
stockholders or members is acquired, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage,
29
In one opinion, the SEC held that the disposition by the Forbes Park Association, Inc. of
its water system to MWSS, did not require the ratificatory vote of its members "on the assumption
that the water system constitutes merely a part of the assets of Forbes Park Association, Inc.,
such that the assignment thereof in favor of MWSS for such other property or consideration as
the board of directors may deem expedient will not render the Association incapable of continuing
the business or accomplishing the purpose for which it was incorporated." XXI SEC QUARTERLY
BULLETIN 6-7 (No. 1, March 1987).
30
Act No. 3952, as amended by Rep. Act No. 111.
31
For a more substantive discussions on the applicability of the Bulk Sales Law, see
Chapter 16, VILLANUEVA, LAW ON SALES, Rex Book Store, (1998 ed.).
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.
Therefore, the entering into the sale, disposition or encumbrance of all or
substantially all of the assets of the corporation should be treated as being within
the governing doctrine of ultra vires contracts of the third type (i.e., those entered
into by unauthorized officers or representatives of the corporation) and should be
construed and disposed under the doctrine prevailing on such ultra vires
contracts.
Peña v. Court of Appeals,32 seems to indicate that the sale of the only asset
of the corporation made by the board without the appropriate stockholders’s
approval would render the contract void. Subsequently, in Islamic Directorate of
the Philippines v. Court of Appeals,33 the Supreme Court confirmed that the sale
by the board of trustees of the only property of the corporation without
compliance with the provisions of Section 40 of the Corporation Code requiring
the ratification of members representing at least two-thirds (2/3) of the
membership, would make the sale null and void.
8. Appraisal Right
Any dissenting stockholder may exercise his appraisal right in case of sale
of all or substantially all of the corporate assets or property. Unlike in the case of
shortening of corporate life which actually triggers a dissolution of the corporation
and return of the residual value of the corporation, if any, to the stockholders, the
sale or disposition of all or substantially all of the assets of the corporation does
not necessarily lead to dissolution. The exercise therefore of appraisal right
should be accorded to dissenting stockholders in such instance, otherwise, they
continue to be locked into a venture which no longer pursues, or is able to
pursue, the original purpose or objective for which dissenting investors made
their investments.
The appraisal right is accorded to dissenting stockholders as a matter of
equity and fairness since they should be allowed to plough their investments into
ventures they feel they could get a better return rather than with a corporation
that is no longer capable of pursuing the business.
POWER TO PURCHASE OWN SHARES

Under Section 41 of the Corporation Code, a stock corporation has the
power to purchase or acquire its own shares for a legitimate corporate purpose
or purposes, provided it has unrestricted retained earnings in its books to cover
the shares to be purchased. Shares of a corporation once purchased or acquired
by it become treasury shares.
32
193 SCRA 717, 730 (1991).
33
272 SCRA 454, 82 SCAD 618 (1997).
1. When Power May Be Exercised
By way of illustration, the section enumerates the following as legitimate
corporation purposes for a stock corporation purchasing its own shares:
(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 in the exercise of their appraisal
rights.
The enumeration is by no means exclusive since other purposes, which

have legitimate business objectives, are acceptable to justify a stock corporation
purchasing or acquiring its own shares. Another reason why the corporation may
seek to increase its treasury shares is to decrease the cost of doing business,
especially where there are cumulative preferred shares, by decreasing the
amount of dividends which will have to be paid in the future. The whole
procedure is favored during depression as a contraction device.34
2. Need For Unrestricted Retained Earnings

Section 41 requires that the corporation must have unrestricted retained
earnings in its books to cover the shares to be purchased or acquired. The
reason for this limitation is that the repurchase of shares, like the distribution of
dividends, is a method of distribution or withdrawal of assets, and may be subject
to abuse. In fact, Steinberg v. Velasco,35 held that the creditors of a corporation
have the right to assume that so long as there are debts and liabilities, the board
of directors of the corporation will not use its assets to purchase its own stock or
to declare dividends to its stockholders when the corporation is insolvent.
Therefore a specific provision to expressly empower a corporation to
acquire its own shares was provided for in the Corporation Code because of the
conflicting issues on such power, involving the trust fund doctrine and abuse of
corporate management.
3. Rationale Behind the Rule

One writer,36 has observed that the policy of the law as to protection of
capital is not consistently carried out and that many abuses are made possible by
the unrestricted use of such a power; such power has been branded as a fruitful
source of unfairness, mismanagement and corruption, while others see through
34
Salonga, The Purchase by a Corporation of Its Own Shares, 27 PHIL. L.J. 686-687 (1952).
35
52 Phil. 953 (1929).
36
Salonga, The Purchase by a Corporation of Its Own Shares, 27 PHIL. L.J. 686-687 (1952).
the use of such power a method for secret withdrawal and distribution of the
current assets of the corporation which may be needed in the business, or a
means of speculating with corporate funds.
He also observed that treasury stock may also be availed of to perpetuate
control of the enterprise without the expensive requisite of a majority of voting
stock. Since treasury stock cannot be voted, by using corporate funds to
purchase the majority shares and retire it from the voting arena, what was before
a minority in the controlling group can be converted into a majority and their
control may thereby be continued indefinitely.37
A detailed discussion of the power as it applies under the trust fund
doctrine is found in Chapter 12, Capital Structures of Corporations.
4. Redeemable Shares
Under Section 8 of the Corporation Code, in the case of redeemable
shares, the same may be acquired or redeemed by the corporation even without
existence of unrestricted retained earnings. The redemption of redeemable
shares in the absence of unrestricted retained earnings does not prejudice
corporate creditors.
Redeemable shares can only be provided when they are so classified and
they are indicated as such in the articles of incorporation. When the corporate
creditors decide to extend credit to the corporation, they would or should know
for a fact that the corporation has issued redeemable shares.
POWER TO INVEST CORPORATE FUNDS IN ANOTHER

CORPORATION OR BUSINESS
Under Section 42 of the Corporation Code, a corporation may invest its
fund in any other corporation or 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 members in the case of non-stock corporations, at a stockholders' or
members' meeting duly called for the purpose.
Written notice of the proposed investment and the time and place of the
1. Rationale of Rule
37
Salonga, ibid at pp. 686, 689.
38
When a corporation, through its board, invests funds in another
corporation or business other than pursuant to its primary purpose, even if it
seeks to pursue a secondary purpose provided for in the articles of incorporation,
the ratification of the stockholder or members under Section 42 is still required. In
other words, whenever the corporation seeks to engage into a secondary
purpose allowed under its articles of incorporation, although intra vires, it must
seek the approval of the stockholders or members of the corporation.
The law therefore presumes rather strongly that when stockholders invest,
or members join, a corporation, it is with the primary expectation that the
corporation, through its board, will only pursue the primary purpose indicated in
the articles of incorporation, and if the board feels that it is propitious to pursue a
secondary purpose, then it would do so only if the stockholders or members have
had a chance to evaluate and decide upon such diversion of corporate funds
from the primary business of the corporation.
2. Coverage of “Funds” under Section 42

The SEC has ruled that the term “funds” under Section 42 includes any
corporate property to be used in the furtherance of the business, and
consequently when property is devoted in any business other that pursuit of the
primary purpose for which the corporation was incorporated, it would need the
ratificatory vote of two-thirds (2/3) of the outstanding capital stock of the
corporation.39
3. Investments that Should Be Considered

Within Primary Purpose
Section 42 expressly provides 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, since the matter lies clearly within the business discretion or
judgment of the board of directors of the corporation.
There are certain investments of the corporation that would be deemed
consistent with the primary purpose by virtue of the essence of the corporation as
a business enterprise.
All corporations, whatever may be their primary purposes, are deemed to
have the power to invest corporate funds in another corporation or business, as a
means of obtaining the best returns of their investible funds. For example, when
a corporation has investible cash that it does not need in its operations, say
P500,000.00, then the board, as prudent businessmen, must ensure that the
amount is placed in the best form of investment to allow the corporation the
ability to liquidate easily when it needs it in its operation, but in the meantime
allows the best returns to the corporation.
39
XXIX SEC QUARTERLY BULLETIN 2 (No. 2, June 1995).
Therefore, any corporation, whatever its primary purpose, has a choice of
placing such fund either in a savings or time deposit account, or in money market
placements, or treasury bills, or even in shares of stocks of other corporations
which are traded in the stock exchange. The exercise of such business judgment
on the part of the board in consistent with the primary purpose, since it is
expected even from the stockholders to believe, that it is within the ordinary
business discretion of the board to place the corporation's investible fund in the
form of investment that would yield the best possible return to the corporation,
and would not require the ratification of the stockholder or members each time.
For example, a fishing company, through its board, should be allowed to place
say its investible fund of P100,000.00 in PLDT or San Miguel commercial papers
or even perhaps their shares, if they offer the best return at that point in time for
the corporation, without need of obtaining stockholders' approval; much less
should such investments trigger any appraisal right on the part of dissenting
stockholders.
4. Investments Outside of Secondary Purposes

Investments by the corporation in a business or activity within the
secondary purposes of the corporation, are definitely covered by Section 42
which requires the ratificatory vote of stockholders or members to be valid.
The issue then would follow that since Section 42 requires the
stockholders' or members' ratificatory vote for investments "other than the
primary purpose for which it was organized," and does not expressly limit such
investment to any other purpose provided for in the corporation's articles, would
the corporation then be legally allowed to invest in another corporation or
business beyond its primary purpose and secondary purposes provided that
ratificatory vote of its stockholders or members can be obtained?
If one where to limit the review to the wordings of Section 42, the answer
would seem to be in the affirmative. However, the terms of Section 42 are
deemed to be circumscribed by the provisions of Sections 36 and 45 of the
Corporation Code. Section 36, after enumerating express powers of
corporations, provides an all-encompassing clause that a corporation may
exercise such other powers as may be essential or necessary to carry out its
purpose or purposes "as stated in its articles of incorporation." Section 45
provides expressly that no corporation shall possess or exercise any corporate
power except those conferred by the Corporation Code, or by its articles of
incorporation. Under such terms, the ratificatory vote of stockholders or members
to legally allow a corporation to invest funds outside of its primary purpose (and
those which are necessary or incidental to the exercise of such purpose), would
be limited to pursuing the secondary purposes of the corporation.
5. Consequences of Non-Obtaining of Ratificatory Vote

Section 42 does not indicate the legal consequences on contracts and
transactions entered into in violation of its provision. The non-obtaining of the
ratificatory vote of the stockholders or members under Section 42 of the Code
should be construed to be within the realm of ultra vires contracts of the third
type, having been entered into by representatives of the corporation not duly
authorized.
POWER TO DECLARE DIVIDENDS

Under Section 43 of the Corporation Code, the Board of Directors of a
stock corporation may declare dividends out of the restricted retained earnings
which shall be payable in cash, in property, or in stock to all stockholders on the
basis of outstanding capital stock held by them. However, 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 dividends shall be withheld
from the delinquent stockholder until his unpaid subscription is fully paid.
No stock dividend shall be issued without the approval of stockholders
representing not less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose.40
Dividends may be distributed only to stockholders of the corporation
declaring the dividend. In Nielson & Co., Inc. v. Lepanto Consolidated Mining
Co.,41 Lepanto contended that the payment to Nielson of stock dividends as
compensation for its services under their management contract is a violation of
the then Corporation Law and that it was not, and it could not be, the intention of
the parties that the services of Nielson should be paid in shares of stock taken
out of stock dividends declared by Lepanto. The Court held that stock dividends
cannot be issued to a person who is not a stockholder in payment of services
rendered. The remedy was to have Lepanto pay for the value of the shares of
stock.
1. Retention of Surplus Profits

Section 43 prohibits stock corporations from retaining surplus profits in
excess of one-hundred percent (100%) of their paid-up capital stock,42 except in
the following situations:
(a) When justified by definite corporate expansion projects or

programs approved by the board of directors;43
40
41
26 SCRA 540 (1968).
42
Even under the old Corporation Law, the SEC had issued the Rules Governing the
Distribution of Excess Profits of Corporations (1973), which provides that "All corporations which
have surplus profits in excess of necessary requirements for capital expansion and reserves shall
declare and distribute the excess profits as dividends to stockholders.” (Sec. 1)
43
SEC RULES GOVERNING THE DISTRIBUTION OF EXCESS PROFITS OF CORPORATIONS provides
that the amounts appropriated for such purpose shall be segregated from the free surplus; and
that upon completion of the expansion program, the reserve established shall be declared as
stock dividends.
(b) 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
(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.44
Under the SEC Rules Governing the Distribution of Excess Profits of

Corporations, where the financial statements of the corporation show surplus
profits in excess of 100% of paid-up capital, it shall explain by footnotes why the
same has not been declared as dividends; if the explanation is not satisfactory,
the SEC shall direct the corporation to distribute the excess as dividends.45
The power granted to stockholders to demand from the Board the
declaration of dividends under Section 43 is one of the few instances under the
Code where the stockholders themselves exercise a primary power, instead of
the usual ratificatory vote on actions taken primarily by the board of directors.
2. Report to SEC
Any declaration of dividends, whether cash or stock, shall be reported to
the SEC within fifteen (15) days from the date of declaration. For corporations
whose shares or securities are listed in the stock exchange or registered and
licensed under the Revised Securities Act (now the Securities Regulation Code),
the report shall be filed with the SEC before or simultaneously with the release or
publication of the notice of declaration of dividends to stockholders.46
3. Restrictions on Banks
Under Section 57 of the General Banking Law of 2000,47 no bank or quasi-
bank shall declare dividends greater than its accumulated net profits then on
hand deducting therefrom its losses and bad debts. Neither shall the bank or
quasi-bank declare dividends, if at the time of declaration:
(a) Its clearing account with the Bangko Sentral is overdrawn;

(b) It is deficient in the required liquidity floor for government
deposits for five (5) or more consecutive days;
(c) It does not comply with the liquidity standards/ratios
44
SEC RULES GOVERNING THE DISTRIBUTION OF EXCESS PROFITS OF CORPORATIONS includes
as justification for non-declaration of dividends when the same is consistent with policy or
requirements of a government office.
45
Sec. 2 thereof.
46
Sec. 3, SEC RULES GOVERNING THE DISTRIBUTION OF EXCESS PROFITS OF CORPORATIONS
(1973)
47
Rep. Act 8791.
prescribed by the Bangko Sentral for purposes of
determining funds available for dividend declaration; or
(d) It has committed a major violation as may be determined by
the Bangko Sentral.
POWER TO ENTER INTO MANAGEMENT CONTRACT

Section 44 of the Corporation Code provides that no corporation shall
conclude a management contract with another corporation, unless such contract
shall have been approved by the board of directors and by 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.
No management contract shall be entered into for a period longer than five
(5) years for any one term.48
1. Coverage of “Management Contract”

The rules apply to any contract whereby a corporation undertakes to
manage or operate all or substantially all of the business of another corporation,
whether such contracts are called service contracts, operating agreements, or
otherwise.49 However, such service contracts or operating agreements which
relate to the exploration, development, exploitation or utilization of natural
resources may be entered into for such periods as may be provided by the
pertinent laws or regulations.50
2. Ratification Requirements When There

Is Common Control of Involved Corporations
Section 44 provides a special ratification rule, where:
(a) 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 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;
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
48
49
50
Ibid.
capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the
case of a non-stock corporation.
3. Rationale for Ratification Requirements

a. On Part of Managed Corporation
The rationale for the ratificatory requirement under Section 44 of the
managed corporation is that such a management contract is a deviation from the
principle under Section 23 that the corporate affairs shall be managed by the
board of directors, and thereby a departure from such an arrangement would
require the approval of the stockholders under the principle that it would vary the
contractual corporate arrangements, by allowing basically an outsider to involve
itself in the management of corporate affairs.
b. On Part of Managing Corporation

On the other hand, the rationale for ratificatory measures on the part of the
managing corporation is that the management arrangement is a deviation from
the principle also that the board of directors in the managing corporation
assumed office with the understanding that they would devote their time and
resources for the affairs of the corporation, and the entering into the
management contract whereby the board, as the direct agents of the managing
corporation, would be devoting their time and resources towards the operations
of another corporation, would be a deviation from such a contractual relationship,
and thereby would require the confirmation of the stockholders of the managing
corporation.
Under these principles, the ratificatory procedure should not therefore be
applicable to a corporation that is organized primarily as a management
company, and its entering into a management contract is clearly within the
primary purpose of the corporation and in accordance with the contractual
understanding with the stockholders of such managing corporation.
4. Cases Not Covered by Section 44

It would seem from the express language of Section 44, that when it
comes to a management contract entered into by the managed corporation under
the definition of Section 44, not with another corporation but with a partnership or
an individual, the same would not be covered by and thereby need not comply
with the ratificatory requirements of Section 44.
This is easier explained on the side of the managing person, since being a
principal himself, it need not get the confirmation of anybody to start managing
the affairs of the managed corporation. To a great extent, this also explains the
rationale for the ratificatory requirements under Section 44 for the managing
corporation: since the management contract will be entered into by an agent, i.e.,
the board of directors who are really only agents of the managing corporation,
there is a need to get to the bottom of the principal (i.e., managing corporation)
by getting a confirmation of the management contract from the owners of the
principal, that is, the stockholders.
It is more difficult to explain why when a corporation enters into a
management contract with an individual, the ratificatory requirements under
Section 44 are not applicable, other than saying that Section 44 has failed to
provide or cover such situation.
Perhaps, the lack or non-coverage by Section 44 of such a situation when
the board of the managed corporation transfers the management thereof to an
individual can best be glimpsed by the fact that it is not mandated under Section
23 of the Code, which grant to the board corporate powers, that the board must
always exercise such corporate powers directly, In other words, the board has
power and authority to appoint an agent or representative to discharge the
powers of the board, and this is best exemplified by the appointment of the
officers and the management to run the day-to-day affairs of the corporation.
Such officers are merely agents of the board of directors, and their act is still the
act of their principal source of corporate power, the board. Under such a setting,
it cannot be argued that the board has in fact and in law abandoned the
management of the corporation to others.
In the same vein, when the board therefore appoints, through a
management contract, an outsider to manage the affairs of the corporation, such
outsider really discharges his duties as an agent and under the control of the
board. On the other hand, when the manager under the management contract is
a corporation, a special ratificatory procedure is required since the board of the
managing corporation is not actually turning over the affairs of the corporation to
the direct party thereto, the managing corporation, since the latter is only a
fiction, and the contract is actually to be done and executed by the representative
thereof, which is the board of directors of the managing corporation, who in turn
would probably have to assign the greater part of management to officers who
will run the day-to-day affairs of the corporation. Therefore, the performance and
execution of a management contract by a corporation with another corporation is
actually a multi-tiered affair, and actually done by people who have no direct
contractual relationship with the managed corporation (unlike in a management
contract with an individual where the manager himself has a direct contractual
relationship and obligation to the managed corporation). Such a long-winded
affair therefore would need the special ratificatory feature mandated under
Section 44 of the Code.
To a great extent, this argument of underlying ownership and control of
the managing corporation is recognized under Section 44 which requires a two-
thirds (2/3) ratificatory act when the stockholders of the managing corporation
own more than one-third (1/3) of the outstanding capital stock of the managed
corporation, and there is great tendency for conflict of interests to come in, to the
detriment of the managed corporation.
POWER TO MAKE DONATIONS
Section 36(9) of the Corporation Code authorizes corporations to "make
reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes; provided that no
corporation, domestic or foreign, shall give donations in aid of any political party
or candidate or for purposes of partisan political activity. The power to make
donations is circumscribed by the necessity that such donations must be
"reasonable".
The grant to corporations in general under the Corporation Code of the
express power to make reasonable donations has done away with the old issue
on whether such gratuitous exercise contravened the essential nature of for-profit
corporations and would constitute ultra vires acts.
POWER TO GRANT GRATUITIES TO EMPLOYEES

Under Section 36(10) of the Corporation Code, a corporation has
expressed power to establish pension, retirement, and other plans for the
benefits of its directors, trustees, officers and employees.
In Lopez Realty v. Fontecha,51 the Supreme Court held that providing
gratuity pay for its employees is one of the express powers of a corporation
under the Corporation Code, and cannot be considered to be ultra vires to avoid
any liability arising from the issuance of resolution granting such gratuity pay.
Such resolution does not also require the ratification of the stockholders under
Section 40 of the Code Corporation because such provision is applicable to the
sale, lease, exchange or disposition of all or substantially all of the corporation's
assets, including its goodwill.
The grant to corporations in general of the express power to establish
pension, retirement and other plans for employees has rendered moot the old
issue on whether it was consistent with the for-profit nature for a corporation,
through its board of directors, to extend gratuities to employees which would be
effective after they have ceased employment with the corporation, and would
therefore constitute an act of donation. 52
POWER TO ENTER INTO PARTNERSHIP

The prevailing rule in the United States is that "unless it is expressly
authorized by statute or charter, a corporation cannot ordinarily enter into
partnerships with other corporations or with individuals, for, in entering into a
partnership, the identity of the corporation is lost or merged with that of another
and the direction of the affairs is placed in other hands than those provided by
51
247 SCRA 183, 192 (1995).
52
See the rationalization that had to be resorted to before the Corporation Code in Pirovano
v. De la Rama Steamship, Inc., 96 Phil. 335 (1954).
law of its creation. . . A corporation can act only through its duly authorized
officers and agents and is not bound by the acts of anyone else, while in a
partnership each member binds the firm when acting within the scope of the
partnership."53
The doctrine is grounded on the theory that the stockholders of a
corporation are entitled, in the absence of any notice to the contrary in the
articles of incorporation, to assume that their directors will conduct the corporate
business without sharing that duty and responsibility with others.54
1. Jurisprudential Rule
Tuason v. Bolaños,55 recognized at that time in Philippine jurisdiction the
doctrine in Anglo-American jurisprudence that "a corporation has no power to
enter into a partnership."56 Nevertheless, Tuason recognized that a corporation
may validly enter into a joint venture agreement, "where the nature of that
venture is in line with the business authorized by its charter."57
A joint venture is essentially a partnership arrangement, although of a
special type, since it pertains to a particular project or undertaking.58 Although
Tuason does not elaborate on why a corporation may become a co-venturer or
partner in a joint venture arrangement, it would seem that the policy behind the
prohibition on why a corporation cannot be made a partner do not apply in a joint
venture arrangement. Being for a particular project or undertaking, when the
board of directors of a corporation evaluate the risks and responsibilities
involved, they can more or less exercise their own business judgment is
determining the extent by which the corporation would be involved in the project
and the likely liabilities to be incurred. Unlike in an ordinarily partnership
arrangement which may expose the corporation to any and various liabilities and
risks which cannot be evaluated and anticipated by the board, the situation
therefore in a joint venture arrangement, allows the board to fully bind the
corporation to matters essentially within the boards business appreciation and
anticipation.
It is clear therefore that what makes a project or undertaking a "joint
venture" to authorize a corporation to be a co-venturer therein is not the name or
nomenclature given to the undertaking, but the very nature and essence of the
undertaking that limits it to a particular project which allows the board of directors
of the participating corporation to properly evaluate all the consequences and
likely liabilities to which the corporation would be held liable for.
53
FLETCHER CYC. CORPORATIONS (Perm. Ed.) 2520.
54
BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW (1978 Ed.), at p. 9.
55
95 Phil. 106 (1954).
56
Ibid, at p. 109.
57
Ibid, quoting from Wyoming-Indiana Oil Gas Co. v. Weston, 80 A.L.R., 1043, citing
FLETCHER CYC. OF CORP., Sec. 1082.
58
BAUTISTA, supra, at p. 50. In Torres v. Court of Appeals, 278 SCRA 793, 86 SCAD 812
(1997), the Supreme Court held unequivocally that a joint venture agreement for the development
and sale of a subdivision project would constitute a partnership pursuant to the elements thereof
under Article 1767 of the Civil Code that defines when a partnership exists.
2. SEC Rules
The SEC, in a number of opinions, has recognized the general rule that a
corporation cannot enter into a contract of partnership with an individual or
another corporation on the premise that it would be bound by the acts of the
persons who are not its duly appointed and authorized agents and officers, which
is inconsistent with the policy of the law that the corporation shall manage its own
affairs separately and exclusively.59
However, the SEC has on special occasions allowed exceptions to the
general rule when the following conditions are complied with:
(a) The authority to enter into a partnership relation is expressly

conferred by the charter or the articles of incorporation of the
corporation, and the nature of the business venture to be
undertaken by the partnership is in line with the business
authorized by the charter or articles of incorporation of the
corporation involved;60
(b) The agreement on the articles of partnership must provide
that all the partners shall manage the partnership, and the
articles of partnership must stipulate that all the partners
shall be jointly and severally liable for all the obligations of
the partnership.61
The second condition set by the SEC would have the effect of allowing a
corporation to enter as a general partner in general partnership, which would still
have contravened the doctrine of making the corporation unlimitedly liable for the
acts of the other partners who are not its authorized officers or agents. This
interpretation of the second condition was confirmed by the SEC in 1994, to
mean that a partnership of corporations should be organized as a "general
partnership" wherein all the partners are "general partners so that all corporate
partners shall take part in the management and thus be jointly and severally
liable with the other partners."62
The rationale given by the SEC for the second condition was that if the
corporation is allowed to be a limited partner only, there is no assurance that the
corporate partner shall participate in management of the partnership which may
create a situation wherein the corporation may not be bound by the acts of the
partnership in the event that, as a limited partner, the corporation chooses not to
participate in the management.63
59
SEC Opinion, 22 December 1966, SEC FOLIO 1960-1976, at p. 278; citing 13 Am. Jr.
Sec. 823 (1938); 6 FLETCHER CYC. CORP., Perm. Ed. Rev. Repl. 1950, at p. 2520.
60
SEC Opinion, 29 February 1980.
61
Ibid.
62
SEC Opinion, dated 23 February 1994, XXVII SEC QUARTERLY BULLETIN 18 (No. 3, Sept.
1994).
63
Ibid.
However, in 1995, the SEC reversed such interpretation and practically
dropped the second requirement, when it admitted the following reasoning for
allowing a corporation to invest in a limited partnership, thus:
1. Just as a corporate investor has the power to make passive

investments in other corporations by purchasing stock, a
corporate investor should also be allowed to make passive
investments in partnerships as a limited partner, who would then
not be bound beyond the amount of its investment by the acts of
the other partners who are not its duly appointed and authorized
agents and officers. Hence, the very reason why as a general rule,
a corporation cannot enter into a contract of partnership, as stated
in the 1966 SEC opinion, would no longer be present, as the
corporation, which is merely a limited partner, will now be
protected from the unlimited liability of the other partners who are
not agents or officers of the corporation;
2. Section 42 of the Corporation Code which permits a corporation to
invest its funds in another corporation or business, does not
require that the investing corporation be involved in the
management of the investee corporation with a view to protect its
investment therein. By entering into a contract of limited
partnership, a corporation would continue to manage its own
corporate affairs while validly abstaining from participation in the
management of the entity in which it has invested. Accordingly, as
there is generally no threat that a corporate limited partner would
be solidarily liable with the partnership, there would be no reason
for requiring a corporate partner to actually manage the
partnership, if it makes the business decision no to do so and opts
to become a limited partner; and
3. The SEC policy that a corporation cannot enter into a limited
partnership, is an offshoot of the outdated view in the U.S., that,
as a general rule, corporations could not form a partnership; that
corporations cannot become limited partners, is based on an
assumption which is no longer current. Jurisprudence and
common commercial practice in the U.S., indicate that
corporations are not barred from acting as limited partners.
Current American laws support the position that a corporation can
enter into a contract of limited partnership. For example, the
Revised Uniform Limited Partnership Act of 1976 (as amended in
1985), specifically confirms, that corporations may act as limited
partners. Almost all states in the U.S. have adopted limited
partnership laws which provide, in the same manner as the
Revised Uniform Limited Partnership Act, that corporations may
act as limited partners. This indicates that many other jurisdictions
simply follow the broad language of the Revised Model Business
Corporations Act which suggests that corporations may act as
limited partners and in no event prohibits that activity. These
statutes reaffirm what is indicated by the commercial practice in
the U.S., that corporations can act as limited partners. The
proliferation of statutes reversing the doctrine forbidding
corporations to become partners is proof of the unsoundness of
and dissatisfaction with such doctrine.64
In that opinion, the SEC conceded on the points raised by confirming that
"inasmuch as there is no existing Philippine law that expressly prohibits a
corporation from becoming a limited partner in a partnership, the Commission is
inclined to adopt your view on the matter,"65 provided that the power to enter into
a partnership is provided for in the corporation's charter.
The SEC went on to say: "We agree with your statements that a
reconsideration of the present policy of the Commission on the matter is timely in
order to permit the Philippine commercial environment to maintain its pace in
terms of legal infrastructure with similar developments in the international arena
with a view to encouraging and facilitating greater domestic and foreign
investments in Philippine business enterprise."66
REPORTORIAL REQUIREMENTS WHEN

EXERCISING SPECIFIC POWERS
In order to apprise the general public and the government of the operation
status of corporations, as well as of the trends and actual business climate of the
country, the SEC issued the Rules Requiring Statement of Reasons for Change
in the Corporate Charter or Cessation of Business, and Filing of Corresponding
Resolution Authorizing Same.67
Under the Rules when a corporation—
(a) Increases or decreases its capital stock;

(b) Changes its line of business;
(c) Creates bonded indebtedness;
(d) Merges or consolidated with other corporations;
(e) Extends or shortens its term of existence;
(f) Increases or decreases the number of its directors;
(g) Ceases business operations; or
(h) Dissolves;
it must in its application with the SEC state the reasons or causes for said action
in the resolution of the stockholders or board of directors approving the same,
which resolution must be signed and attested by the president and secretary of
the corporation.
64
SEC Opinion, 17 August 1995, XXX SEC QUARTERLY BULLETIN 8-9 (No. 1, June 1996).
65
Ibid.
66
Ibid.
67
November, 1971.
The Rules also provide that when a corporation invests funds in any other
corporation or business or for any purpose other than the main purpose for which
the corporation is organized pursuant, it shall file with the SEC a copy of the
resolution adopted by the affirmative vote of the stockholders holding at least
two-thirds (2/3) of the voting power authorizing the board of directors to invest in
another corporation or business.
—oOo—
CORPORATION LAW \CORP. MANUSCRIPT\08-CORPORATE POWERS\02-07-2003

08-Corporate Powers

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

08-Corporate Powers

Uploaded by

Copyright:

Available Formats

CHAPTER 8

CORPORATE POWERS AND AUTHORITY

This chapter will discuss the underlying theories and characterizations of

UNDERLYING THEORY ON CORPORATE POWERS

CORPORATE POWERS AND CAPACITY

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

The enumerated powers under Section 36 therefore are express powers

3. Implied or Necessary Powers

4. Application of Ultra Vires Doctrine

It is a question, therefore, in each case of the logical

POWER TO EXTEND OR SHORTEN CORPORATE TERM

1. Appraisal Rights Issues

3. Need to Amend Articles of Incorporation

POWER TO INCREASE OR DECREASE CAPITAL STOCK

(a) That the requirements of law on increasing or decreasing

2. Appraisal Rights Issues

a. No Appraisal Right in Increase of Capital Stock

b. No Appraisal Right in Decrease of Capital Stock

c. Implied Policy under Section 38

3. Effectivity of Increase in Capital Stock

4. Special Rules on Listed Shares

POWER TO INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS

2. Requirements of Corporation Code

3. Particular Requirements of SEC

POWER TO SELL, DISPOSE, LEASE OR ENCUMBER OF ASSETS

2. Nature of Transactions Covered

3. Transactions Not Covered by

(a) If it is necessary in the usual and regular course of

4. Sale or Disposition of All Corporate Assets or Property

5. Sale or Disposition of Substantially All

(a) Continuing the business; or

Note that the foregoing formula is applicable only when determining

6. Bulk Sales Law

7. Consequences of Contracts Entered Into

POWER TO PURCHASE OWN SHARES

(a) To eliminate fractional shares arising out of stock dividends;

The enumeration is by no means exclusive since other purposes, which

2. Need For Unrestricted Retained Earnings

3. Rationale Behind the Rule

POWER TO INVEST CORPORATE FUNDS IN ANOTHER

2. Coverage of “Funds” under Section 42

3. Investments that Should Be Considered

4. Investments Outside of Secondary Purposes

5. Consequences of Non-Obtaining of Ratificatory Vote

POWER TO DECLARE DIVIDENDS

1. Retention of Surplus Profits

(a) When justified by definite corporate expansion projects or

Under the SEC Rules Governing the Distribution of Excess Profits of

(a) Its clearing account with the Bangko Sentral is overdrawn;

POWER TO ENTER INTO MANAGEMENT CONTRACT

1. Coverage of “Management Contract”

2. Ratification Requirements When There

(a) a stockholder or stockholders representing the same interest

then the management contract must be approved by the stockholders of the

3. Rationale for Ratification Requirements

b. On Part of Managing Corporation

4. Cases Not Covered by Section 44

POWER TO GRANT GRATUITIES TO EMPLOYEES

POWER TO ENTER INTO PARTNERSHIP

(a) The authority to enter into a partnership relation is expressly

1. Just as a corporate investor has the power to make passive

REPORTORIAL REQUIREMENTS WHEN

(a) Increases or decreases its capital stock;