Sec. 30. Compensation of directors.

– In the This section is about how much money directors of a company

absence of any provision in the by-laws fixing can get paid. If the company's rules (by-laws) don't say
their compensation, the directors shall not anything about director pay, then directors won't get regular
receive any compensation, as such directors, pay, but they can get a reasonable daily allowance (per diem).
except for reasonable per diems: Provided, However, if the stockholders (people who own shares in the
however, That any such compensation (other company) agree, they can vote to give directors additional pay,
than pier diems) may be granted to directors by but this extra pay can't be more than 10% of the company's
the vote of the stockholders representing at least profit before taxes from the previous year.
a majority of the outstanding capital stock at a
regular or special stockholders’ meeting. In no
case shall the total yearly compensation of
directors, as such directors, exceed ten percent
(10%) of the net income before income tax of the
corporation during the preceding year
Sec. 31. Liability of directors, trustees or officers.
– Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of
the corporation or acquire any personal or
pecuniary interest in conflict with their duty as
such directors, or trustees shall be liable jointly
and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or
members and other persons.

When a director, trustee or officer attempts to

acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of
any matter which has been reposed in him in
confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation
and must account for the profits which otherwise
would have accrued to the corporation.

Directors are trustees

It is well-stated rule in corporate law that
directors of corporations are trustees and are
required to act in the utmost good faith.

Liability of corporate directors and officers

for illegal dismissal of employees
In cases of illegal dismissal, corporate directors
and officers are solidarily liable with the
corporation, where terminations of employment
are done with malice or in bad faith. (Acesite
Corp. vs. NLRC, G.R. No. 152308, January 26,
2005, 449 SCRA 360)
Directors as Trustees:
It is a well-established rule in corporate law that directors of
corporations are considered trustees. This means they hold a
position of trust and are obligated to act with the highest level
of good faith. In essence, they are expected to make decisions
that are in the best interests of the company and its
stakeholders.
Liability for Illegal Dismissal:
In cases of illegal dismissal, where employees are terminated
without proper cause and due process, the responsibility is not
only on the corporation but also extends to corporate directors
and officers. If these terminations are done maliciously or in
bad faith, the directors and officers can be held solidarily liable,
meaning they share the legal responsibility with the
corporation. This means that if there is any harm, such as
financial loss or damages, resulting from the illegal dismissals,
both the corporation and its directors/officers may be held
accountable.
Sec. 32. Dealings of directors, trustees or
officers with the corporation. – A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of
such corporation, unless all the conditions are
present:
1. That the presence of such director or trustee
in the board meeting in which the contract was
approved was not necessary to constitute a
quorum for such meeting.
2. That the vote of such director or trustee was
not necessary for the approval of the contract.
3. That the contract is fair and reasonable under
the circumstances.
4. That in the case of an officer, the contract with
the officer has been previously authorized by the
Board of Directors.
Where any of the first two conditions set forth in
the preceding paragraph is absent, in the case of
a contract with a director or trustee, such Board Authorization for Officer Deals:
contract may be ratified by the vote of the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or of
two-thirds (2/3) of the members in a meeting
called for the purpose: Provided, That full
disclosure of the adverse interest of the directors
or trustees involved is made at such meeting:
Provided, however, That the contract is fair and
reasonable under the circumstances.
Director disqualified to vote if he has
personal interest - A director is disqualified to
vote at a meeting of the board if he has any
personal interest in a matter before the board; in
such case, his vote cannot be counted in making
up a quorum.
Disclosure of adverse interest by director - It
has been held that in dealing with their
corporation the directors must make full
disclosure of all relevant facts or the transaction
is voidable. The failure of a director to inform his
fellow directors of his adverse bargaining
position and other material circumstances should
be seriously considered and inspected by the
In simple terms, this section talks about situations where the
directors, trustees, or officers of a company want to make a
deal with the company itself. The law is saying that such deals
could be canceled by the company unless certain conditions
are met:
Quorum and Vote Conditions:
● If the director or trustee involved didn't need to
be at the meeting to make important decisions
(quorum), and their vote wasn't necessary for
the deal to get approved, the contract is okay.
● This ensures that the director's or trustee's
presence and vote weren't crucial for the deal to
go through, preventing potential bias.
Fair and Reasonable Deal:
● The deal must be fair and reasonable when
considering the circumstances. This means that
the company should not be taken advantage of,
and the terms of the contract should be sensible
and just.
● This condition safeguards the company from
entering into deals that could harm its interests.
● If the deal involves an officer of the company
(someone in a specific position), the company's
board of directors must have approved the
contract beforehand.
● This ensures that important deals with officers
are carefully reviewed and approved by the
board, adding an extra layer of oversight.
Ratification by Stockholders:
● If the first two conditions are not met in the case
of a deal with a director or trustee, the
stockholders (people who own shares in the
company) can still approve the deal if at least
two-thirds of them agree.
● However, for this to happen, there must be a full
disclosure of the director's or trustee's conflict of
interest, and the deal must still be fair and
reasonable.
● This gives the shareholders a say in whether
the deal should be allowed, but it requires a
high level of agreement to proceed.
courts as manner on the fairness and good faith Justification:
of the transaction and whether it is just and The conditions set out in this section aim to ensure
reasonable as to the corporation. transparency, fairness, and protection of the company's
interests when its directors, trustees, or officers are involved in
Exceptions in Signing contract without deals with the company. By establishing these conditions, the
authority of Board of Directors is void - If a law helps prevent potential conflicts of interest and ensures
private corporation intentionally or negligently that any such deals are in the best interests of the company
clothed its officers or agents with apparent and its stakeholders. It provides a balance between allowing
power to perform acts of it, the corporation will necessary transactions and safeguarding against abuse of
be estopped to deny that such apparent power or unfair dealings.
authority is real, as to innocent third persons
dealing in good faith with such officers or agents. Director Disqualification and Disclosure:
(Yao Ka Sin Trading vs. Court of Appeals, G.R. In addition to the conditions mentioned earlier, the law also
No. 53820, June 15, 1992, citing Francisco vs. disqualifies a director from voting if they have a personal
GSIS, 7 SCRA 577) interest in a matter being discussed by the board. In such
cases, their vote doesn't count towards making a quorum,
Corporate president presumed to have ensuring that decisions are made without any undue influence.
authority - As a strict rule, the corporate Furthermore, directors are required to disclose any adverse
president has no inherent power to act for the interest they may have when dealing with the corporation.
corporation, slowly giving way to realization that Failure to provide this information can make the transaction
such officer has certain limited powers in the voidable, and courts may closely examine such cases to
transaction of the usual and ordinary business of ensure fairness and good faith.
the corporation. In the absence of agreement or
by law provision to the contrary, the president is Exceptions for Contract Signing without Board Authority:
presumed to have the authority to act within the There are exceptions when it comes to signing contracts
domain of the general of his or her usual duties. without the explicit approval of the Board of Directors. If a
(People’s Aircargo, and Warehousing Co., Inc. private corporation either intentionally or negligently allows its
vs. Court of Appeals, G.R. No. 117847, Oct. 7, officers or agents to appear as having the authority to act on its
1998) behalf, the corporation cannot later deny that this apparent
authority is real. This principle protects innocent third parties
who, in good faith, transact with these officers or agents. It's a
legal concept that prevents the corporation from going back on
the actions of its apparent representatives.

Presumed Authority of Corporate President:

While traditionally the corporate president was seen as having
no inherent power to act for the corporation, this understanding
has evolved. The law now recognizes that a corporate
president has certain limited powers in conducting the regular
business of the corporation. In the absence of any specific
agreement or legal provision stating otherwise, the president is
presumed to have the authority to act within the scope of their
usual duties. This presumption helps facilitate the smooth
operation of day-to-day business activities.

Justification:
These additional provisions and exceptions contribute to the
overall fairness, transparency, and functionality of corporate
governance. The disqualification of a director with a personal
interest ensures unbiased decision-making, and the disclosure
 requirement adds an extra layer of transparency. The
exceptions related to contract signing without board authority
recognize the practical realities of business dealings,
protecting innocent parties dealing with apparent
representatives of the corporation. The presumed authority of
the corporate president acknowledges the need for efficiency
in regular business operations while maintaining certain
checks and balances. Collectively, these rules aim to strike a
balance between facilitating corporate activities and protecting
the interests of the corporation and its stakeholders.

Sec. 33. Contracts between corporations with Contracts between Corporations with Interlocking
interlocking directors. – Except in cases of fraud, Directors:
and provided the contract is fair and reasonable This section addresses situations where directors serve on the
under the circumstances, a contract between boards of two or more corporations that have business
two or more corporations having interlocking dealings with each other. The law states that, except in cases
directors shall not be invalidated on that ground of fraud, a contract between such corporations with
alone; Provided, That if the interest of the interlocking directors won't be automatically invalidated just
interlocking director in one corporation or because of the shared directors. The key condition is that the
corporations is merely nominal, he shall be contract must be fair and reasonable under the circumstances.
subject to the provisions of the preceding section However, if the interest of the interlocking director in one
insofar as the latter corporation or corporations corporation is only nominal, the provisions of the preceding
are concerned. section (referring to director dealings with the corporation) will
still apply.
Stockholdings exceeding twenty percent (20%)
of the outstanding capital stock shall be Definition of Interlocking Directors:
considered substantial for purposes of Interlocking directors are individuals who serve on the board of
interlocking directors. directors of two or more corporations that are either competing
or engaged in practically the same kind of business. This
Interlocking directors – Interlocking directors are situation raises concerns about potential conflicts of interest,
persons who serve as member of the board of and the law aims to address these concerns while recognizing
directors of two or more competing corporations the practicalities of corporate relationships.
or corporations engaged in practically the same
kind of business. Threshold for Substantial Stockholdings:
For the purpose of determining substantial interest in
Effect of Corporate contracts with interlocking director situations, stockholdings exceeding twenty
interlocking directors - Interlocking directors of percent (20%) of the outstanding capital stock are considered
corporations does not make a contract between significant. This sets a threshold to identify cases where a
or among the corporations void and of no effect director's ownership stake is substantial enough to potentially
provided there in no fraud and reasonable under influence decision-making.
the circumstances.
Effect of Corporate Contracts with Interlocking Directors:
Importantly, having interlocking directors does not
automatically render contracts between the corporations void
and ineffective. As long as there is no fraud, and the contracts
are reasonable under the circumstances, they are considered
valid.

Sec. 34. Disloyalty of a director. – Where a
director, by virtue of his office, acquires for
himself a business opportunity which should
belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he
must account to the latter for all such profits by
refunding the same, unless his act has been
ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be
applicable notwithstanding the fact that the
director risked his own funds in the venture.
Duties of directors Directors - owe a three-fold
duty to the corporation. First, they must be
obedient; they owe a duty to keep within the
powers of the corporation as well as within those
of the board of directors. Second, they must be
diligent; they owe a duty to exercise reasonable
care and prudence. The third duty owing by
directors is that of individual loyalty.
Concept of “corporate or business
opportunity.” - The doctrine of “corporate
opportunity” is but one phase of the cardinal rule
of undivided loyalty on the part of the fiduciaries.
If there is a presented to a corporate officer or
director a business opportunity which the
corporation is financially able to undertake, is
from its nature, in the line of the corporation’s
business and is of practical advantage to it, is
one in which the corporation will be brought into
conflict with that of his corporation, the law will
not permit him to seize the opportunity for
himself.
Justification:
These provisions recognize the complex nature of business
relationships and corporate governance. While acknowledging
the potential for conflicts of interest in cases of interlocking
directors, the law seeks to strike a balance. It allows for such
contracts to be valid if they are fair and reasonable,
emphasizing the importance of ethical business conduct and
transparency. The threshold for substantial stockholdings
provides a clear standard for assessing the significance of a
director's financial interest. Overall, these rules aim to address
potential conflicts without unduly restricting legitimate business
activities and collaborations between corporations.
Disloyalty of a Director:
This section deals with situations where a director, because of
their position, takes advantage of a business opportunity that
rightfully belongs to the corporation. If a director acquires a
business opportunity for themselves, making profits at the
expense of the corporation, they must give back those profits
to the corporation. This refund is mandatory unless the
director's actions have been approved by a vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock. Importantly, even if the director used
their own funds in the venture, they are still accountable.
Duties of Directors:
Directors owe a three-fold duty to the corporation. First, they
must be obedient by staying within the powers granted to the
corporation and the board of directors. Second, they must be
diligent, exercising reasonable care and prudence. Third,
directors have a duty of individual loyalty. This loyalty involves
putting the interests of the corporation before their personal
interests.
Corporate Opportunity Doctrine:
The concept of "corporate opportunity" refers to the principle
that if a business opportunity is presented to a corporate officer
or director, and the corporation is financially capable of
undertaking it, aligns with its business, and would be
beneficial, the officer or director cannot seize the opportunity
for themselves. This doctrine ensures that directors act in the
best interests of the corporation and do not take advantage of
opportunities that rightly belong to the entity they serve.
Director as Fiduciary:
The term "fiduciary" emphasizes that a director holds a
position of trust and confidence. As a fiduciary, a director
cannot prioritize their own interests over those of the
corporation or manipulate corporate affairs to the disadvantage
Director is a fiduciary. - He who is in such
fiduciary position cannot serve himself first and
his cestuis (beneficiary) second. He cannot
manipulate the affairs of his corporation to their
disadvantage and in disregard of the standards
of common decency. He cannot by the
intervention of a corporate entity violate the
ancient principle against serving two masters
Sec. 35. Executive Committee. – The bylaws of
a corporation may create an executive
committee, composed of not less than three
members of the board, to be appointed by the
board. Said committee may act, by majority vote
of all its members, on such specific matters
within the competence of the board, as may be
delegated to it in the by-laws or on a majority
vote of the board, except with respect to: (1)
approval of any action for which shareholders’
approval is also required; (2) the filling of
vacancies in the board; (3) the amendment or
repeal of bylaws or the adoption of new by-laws;
(4) the amendment or repeal of any resolution of
the board which by it express terms is not so
amenable or repealable; and (5) a distribution of
cash dividends to the shareholders.
of the shareholders. The concept emphasizes the prohibition
against serving two masters—meaning a director cannot act in
a way that benefits themselves at the expense of the
corporation and its stakeholders.
Justification:
These provisions and principles are designed to uphold the
integrity of corporate governance. They establish clear
expectations for directors to act in the best interests of the
corporation and its shareholders. The rules regarding business
opportunities and fiduciary duties prevent directors from
exploiting their position for personal gain and reinforce the
principles of loyalty, diligence, and obedience in the conduct of
corporate affairs. This framework ensures that directors are
accountable for any personal gains obtained through their
position and strengthens the overall governance structure of
the corporation.
Executive Committee:
This section discusses the possibility of a corporation
establishing an executive committee through its bylaws. The
executive committee is made up of at least three members of
the board, and these members are appointed by the entire
board.
Powers of the Executive Committee:
The executive committee is granted the authority to make
decisions, but there are some limitations. The committee can
act on specific matters within the competence of the board, as
delegated to it by the bylaws or through a majority vote of the
entire board. However, certain key matters are explicitly
excluded from the committee's authority. These exclusions
include:
Actions Requiring Shareholders' Approval:
● The executive committee cannot approve
actions that also require approval from the
shareholders.
Filling Vacancies in the Board:
● The committee does not have the authority to fill
vacancies in the board of directors.
Amendment or Repeal of Bylaws:
● The executive committee cannot amend or
repeal existing bylaws or adopt new bylaws.
Amendment or Repeal of Certain Board Resolutions:
● The committee is restricted from amending or
repealing any resolution of the board that, by its
express terms, is not amenable or repealable.

Sec. 36. Corporate powers and capacity. – Every Corporate Powers and Capacity:
corporation incorporated under this Code has This section outlines the general powers and capacity of every
the power and capacity: corporation incorporated under the Corporation Code:
1. To sue and be sued in its corporation name.
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate of incorporation.
3. To adopt and use a corporate seal.
4. To amend its articles of incorporation in
accordance with the provisions of this code.
5. To adopt by-laws, not contrary to law, morals,
or public policy, and to amend or repeal the
same in accordance with this Code.
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell treasury stocks
in accordance with the provisions of this code;
and to admit members to the corporation if it be
a non-stock corporation.
7. 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 be reasonably
and necessarily require, subject to the limitations
Distribution of Cash Dividends:
● The committee is prohibited from deciding on
the distribution of cash dividends to the
shareholders.
Justification:
The creation of an executive committee provides a practical
mechanism for the efficient functioning of the corporation. By
delegating certain decision-making powers to a smaller group,
the corporation can respond more quickly to specific matters
without requiring the full board's involvement. However, the
exclusions listed in the section ensure that critical decisions,
particularly those involving shareholders, bylaws, board
vacancies, and certain resolutions, remain within the purview
of the entire board of directors. This strikes a balance between
flexibility in decision-making and the need for broader approval
on certain significant corporate matters.
Sue and Be Sued:
● The corporation has the power to sue and be
sued in its corporate name.
Succession:
● It has the power of succession by its corporate
name for the period specified in the articles of
incorporation and the certificate of
incorporation.
Corporate Seal:
● The corporation can adopt and use a corporate
seal.
Amend Articles of Incorporation:
● It can amend its articles of incorporation in
accordance with the provisions of the Code.
Adopt and Amend By-Laws:
● The corporation can adopt by-laws (rules
governing its internal affairs) that are not
contrary to law, morals, or public policy, and it
can amend or repeal them in accordance with
the Code.
Stock Issuance and Membership Admission:
● For stock corporations, it has the power to issue
or sell stocks to subscribers, sell treasury
stocks, and admit members if it is a non-stock
corporation.
Property Transactions:
● It can deal with real and personal property,
including securities and bonds of other
prescribed by law and the Constitution.
8. To enter into with other corporations merger or
consolidation as provided in this code.
9. 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.
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees.
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation.
Powers of a corporation
A corporation has such powers, and such
powers only, as are conferred upon it by law or
by its agreement. Powers may be conferred
upon a corporation:
1. Expressly.
2. Impliedly, because they are incidental to
corporate existence.
3. Impliedly, because they are necessary or
proper in order to exercise the powers expressly
conferred.
corporations, as reasonably necessary for the
lawful business of the corporation, subject to
legal limitations and constitutional restrictions.
Merger or Consolidation:
● It can enter into a merger or consolidation with
other corporations as provided in the Code.
Donations:
● It can make reasonable donations for public
welfare, hospitals, charitable, cultural, scientific,
civic, or similar purposes. However, political
donations are prohibited.
Establish Plans:
● It can establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers, and employees.
Other Essential Powers:
● It can exercise other powers essential or
necessary to carry out its purpose or purposes
as stated in its articles of incorporation.
●
Powers of a Corporation:
The powers of a corporation are explicitly enumerated in
Section 36 of the Corporation Code. These powers can be
conferred upon a corporation in three ways:
​
Expressly:
● Powers explicitly granted by law or agreement.
​ Impliedly (Incidental to Corporate Existence):
● Powers that are incidental to the corporate
existence.
​ Impliedly (Necessary or Proper):
● Powers necessary or proper to exercise the
powers expressly conferred.

General express powers General Express Powers:

Section 36 of the Corporation Code enumerates Section 36 of the Corporation Code outlines the general and
the general and express powers of corporations. express powers of corporations.

Other corporate powers Other Corporate Powers:

The Corporation Code enumerates other The Code also specifies additional express powers of
express powers of corporations as follows: corporations, including the power to extend or shorten the
corporate term, increase or decrease capital stock, incur
1. Power to extend or shorten corporate term bonded indebtedness, deny pre-emptive right, sell or dispose
(Sec. 37). assets, acquire own shares, invest corporate funds, declare
2. Power to increase or decrease capital stock; dividends, and enter into management contracts.
incur, create or increase bonded indebtedness
(Sec. 38). Justification:
3. Power to deny pre-emptive right (Sec. 39). This comprehensive list of powers provides a legal framework
4. Power to sell or dispose assets (Sec. 40). for corporations, ensuring clarity on what they are allowed to
5. Power to acquire own shares (Sec. 41). do. The powers are designed to facilitate the smooth
6. Power to invest corporate funds in another
corporation or business or for any other purpose
(Sec. 42).
7. Power to declare dividends (Sec. 43).
8. Power to enter into management contracts
(Sec. 44).
Sec. 37. 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 twothirds (2/3) of the outstanding capital
stock or by at least two-thirds (2/3) of the
members in case of non-stock corporations.
Written notice of 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: Provided, That in case of extension
of corporate term, any dissenting stockholder
may exercise his appraisal right under the
conditions provided in this Code.
Extension of corporate term limited to 50
years - The corporate term may be extended for
periods not exceeding 50 years in any single
instance as provided by section 11 of the
Corporation Code. No extension can be made
earlier than 5 years prior to the original or
subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as
determined by the SEC.
Corporation cannot extend expired term. - A
corporation cannot extend its life by amendment
of its articles of incorporation effected during the
three-year statutory period for liquidation when
its original term of existence had already
expired.
functioning and growth of corporations while emphasizing
responsible and lawful conduct. The enumeration of powers in
the Corporation Code helps maintain transparency,
accountability, and compliance with legal and ethical
standards.
Power to Extend or Shorten Corporate Term:
This section outlines the procedures for a private corporation
to either extend or shorten its corporate term, as originally
stated in the articles of incorporation. The actions required are
as follows:
Approval by Board of Directors or Trustees:
● The extension or shortening of the corporate
term must be approved by a majority vote of the
board of directors or trustees.
Ratification by Stockholders or Members:
● The proposed action must then be 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.
Notice to Stockholders or Members:
● Written notice of the proposed action, along with
the time and place of the meeting, should be
provided to each stockholder or member. This
notice can be sent by mail with postage prepaid
or served personally.
Dissenting Stockholder's Appraisal Right:
● In the case of an extension of the corporate
term, any stockholder who disagrees with the
decision may exercise their appraisal right,
subject to the conditions specified in the
Corporation Code.
Extension of Corporate Term Limited to 50 Years:
● The corporate term can be extended for periods not
exceeding 50 years in any single instance, as provided
by Section 11 of the Corporation Code.
Timing of Extension:
● The extension cannot be made earlier than five years
prior to the original or subsequent expiry date(s),
unless justifiable reasons for an earlier extension are
determined by the Securities and Exchange
Commission (SEC).
Limitation on Extending Expired Term:
● Importantly, a corporation cannot extend its existence
through an amendment of its articles of incorporation
during the three-year statutory period for liquidation if
the original term of existence has already expired.

Sec. 39. 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
an amendment thereto: Provided, That such
pre-emptive right shall not extend to shares to be
issued in compliance with laws requiring stock
offerings or minimum stock ownership by the
public; or to shares to be issued in good faith
with the approval of the stockholders
representing two-thirds (2/3) of the outstanding
capital stock, in exchange for property needed
for corporate purposes or in payment of a
previously contracted debt. Pre-emptive right – It
means literally to establish a prior right. A
stockholder’s preemptive right is his right to
subscribe to new shares of stock in proportion to
his existing stockholdings, before the new
shares are issued to others.
Justification:
These provisions ensure that decisions related to the
extension or shortening of a corporation's term are made
through a structured and democratic process. By requiring
board approval followed by ratification by a significant majority
of stockholders or members, the law ensures that such
fundamental changes are made with the broad support of the
corporate stakeholders. The notice requirements and the
provision for the appraisal right of dissenting stockholders
enhance transparency and protect the interests of minority
stakeholders. The limitations on the extension period and the
prohibition on extending an already expired term provide
safeguards to prevent undue prolongation of corporate
existence without proper justification.
Power to Deny Pre-emptive Right:
This section addresses the pre-emptive right of stockholders in
a stock corporation. Here are the key points:
​
Pre-emptive Right Definition:
● Pre-emptive right means the right to establish a
prior claim or subscribe to new shares of stock
in proportion to the existing stockholdings
before those new shares are offered to others.
Pre-emptive Right for Stockholders:
● All stockholders of a stock corporation have the
pre-emptive right to subscribe to all issues or
disposition of shares of any class. This
subscription is in proportion to their respective
shareholdings.
Exceptions to Pre-emptive Right:
● The pre-emptive right can be denied under
certain circumstances:
● Articles of Incorporation or Amendment:
The articles of incorporation or an
amendment to it can explicitly deny the
pre-emptive right.
● Legal Requirements: The pre-emptive
right does not extend to shares issued to
comply with laws requiring stock
offerings or to meet minimum stock
ownership requirements by the public.
● Approval by Majority: The pre-emptive
right also does not apply to shares
issued in good faith with the approval of
stockholders representing at least
two-thirds (2/3) of the outstanding capital
stock. This might happen in exchange
for property needed for corporate

Sec. 40. Sale or other disposition of 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.
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 the postage prepaid, or
served personally: Provided, That any dissenting
stockholder may exercise his appraisal right
under the conditions provided in this Code.
A sale or other disposition shall be deemed to
purposes or in payment of a previously
contracted debt.
●
Justification:
The pre-emptive right ensures that existing stockholders have
the opportunity to maintain their proportional ownership in the
company when new shares are issued. This helps protect their
investment and prevents dilution of their ownership stake.
However, the law recognizes that there are situations where
denying this right is justifiable. For instance, if the issuance of
new shares is necessary for compliance with legal
requirements or for fulfilling corporate needs such as acquiring
essential property or settling debts, the pre-emptive right may
be set aside with the approval of a significant majority of
stockholders. This balance between protecting stockholders
and allowing flexibility for necessary corporate actions
contributes to the fair and transparent functioning of stock
corporations.
Sale or Other Disposition of Assets:
This section outlines the procedures and conditions under
which a corporation may sell or otherwise dispose of its assets.
Here are the key points:
Board Authorization:
● A corporation may sell, lease, exchange,
mortgage, pledge, or otherwise dispose of all or
substantially all of its property and assets,
including goodwill, through a majority vote of its
board of directors or trustees.
Stockholder or Member Approval:
● Such disposition must be authorized by the vote
of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock,
or in the case of a non-stock corporation, by the
vote of at least two-thirds (2/3) of the members.
The vote is conducted in a duly called
stockholders' or members' meeting.
Notice to Stockholders or Members:
● Written notice of the proposed action, along with
the time and place of the meeting, must be
provided to each stockholder or member. This
notice can be sent by mail with postage prepaid
or served personally.
Dissenting Stockholder's Appraisal Right:
● Any dissenting stockholder may exercise their
appraisal right under the conditions provided in
the Corporation Code.
cover substantially all the corporate property and Definition of Substantially All:
assets if thereby the corporation would be ● A sale or other disposition is deemed to cover
rendered incapable of continuing the business or substantially all the corporate property and
accomplishing the purpose for which it was assets if it renders the corporation incapable of
incorporated. continuing its business or accomplishing its
original purpose.
After such authorization or approval by the Board's Discretion to Abandon:
stockholders or members, the board of directors ● After authorization or approval by the
or trustees may, nevertheless, in its discretion, stockholders or members, the board of directors
abandon such sale, lease, exchange, mortgage, or trustees has the discretion to abandon the
pledge or other disposition of property and proposed disposition without further action or
assets, subject to the rights of third parties under approval, subject to the rights of third parties
any contract relating thereto, without further under any related contracts.
action or approval by the stockholders or Exception for Regular Course of Business:
members. ● The section does not restrict a corporation's
power to sell, lease, exchange, mortgage,
Nothing in this section is intended to restrict the pledge, or dispose of its property and assets
power of any corporation, without the without stockholder or member authorization if
authorization by the stockholders or members, to such action is necessary in the usual and
sell, lease, exchange, mortgage, pledge or regular course of business, or if the proceeds
otherwise dispose of any of its property and are appropriated for the conduct of the
assets if the same is necessary in the usual and remaining business.
regular course of business of said corporation or Non-Stock Corporations:
if the proceeds of the sale or other disposition of ● In non-stock corporations without members with
such property and assets be appropriated for the voting rights, the vote of at least a majority of
conduct of its remaining business. the trustees in office is sufficient authorization
for such transactions.
In non-stock corporations, where there are no
members with voting rights, the vote of at least a Justification:
majority of the trustees in office will be sufficient These provisions establish a clear framework for the sale or
authorization for the corporation to enter into any disposition of a corporation's assets, balancing the need for
transaction authorized by this section. corporate flexibility with the protection of shareholder and
member interests. The requirements for board and shareholder
or member approvals, notice provisions, and the recognition of
appraisal rights for dissenting stockholders contribute to
transparency and fairness in major corporate decisions. The
exceptions ensure that routine business transactions can
proceed without the need for extensive approvals, facilitating
the usual and regular course of business.

Sec. 41. 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:
Power to Acquire Own Shares:
This section grants a stock corporation the authority to
purchase or acquire its own shares for legitimate corporate
purposes, subject to certain conditions:
​
Legitimate Corporate Purpose:
● The corporation must have a legitimate
corporate purpose for acquiring its own shares.

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.
Sec. 42. 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
Legitimate purposes include but are not limited
to the cases outlined in the section.
Unrestricted Retained Earnings:
● The corporation must have unrestricted retained
earnings in its books to cover the shares to be
purchased or acquired.
Specific Cases for Acquisition:
● The section outlines specific cases in which a
corporation may acquire its own shares:
● Elimination of Fractional Shares: The
corporation may acquire its own shares
to eliminate fractional shares that arise
from stock dividends.
● Collection or Compromise of
Indebtedness: Acquisition is permitted to
collect or compromise an indebtedness
to the corporation, arising from unpaid
subscriptions or in a delinquency sale.
This includes the purchase of delinquent
shares sold during such a sale.
● Payment to Dissenting or Withdrawing
Stockholders: The corporation may
acquire its own shares to pay dissenting
or withdrawing stockholders entitled to
payment for their shares under the
provisions of the Corporation Code.
Justification:
The provision allows a stock corporation to acquire its own
shares for legitimate corporate purposes, ensuring flexibility in
managing its capital structure. The specified cases provide
clear circumstances where such acquisitions are deemed
appropriate, such as eliminating fractional shares, collecting
unpaid subscriptions, or compensating dissenting or
withdrawing stockholders. The requirement of unrestricted
retained earnings acts as a financial safeguard, ensuring that
the corporation has the necessary funds to cover the
acquisition of its own shares. This provision strikes a balance
between corporate flexibility and financial responsibility,
preventing misuse of the power to acquire shares for arbitrary
reasons.
Power to Invest Corporate Funds:
This section outlines the conditions under which a private
corporation may invest its funds in another corporation or
business, or for any purpose other than its primary purpose:
​
​
organized when approved by a majority of the
board of directors or trustees and ratified by the
stockholders representing at least twothirds (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 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; Provided, That any dissenting
stockholder shall have appraisal right as
provided in this Code: Provided, however, That
were 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.
Board Approval:
● The corporation may make such investments if
approved by a majority of the board of directors
or trustees.
Stockholder or Member Ratification:
● The proposed investment must be ratified by
the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock. In the
case of non-stock corporations, ratification
requires the approval of at least two-thirds (2/3)
of the members. This approval is obtained at a
duly called stockholders' or members' meeting.
Notice to Stockholders or Members:
● Written notice of the proposed investment,
along with the time and place of the meeting,
must be provided to each stockholder or
member. This notice can be sent by mail with
postage prepaid or served personally.
Appraisal Right for Dissenting Stockholders:
● Any dissenting stockholder has an appraisal
right, as provided in the Corporation Code.
Exception for Investments Necessary for Primary
Purpose:
● The stockholder or member approval is not
necessary if the investment is reasonably
necessary to accomplish the corporation's
primary purpose, as stated in its articles of
incorporation.
●
Justification:
This provision ensures that major investment decisions are
made with the consent of both the board of directors or
trustees and the stockholders or members. The requirement
for majority board approval and subsequent two-thirds
approval by stockholders or members adds layers of oversight
and accountability. The notice provisions and the provision for
the appraisal right of dissenting stockholders contribute to
transparency and the protection of shareholder interests. The
exception recognizes that certain investments, directly related
to the primary purpose of the corporation, may not require the
same level of approval, aligning with the corporate objectives
as stated in the articles of incorporation.