Corporate Powers

Section 35. Corporate powers and capacity

The powers mentioned in Section 35, can only be exercised upon issuance of certificate of
registration of SEC, which are the following:
a. The power to sue and be sued under its corporate name;
b. The power of succession – the corporation remains or can exist despite the death or
removal of its shareholders or members, or transfer of ownership of shares from one
shareholder to another.
c. Power to adopt and use a corporate seal
d. The power to amend its articles of incorporation
e. Power to adopt by laws – provided they are not contrary to law, morals, or public policy,
and observing the procedures under Revised Corporation code

f. Power to issue or sell stocks to subscribers and to sell treasury stocks, if a stock
corporation.
g. Power to admit members, if it be a non-stock corporation. – as a organization it has the
power to established qualifications, in admitting members.
h. Power to own or dispose of real and personal property – this power includes, the
purchase, receipt, take or grant, hold, 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 require.
i. Power to enter into merger, joint venture, partnership or consolidation – two (2) or more
corporations may agree to merge under one (1) corporation, or may consolidate into a
single corporation.
j. Power to make reasonable donations – no foreign corporation is allowed to donate with
any candidate or political party.
k. Power to establish pension, retirement, and other provident funds.
l. Power to exercise such other powers as may be essential or necessary to carry out its
purpose/s.

Section 36
Power to extend or shorten corporate term.
Upon approval of the majority vote of the board of directors or trustees, and ratified by
stockholder or members representing 2/3 of the outstanding capital stock or membership.
Section 37
Power to increase or decrease capital stock, incur, create or increase bonded indebtedness.
In case a corporation will increase or decrease its capital stock, or incur, create or incur bonded
indebtedness. It requires the majority vote of its Board of Directors or 2/3 of the outstanding
capital stock. Bonded indebtedness means secured by a specific corporate property.
The certificate must be signed by a majority of the directors of the corporation and countersigned
by the chairman and secretary, stating the following:
a. The requirements have been complied with;
b. Amount of increase or decrease of capital stock;
c. In case of increase, the amount of capital stock, the names, nationalities and addresses
of the persons subscribing;
d. Bonded indebdtedness;
e. Amount of stock represented in the meeting;
f. The vote authorizing the increase or decrease of capital stock, or the incurring, creating
or increasing of any bonded indedtedness.
In case, there is a increase or decrease of capital stock or the incurring, creating or increasing of
any bonded indebtedness shall require the approval of the Securities and Exchange Commission
(SEC) or Philippine Competition Commission (PCC), in appropriate cases.
After approval by SEC, and its issuance of Certificate of filing. However, the SEC shall not accept,
the certificate of filing unless the treasurer states that atlest 25% of the increase in capital stock
has been subscribed and atleast 25% of the amount subscribed has been paid in cash or the
valuation of which is equal to 25% of the subscription. The 25% subscription only refers to
increase in capital stock, not increased capital stock. Non-stock corporation may incur, create or
increase bonded indebtedness provided it was approved by majority vote of the Board of trustees
and 2/3 of the members called in a meeting for the purpose.
Section 38
Power to deny preemptive right
Before a share may be issued, it must be offered first to the current shareholders. The purpose
of the preemptive right is to maintain the interest of the shareholder in the corporation. This
includes re-issuance of treasury shares.
Exception:
a. Unless it is denied in the Articles of Incorporation(AOI);
b. The new issuance is in compliance of the laws; and
c. Issuance of new share in good faith and with the approval of 2/3 of the outstanding capital
stock.

Section 39
Sale or other disposition of assets.
In case of sale or disposition of substantially all property and assets of a corporation shall require
the following:
a. approval of the majority vote of the board of directors;
b. ratification of the 2/3 of the outstanding capital stock or 2/3 of the membership;
c. Notice to shareholders
In case the disposition or sale is not substantial, only approval of the majority vote is required.
In case of dissenting shareholder, he/she may exercise right of appraisal.
In case of non-stock corporations, where the members have no voting rights, the vote of atleast
majority of the trustees is sufficient for the transaction in this provision.
A sale or disposition shall be deemed to cover substantially all the corporate property and assets
if the corporation would be incapable of continuing the business or accomplishing the purpose
for which it was incorporated.
Section 40
Power to acquire shares
In acquiring shares, the corporation must have unrestricted retained earnings. The requirement
of unrestricted retained earnings is based on Trust fund doctrine.
Trust fund doctrine states that the capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of corporate creditors.
Instances when acquisition of shares is allowed:
a. Eliminate fractional shares;
b. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription and to purchase delinquent shares sold; and
c. To pay dissenting or withdrawing stockholders.

Section 41
Power to invest corporate funds in another corporation or business
Only when the corporation will invest in another business or corporation other than its primary
purpose will Section 41 apply. In that case, majority of the Board of Directors and ratification of
the 2/3 of the outstanding capital stock or membership is required.
Stockholder who dissents can exercise the right of appraisal.
Section 42
Power to declare dividends
General rule: a corporation cannot be compelled to declare dividends.
Only the Board of Directors can declare dividends, an in appropriate case, ratified by the
shareholders.
What is a dividend?
It is a portion of profit, that is set aside, declared and ordered by the Board of Directors to be
distributed to the shareholders.
Different kinds of dividends
 a. Cash – board approval
- in case, there is unpaid subscription, the dividend shall be applied first on the balance of
subscription.
b. Stock – board approval and ratification of 2/3 of the shareholders
- in case there is unpaid subscription, the dividend shall be withheld until full paymen.
c. Property – the board of approval can suffice for its issuance
General rule: a corporation may not be compelled to issue dividends
Exception: in case a corporation exceeded 100% of its paid-in capital.
Exception to the exception :
a. Justified by corporate expansion as approved by the BOD.
b. If the corporation is under loan agreement preventing it to declare dividend.
c. To meet contingencies.

Section 43
Power to enter into a management contract
Management contracts refers to an agreement whereby one (1) corporation called the managing
corporation, shall manage, control, administer the corporate affairs and operation of another
corporation, called the managed corporation. To be valid, the following must be complied with:
a. The period of which shall not exceed five (5) years;
b. Approval of the majority of the board and shareholders representing the majority of the
outstanding capital stock;
c. 2/3 of the outstanding capital stock is required if the board of directors constitute a majority
of the managed and managing corporation’s respective board, or if 1 (one) shareholder control
atleast 1/3 of the capital stock.
Section 44 - Ultra Vires Acts of Corporations
Ultra vires acts are beyond the scope of the corporation’s authority and, therefore, null and void
and cannot be given any effect. Any act outside the express, implied and necessary power is ultra
vires.
The corporation is not allowed to benefit from any of its ultra vires acts, and then later on raise
the issuance of its illegality to shield itself from any liability, or from performing its obligation
under the contract.
What is a derivative suit?
Is an action brought by a stockholder on behalf of the corporation to enforce corporate rights
against corporations directors, officers and insiders.

By-laws
Section 45 - Adoption of by-laws
What are by-laws?
These are set of rules for the internal government of the corporation. It defines the relationship
between the corporation and the board, the corporation and shareholders, corporation and
officers, shareholders among themselves, shareholders with the board, board among
themselves, board and corporate officers.
The by-laws can be adopted by the corporation prior the incorporation, or after the
incorporation. However, if they are submitted before incorporation the effectivity will only
commence upon issuance by SEC of the certificate of incorporation.
The by-laws shall be adopted upon approval of the shareholders representing the majority of the
outstanding capital stock, or members of the non-stock corporation.
Section 46
Contents of the by-laws
a. Provisions on the calling of regular or special meeting of the board of directors and
shareholders;
b. Provisions on quorum and manner of voting;
c. Provisions on proxy voting;
d. Provisions on the qualifications and powers of members of the board of directors;
e. Provisions on the date of the annual shareholders meeting;
f. Provisions on the corporate officer other than a member of the board;
g. Provisions on penalties; and
h. Provisions on the issuance stock certificate and other matters that are connected to the
day to day operations of the corporation.

Section 47- Amendment of by-laws

Procedure for amendment
The proposed amendment should be by a vote of majority of all the board members or trustees
and majority of the outstanding capital stock or members.
The amendment can be delegated to the board of directors or trustees, subject to 2/3 of the
outstanding capital stock or membership approval.
The delegation shall be deemed revoked upon the vote of the majority of the outstanding capital
stock or membership.
The amended by-laws shall be filed before the SEC, and shall be effective upon issuance of the
certificate by the same agency stating it is not inconsistent with the Revised Corporation Code
(RCC).
Meetings
Section 48 – Kinds of Meetings
 a. Regular – meeting that is held on a pre-determined date or dates known in advance or
the occurrence and frequency of which is known to the members of the board/trustees
or to the shareholders/members.
b. Special – refers to a meeting that is not scheduled in the calendar of the corporation but
is called due to special circumstance or reason.
Meeting implies a concurrence, or coming face to face of at least of two persons.
Section 49 – Regular and Special Meetings of Stockholders or Members.
Regular meeting shall be held either on:
a. The date fixed by laws; and
b. On any date after April 15, provided written notice shall be given to all shareholders or
members at least twenty-one (21) days prior to meeting.
In case there is a postponement, written notice of reason shall be sent to all shareholders of
record at least two (2) weeks prior to the date of the meeting, unless a different period is stated
in the by-laws, rules, or law.
Special Meetings – it can be held at any time deemed necessary or as provided in the by-laws.
Written notice of meeting must be sent at least one (1) week before the date of the scheduled
meeting, unless the by-laws provides for a different period.
General waivers of lack of notice shall be void.
The stock and transfer book/ book of membership shall be closed before the scheduled date of
meeting, unless different period is provided by by-laws, laws and rules:
a. 20 days for regular meeting
b. 7 days for special meeting.

Notice of meeting may be by mail or electronically.

The right to vote during the meeting may be exercised thru:
a. In person
b. Proxy
c. Or when authorized by-laws, through remote communication or in asbentia.

Section 50 – Place and time of meetings of stockholders or members.

Whether regular or special meeting it shall be held in:
a. Principal office of the corporation;
b. If not practicable in the principal office, it shall be held at city of municipality where the
principal office is located, however the any city of municipality in Metro Manila, Metro Cebu,
Metro Davao, or any Metropolitan Area shall be considered as one city or municipality.
Notice shall be sent trough the means of communication provided in the by-laws, which shall also
mention the state of time, place and purpose of meetings.
Notice of meeting, shall specify the following:
a. The agenda for the meeting;
b. A proxy form which shall be submitted to the corporate secretary before the meeting;
c. Procedures to be followed in case, the attendance, participation, and voting is allowed by
remote communication or in absentia
d. When the meeting is for the purpose of election of directors or trustees, the requirements
and procedure for the nomination and election.

Notably, even if the meeting was called or held improperly, it is not fatal to the validity of the
proceedings and business done, provided all shareholders are present or duly represented in the
meeting.
Section 51 – Quorum in meeting
The Revised Corporation Code, provides the quorum shall be determined by the shareholders
representing a majority of the outstanding capital stock or a majority of the members of the non-
stock corporation. The by-laws, may provide a different interpretation and computation of
quorum.
Section 52 – Regular and Special meetings of directors or trustees; Quorum.
To constitute a quorum, a majority of the directors or trustees as stated in the articles of
incorporation shall constitute a quorum to transact business.
The decision reached by at least a majority of the directors or trustees constituting quorum shall
be a valid corporate act.
Kinds of meeting by the directors or trustees
a. Regular – at least monthly unless the by-laws provides otherwise.
b. Special – may called any time upon call of the president or as provided in the by –laws.

Note that that notice must be given to every trustee or director at least two (2) days of the
schedule meeting, whether special or regular, stating the date, time and place of meeting.
The meetings of directors may be held whether outside, or within the Philippines, unless the by-
laws provides otherwise. Directors and trustees may participate or vote through remote
communication.
Director or trustee who has a potential interest in any related party transaction must recuse from
voting on the approval of the related party transaction.
Section 53. Who shall Preside at Meetings.
Unless otherwise provided by the by-las. The Chairman shall preside the meetings of the board,
in his/her absence or incapacity the President may preside.

Section 54. Right to vote of Secured Creditors and Administrators

In case the shares were pledged or mortgaged, the pledgor or mortgagor is allowed to participate
in the meetings and vote the shares he/ she owns. However, if the pledgee or mortgagee is
expressly authorized to exercise the right to vote and attend to meetings, the latter is entitled to
vote and participate in meetings.
Administrators, executors, receivers and legal representatives, may be given authority to exercise
the said rights if granted by appropriate courts.
Section 55. Voting in case of Joint of ownership of stock
If two or more persons jointly own shares in a corporation, there is a need to secure the consent
of all owners. Unless a written proxy is executed by all, authorizing one person to vote in behalf
of the shares co-owned by them.
Section 56. Voting right for treasury shares.
Treasury shares have no voting rights, unless re issued. This is to prevent incumbent directors or
officers from using them in their own ends.
Section 57. Manner of voting
If proxy voting is allowed, the corporation must receive the vote before the tally of the votes is
finished.
Proxies shall be in writing and filed by the shareholder or member and received by the corporate
secretary before the scheduled meeting. Unless otherwise provided, the proxy shall only be valid
in a particular meeting. In case a proxy is intended for more than one (1) meeting it should not
be longer than five (5) years at any one (1) time.
Proxy voting is commonly called as “delegated voting”. It is intended to created a voting bloc,
which can wield great influence in the management of the corporation.
Section 58. Voting Trusts.
It is an agreement between group of the shareholders of a corporation and the trustee, or by a
group of identical agreements between shareholders and a common trustee, whereby upon
certain contingencies or under certain circumstances, it is provided that control over the share
owned by the said shareholder shall be entrusted to the trustee, either with or without
reservation to the owners or persons designated by them to direct the control.
It must be noted that a voting trust only endows voting and other rights pertaining to the shares
subject of the agreement. Voting trusts should not exceed for a period of five (5) years at any
time. No voting trusts agreement shall be entered to circumvent competition laws and nationality
requirements.
Shares and Shareholders
Section 59. Subscription Contract
Subscription contract is a subscription of the stock of the corporate whereby the subscriber
agrees to take a certain number of shares of the capital stock of a corporation, paying for the
same, or expressly or impliedly promising to pay for the same.
The essence of subscription is an agreement to take and pay for unissued shares of the
corporation.
Section 60. Pre-incorporation subscription
It is an agreement made by the subscriber to which he/she subscribe to a certain amount of the
proposed capital stock of a corporation still undergoing incorporation. It shall be irrevocable for
a period of six (6) months.
Instances when pre-incorporation subscription may be revoked:
a. All other subscribers agree to the revocation;
b. The incorporation of the proposed corporation does not push through; and
c. The revocation is before the articles of incorporation is filed with the SEC.

Section 61. Consideration for Stocks.

Money is not the only consideration in acquiring shares of a corporation. A share may be acquired
in exchange for the following:
a. Cash;
b. Property;
c. Labor or services;
d. Debt or equity;
e. Retained earnings;
f. Outstanding shares;
g. Shares of stock of another corporation; and
h. Other generally accepted form of consideration.
Notably, if the consideration is other than cash , the value of the property or service shall be
determined by the shareholders or the board subject to SEC approval. The property or service
should not be less than the value of the share.
Section 62. Certificate of stock and transfer of shares.
A stock certificate is a written acknowledgment by the corporation of the interest of the
shareholder in the corporate property. To be a valid issuance, it must comply with the following:
a. Signed by the president and counter-signed by the corporate secretary;
b. Sealed with the seal of the corporation
c. In accordance with by-laws

No transfer shall be valid, unless it is recorded in the books of corporation. Furthermore, only the
corporate secretary is authorized to record the same in the books.
Section 63 – Issuance of Stock Certificates
The corporate secretary is prohibited from issuing stock certificate unless the subscription is not
fully paid.
Section 64 – Liability of Directors for watered stocks.
A watered stock is that which is issued as fully paid up, when in fact the whole amount of the par
value thereof has not been paid in. If any amount less than the whole face value of the stock has
not be paid, and the stock has been issued as fully paid, then the stock is watered to the extent
of the deficit.
The director or officer shall be liable, based on the following acts:
a. Consents to the issuance of stock for a consideration less than its par or issued value;
b. Consents to the issuance of stocks for a consideration other than cash, valued in excess of its
fair value;
c. Having knowledge of the insufficient consideration and does write an objection with the
corporate secretary. The director or officer shall be liable to corporation and creditors,
solidarily with the shareholder concerned for the difference between the value received by
the corporation and the issued or par value.

Section 65 -Interest on unpaid subscription

The law allows the imposition of interest on the unpaid subscription. If the interest is not stated
in the subscription contract, it shall follow the prevailing legal rate which is six (6)%.
Section 66 - Payment of balance of subscription
The unpaid subscription shall be due as specified in the contract or on the date call made by the
board. In case, the shareholder failed to pay upon demand the entire balance shall be due and
demandable. If no payment was made within thirty (30) days from the demand, the shares
subscribed shall become delinquent subject of sale.
Section 67 – Delinquency Sale
The Board of Directors shall order the sale by Resolution, of the shares which are delinquent. The
resolution shall state the amount due on each subscription plus interest, date, time and place of
sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the
stocks became delinquent.
The delinquent shareholder shall be sent a notice, whether, personally, registered mail, or any
other means allowed by the by-laws. In addition, the notice of sale shall be published in a
newspaper of general circulation in the province or city where the principal office of the
corporation is situated.
Unless the delinquent shareholder pays to the corporation, on or before the scheduled date of
sale, the delinquent shares shall be sold at public auction. The bidder with the offer to pay the
full amount of balance of subscription together with accrued interest interest, costs of
advertisement and expense of sale for the smallest number of shares shall be chosen.
If there is a remaining shares, it shall be credited in favor of the delinquent shareholders.
In the absence of bidder, the corporation is allowed to bid the delinquent shares.
Section 68 – When Sale may be questioned
In case there is a protest or if the sale is questioned. The shareholder protesting or questioning
shall not be entertained unless he/she pays or tenders the sum of which the shares was sold plus
interest. In addition, the action must be commenced within six (6) months from the date of sale.
Section 69 – Court action to recover unpaid subscription
Corporation are allowed to sue for unpaid subscription, with interest, costs and expenses.
Section 70 – Effect of delinquency
The holder of delinquent shares is prevented from voting, or be voted, or to be representation in
a meeting, except the right to dividends. Until full payment of the subscription plus interest, costs
and expenses, the rights of the shareholder shall not be restored nor be exercised.
Section 71 – Rights of unpaid share, non-delinquent
They may exercise certain rights of shareholders.
Section 72 – Lost or destroyed certificates
The shareholder must file an affidavit before the corporation, detailing the loss, or destruction
of the certificate.
At the expense of the shareholder, a publication in a newspaper of general circulation for a period
of once a week for three (3) consecutive weeks, stating the fact of loss or destruction of the
certificate.
After publication, a one (1) year waiting period after the last date of publication, before a new
stock certificate may be issued, provided no one contest the same. The one (1) year waiting
period may be dispensed with if a security is provided by the applicant
In case, there is a party contesting the application, it shall be resolved by the court and the
issuance of the stock certificate shall be held in abeyance until final judgment.
No person shall be allowed to sue the corporation, by reason of issuance of new stock certificate
unless by reason of fraud, bad faith, or negligence.