CLASS SCHEDULE: MWF 7:30 PM – 8:30 PM

WEEK 12: POWERS OF CORPORATIONS

1. What are the kinds of Corporate Powers? Briefly explain each.

a. Express Powers

The corporation may exercise all powers expressly given it by statute and by its articles
of incorporation. Express powers include the following:

1. to sue and be sued in its corporation name;

2. to purchase, use, and sell land and dispose of assets to the same extent a
natural person can;
3. to make contracts, borrow money, issue notes and bonds, lend money, invest
funds, make donations to the public welfare, and establish pension plans; and
4. to join in partnerships, joint ventures, trusts or other enterprises.

In other words, express powers are those powers enumerated in Section 36 and other
express powers specifically provided in Sections 37-44.

b. Incidental / Inherent Powers

Powers which a corporation can exercise by a mere fact of its being a corporation of
powers which are necessary to corporate existence and are, therefore, impliedly
granted.

c. Implied Powers

Implied powers are corporate powers beyond those explicitly established and these
powers are necessary to exercise the express powers and to accomplish the purposes
for which the corporation was formed.

The following classification braces most of the implied powers:

 1. Acts in the usual course of business - all acts under ordinary circumstances
or acts necessary in order to run a business.
2. Acts to protect debts owing to the corporation – The creditor (corporation) will
do everything just to protect its right to collection.
3. Acts which involve embarking in a different business usually to collect debts
out of profits – A corporation may not engage in a business different from that
for which it is created as a regular and a permanent part of a business with
respect to those particular kinds of corporate activities which are governed by
specific law. Corporation may do any isolated act of banking in connection
with some express power so it is generally held that a corporation may
temporarily conduct an outside business to collect a debt out of its profit.
4. Acts to protect or aid employees - Corporation may build homes, places of
amusement, hospitals and etc., for employees, as within the corporate
powers.
5. Acts to increase business - Corporation may conduct gatherings to advertise
and increase its business.

d. Special / Specific Powers

1. Power to extend or shorten corporate term – a private corporation may extend or

shorten its terms as stated in the articles of incorporation when improved 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 case of non-stock corporations.
2. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness – No corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless approved by a
majority vote of the board of directors and, at a stockholders’ meeting duly called
for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating or increasing
of and bonded indebtedness.
3. Power to deny pre-emptive right – All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings, unless such right is denied
by the articles of incorporation or amendment thereto.
4. Power to sell or dispose assets – 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 nonstock
corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholders’ or members’ meeting duly called for the purpose.
5. Power to acquire own shares – A stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or
purposes, including but not limited to the following cases: Provided, That the
corporation has unrestricted retained earnings in its books to cover the shares to
be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends.
2. To collect or compromise an indebtedness to the corporation, arising out
of unpaid subscription, in a delinquency sale, and to purchase delinquent
shares sold during said sale.
3. To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code.
6. Power to invest corporate funds in another corporation or business or for any
other purpose – Subject to the provisions of this code, a private corporation may
invest its funds in any other corporation 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 corporations, at a stockholders’ or members’ meeting duly called for
the purpose.
7. Power to declare dividends – The board of directors of a stock corporation may
declare dividends out of the unrestricted retained earnings which shall be
payable in cash, in property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall 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: Provided,
further, That 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 purposes.
8. Power to enter into management contracts – 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 majority of the members in
the case of a non-stock corporation, of both the managing and the managed
corporation.

2. Differentiate Stock Dividends from Cash Dividends.

Cash dividend is a payment that is made in cash to shareholders of the company. This
is paid out to investors using the business’ earnings. A stock dividend, meanwhile, is a
dividend payable in stock instead of cash or property wherein more shares are given to
investors on top of those they already own.

3. Mr. Corona is the creditor (Php 1M) of COVID Corp. When the due date arrives,
COVID was not able to pay. Mr. Corona learned that several of COVIDs
stockholders have not yet paid their subscribed capital. Can Mr. Corona sue the
stockholders directly for their unpaid subscription? Explain briefly.

Yes. Mr. Corona may sue the stockholders directly for their unpaid subscription since
subscribed capital stock of the corporation serves as a trust fund which is reserved for
the payments of debts of the corporation. Also, according to the trust fund doctrine, the
creditors may sue directly the stockholders for their unpaid subscription.