POWERS OF CORPORATIONS i.

To make reasonable donations, including

Sec 35-44 those for the welfare of for hospital,

charitable, cultural, scientific similar
purposes: Provided, that no foreign
Corporation has the powers expressly granted by
corporation Give donations in aid or any
RA 11232 and those which are implied or
political party or candidate or purposes
incidental to its existence.
of partisan political activity;
j. To establish pension, retirement, and
Generally, powers of the corporation are
other plans for the of its directors, trustees,
exercised by the BOD or BOT and its corporate
officers, and employees; and
officers, except those which are reserved to the
k. To exercise such other powers as may be
SH/M.
essential or necessary to carry out its
purpose or purposes as stated in the
Sec. 35 Corporate Powers and Capacity articles incorporation.
Classification of Corporate Powers
Every corporation incorporated under this Code 1. Those expressly granted or authorized by
has the power and capacity: law;
a. To sue and be sued 2. Those incidental to its existence;
in its corporate 3. Those that are necessary to the exercise
name; of the express or incidental powers
b. To have perpetual existence unless the (Implied)
certificate of incorporation provides
otherwise; 1. Express powers
c. To adopt and use a corporate seal; - The powers expressly conferred upon the
d. To amend its articles of incorporation in corporation by law (special law or RCC)
accordance with the provisions of this 2. Incidental Powers
Code; - Powers which a corporation can exercise by
e. To adopt bylaws, not contrary to law, the mere fact of its being a corporation or
morals or public policy, and to amend or powers which are necessary to corporate
repeal the same in accordance with this existence.
Code; 3. Implied Powers
f. In case of stock corporations, to issue or - Those powers which are reasonably
sell stocks to subscribers and to sell necessary to exercise the express powers
treasury stocks in accordance with the to accomplish or carry out the purpose for
provisions of this Code; and to admit which the corporation was formed
members to the corporation if it be a
non-stock corporation; Power to sue and be sued
g. To purchase, receive, take or grant, hold, 1. Corporation de Facto may
convey, sell, lease, pledge, mortgage, sue or be sued
and otherwise deal with such real and 2. A corporation NOT duly registered in
personal property, including securities accordance with law has NO legal
and bonds of other corporations, as the capacity to SUE as such
transaction of the lawful business of the 3. Foreign corporation without the
corporation may reasonably and necessary license from SEC may NOT SUE
necessarily require, subject to the in the Philippine courts;
limitations prescribed by law and the 4. MORAL DAMAGES.
Constitution;
h. To enter into a partnership, joint venture, Power to acquire and convey property
merger, consolidation, or any other
commercial agreement with natural and Corporation may acquire properties or assets to
juridical persons; carry on its business, subject to constitutional and
statutory limitations.
i.e.
Art. XII, Sec 3. – Corporation may not hold
alienable lands of the public domain except by
lease for a period of not exceeding 25 years,
renewable for not more than 25 years, and shall
not exceed 1,000 hectares in area.
Derivative Suit
A derivative suit is an action brought by a
stockholder on behalf of the corporation to
enforce corporate rights against the corporation’s
directors, officers or other insiders.
Under Sections 23 and 363 of the Corporation
Code (Now Section 22 and 35, Revised
Corporation Code) the directors or officers, as
provided under the by-laws, have the right to
decide whether or not a corporation should sue.
Since these directors or officers will never be willing
to sue themselves, or impugn their wrongful or
fraudulent decisions, stockholders are permitted
by law to bring an action in the name of the
corporation to hold these directors and officers
accountable.
In derivative suits, the real party in interest is the
corporation while the stockholder is a mere
nominal party.
Section 36. Power to Extend or Shorten
Corporate Term.
A private corporation may extend or shorten its
term as stated in the articles of incorporation
when approved by a majority vote of the board
of directors or trustees, and ratified at a meeting
by the stockholders or members representing at
least two-thirds (2/3) of the outstanding capital
stock or of its members. Written notice of the
proposed action and the time and place of the
meeting shall be sent to the stockholders or
members at their respective place of residence as
shown in the books of the corporation, and must
be deposited to the addressee in the post office
with postage prepaid, served personally, or when
allowed in the bylaws or done with the consent of
the stockholder, sent electronically in
accordance with the rules and regulations of the
Commission on the use of electronic data
messages. In case of extension of corporate term,
a dissenting stockholder may exercise the right of
appraisal under the conditions provided in this
Code.
Power to Extend or Shorten Corporate Term
Requirements:
1. Approval by a majority vote of the board
of directors or trustees, and
2. Ratification by the stockholders
representing at least 2/3 of the out-
standing capital stock or by at least
21.3 of the. members in case of non-stock
corporations.
APPRAISAL RIGHT - Appraisal right means that a
stockholder who dissented and voted against the
proposed corporate action, may choose to get
out of the corporation by demanding payment of
the fair market value of his shares.
Section 37. Power to increase or Decrease
Capital Stock; Incur, Create or Increase
Bonded Indebtedness.
No corporation shall increase or decrease its
capital stock or incur, create or increase any
bonded indebtedness unless approved by a
majority vote of the board of directors and by two-
thirds (2/3) of the outstanding capital stock at a
stockholders' meeting duly called for the purpose.
Written notice of the time and place of the
stockholders' meeting and the purpose for said
meeting must be sent to the stockholders at their
places of residence as shown in the books of the
corporation served on the stockholders
personally, or through electronic means
recognized in the corporation's bylaws and/or the
Commission's rules as a valid mode for service of
notices.
A certificate must be signed by a majority of the
directors of the corporation and countersigned by
the chairperson and secretary of the stockholders'
meeting, setting forth:
a. That the requirements of this section have
been complied with;
b. The amount of the increase or decrease
of the capital stock;
c. In case of an increase of the capital
stock, the amount of capital stock or
number of shares of no-par stock thereof
actually subscribed, the names
nationalities and addresses of the persons
 subscribing, the amount of capital stock
or number of no-par stock subscribed, the
names, nationalities and addresses of the
persons subscribing, the amount
capital stock or number of no-par stock
subscribed by each, and the amount
paid by each on the subscription in cash
or property, or the amount of capital
stock or number of shares of no-par stock
allotted to each stockholder if such
increase is for the purpose of making
effective stock
dividend therefor authorized;
d. Any bonded indebtedness to
incurred, created ot increased;
e. The amount of stock represented at the
meeting; and
f. The vote authorizing the increase or
decrease of capital stock, or incurring,
creating or increasing of bonded
indebtedness.
Any increase or decrease in the capital stock or
the incurring, creating or increasing of any
bonded indebtedness shall require prior approval
of the Commission and where appropriate, of the
Philippine Competition Commission.
application with the Commission shall be made
within six (6) months from the date of approval of
the board of directors and stockholders, which
period may be extended for justifiable reasons.
Copies of the certificate shall be kept on file in the
office of the corporation and filed with the
Commission and attached to the original articles
of incorporation. After approval by
Commission and the issuance by the Commission
of its certificate of filing may declare: Provided,
That the Commission shall not accept for filing any
certificate of increase of capital stock unless
accompanied by a sworn statement of the
treasurer of the corporation accompanied by a
sworn statement of the treasurer of
corporation lawfully holding office at the time of
the filing of the certificate, showing that at least
twenty-five percent (25%) of the increase in
capital stock has been subscribed and that at
least twenty-five percent (25%) of the amount
subscribed has been paid in actual cash to the
corporation or that property, the valuation of
which is equal to twenty-five percent (25%) of the
subscription, has been transferred to
corporation: Provided, further, That no decrease
in capital stock shall be approved by the
Commission if its effect shall prejudice the rights of
of corporate creditors.
Non-stock corporations may incur, create or
increase bonded indebtedness when approved
by a majority of the board of trustees and of at
least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered
with the Commission, which shall have the
be authority to determine the sufficiency of the terms
thereof.
The Trust Fund Doctrine
Provides that the subscriptions to the capital stock
of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of
their claims.
This doctrine is the underlying principle in the
procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows
The the distribution of corporate capital only in three
instances:
1. amendment of the Articles
of
Incorporation to reduce the authorized
capital stock;
2. purchase of redeemable shares by the
corporation regardless of the existence.
of unrestricted retained earnings and
the 3. dissolution and eventual liquidation of the
corporation
Power to increase or decrease capital stock
An increase or decrease in the capital stock
involves a fundamental change in the
the corporation.
Even holders of a NON VOTING shares are entitled
to vote on such matter.
Limitations on the power
1. As a general rule, a corporation cannot
lawfully decrease its capital stock if such
decrease will have the effect of relieving
the existing subscribers from the obligation of
 paying for their unpaid subscriptions property needed for corporate purposes or in
without a valuable consideration for such payment of previously contracted debt.
release as such an act of the corporation
constitutes an attempted withdrawal of Pre-emptive Right - It is the preferential right of all
so much capital of the corporation upon stockholders of a Stock corporation to subscribe
which corporate creditors are entitled to to all issues or disposition of shares of any class, in
rely. proportion to their respective shareholdings
2. A corporation cannot issue stock in
excess of the amount limited by its articles Reason for the grant of right
of incorporation; such issue is ultra vires The rule aims to safeguard the right of a
and the stock so issued is void even in the stockholder to preserve his
hands of a bona fide purchaser for value. proportionate influence and interest in the
3. A reduction or increase of the capital corporation and the relative value of his holdings.
stock can take place only in the manner
and under the conditions prescribed by The purpose of the right is to protect from
law impairment and dilution the basic rights of the
stockholder in the corporation, such as the voting
Necessity for increasing capital stock control, dividend payments and sharing net assets
1. Increase of corporate assets. – An increase of the corporation.
of the amount of the stated capital may
be for the purpose of effecting an This right may be WAIVED by the
increase in the corporate assets. It may stockholders.
be effected: Power to deny pre-emptive right 1. Shares
a. by authorizing the creation of specified by law
new shares to be offered and a. Shares to be issued in
issued at a fixed valuation; or compliance with the laws
b. without any corresponding requiring stock offerings or
increase in the corporate assets, minimum stock ownership by the
by the issuance of stock public;

dividends b. Shares to be issued in good faith

with the approval of the

Incurring, Creating or Increasing Bonded stockholders representing 2/3 of

Indebtedness. the outstanding capital stock in

exchange for property needed

Bonded Indebtedness - It is a long-term for corporate purposes; and

indebtedness secured usually by real property. c. Shares to be issued in good faith

with the approval of the
stockholders representing 2/3 of
Section 38. Power to Deny Preemptive Right. the outstanding capital stock in
payment of previously
All stockholders of a stock corporation shall enjoy contracted debt.
preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to 2. Remaining unsubscribed shares – If the shares
their respective shareholdings, unless such right is corresponding to one stockholder are not
denied by the articles of incorporation or an subscribed or purchased by him within the period
amendment thereto: Provided, That such fixed for the exercise of his pre-emptive right, it
preemptive right shall not extend to shares issued does not follow that said shares should again be
in compliance with laws requiring stock offerings offered on a pro-rata basis to the other
or minimum stock ownership by the public; or to stockholders.
shares issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of the Such remaining shares shall be offered to the
outstanding capital stock in exchange for public on first-come, first-served basis or to any
person acceptable to the corporation without electronically: Provided, That any dissenting
violating the preemptive rights of such stockholder may exercise the right of appraisal
stockholders. under the conditions provided in this Code.

After such authorization or approval by the

Section 39. Sale or Other Disposition of Assets.
stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion,
Subject to the provisions of Republic Act No.
abandon such sale, lease, exchange, mortgage,
10667, otherwise known as the "Philippine
pledge, or other disposition of property and assets,
Competition Act", and other related laws a
subject to the rights of third parties under any
corporation may, by a majority vote of its board of
contract relating thereto, without further action or
directors or trustees, sell, lease, exchange,
approval by the stockholders or members.
mortgage, pledge, or otherwise dispose of its
property and assets, upon such terms and
Nothing in this section is intended to restrict the
conditions and for such consideration, which may
power of any corporation, without the
be money, stock, bonds, or other instruments for
authorization by the stockholders or members, to
the payment of money or other property or
sell, lease, exchange, mortgage, pledge, or
consideration, as its board of directors or trustees
otherwise dispose of any of its property and assets
may deem expedient.
if the same is necessary in the usual and regular
course of business of the corporation or if the
A sale of all or substantially all of the corporation's
proceeds of the sale or other disposition of such
properties and assets, including its goodwill, must
property and assets shall be appropriated for the
be authorized by the vote of stockholders
conduct of its remaining business.
representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds
Power to SLEMPO all or substantially all corporate
(2/3) of the members, meeting duly called for the
assets.
purpose.

A corporation, by the action of its BOD or BOT

In non-stock corporations where there are no
ratified by the vote of the shareholders or
members with voting rights, the vote of at least a
members, may sell, lease, exchange, mortgage,
majority of the trustees in office will be sufficient
pledge, or otherwise dispose of all or substantially
authorization for the corporation to enter into any
all of its property and assets including its goodwill.
transaction authorized by this section.

Requisites for the validity of SLEMPO

The determination of whether or not the sale
1. The SLEMPO must be approved by the
involves all or substantially all of the corporation's
BOD or BOT;
properties and assets must be computed based
2. The action of the BOD or BOT must be
on its net asset value, as shown in its latest financial
authorized by the vote of SH representing
statements. A sale or other disposition shall be
2/3 of the outstanding capital stock or 2/3
deemed to cover substantially all the corporate
of the members, as the case may be; and
property and assets if thereby the corporation
3. The authorization must be done at a
would be rendered incapable of continuing the
stockholders’ or members’ meeting duly
business or accomplishing the purpose of which it
called for that purpose after written
was incorporated.
notice.
SUBSTANTIALLY all of the corporate assets
Written notice of the proposed action and of the
A SLEMPO shall be deemed to cover
time and place for the meeting shall be
substantially all the corporate property and assets
addressed to stockholders or members at their
if thereby the corporation would be rendered
places of residence as shown in the books of the
incapable of continuing the business or
corporation and deposited to the addressee in
accomplishing the purpose for which it was
the post office with postage prepaid, served
incorporated.
personally, or when allowed by the bylaws or
done with the consent of the stockholder, sent
When ratification of SH/M not required for the
validity of SLEMPO
1. If the same is necessary in the usual ad
regular course of business of said
corporation; or
2. If the proceeds of the sale or other
disposition of such property and assets be
appropriated for the conduct of its
remaining business.
corporation regardless of the availability of
unrestricted earnings in its books, or by the other
stockholders.
Fractional shares
Fractional shares are shares which are less
than one share.
General rule:
The corporation may only acquire its own stocks in
the presence of unrestricted retained earnings.

Section 40. Power to Acquire Own Shares Exceptions:

1. Redeemable shares may be acquired even
Provided, That the corporation has unrestricted without surplus profit for as long as it will not
retained earnings in its books to cover the shares result to the insolvency of the Corporation; and
to be purchased or acquired, a stock corporation
2.In a close corporation.
shall have the power to purchase or acquire its
own shares for a legitimate corporate purpose or
purposes, including the following cases: Section 41. Power to Invest Corporate Funds
a. To eliminate fractional shares arising out in Another Corporation or Business or for Any
of stock dividends; Other Purpose.
b. To collect or compromise an
indebtedness to the corporation, arising Subject to the provisions of this Code, a private
out of unpaid subscription, in a corporation may invest its funds in any other
delinquency sale, and to purchase corporation, business, or for any purpose other
delinquent shares sold during said sale; than the primary purpose for which it was
and organized, when approved by a majority of the
c. To pay dissenting or withdrawing board of directors or trustees and ratified by the
stockholders entitled to payment for their stockholders representing at least two-thirds (2/3)
shares under the provisions of this Code. of the outstanding capital stock, or by at least
two-thirds (2/3) of the outstanding capital stock, or
Instances When A Corporation May Acquire Its by at least two-thirds (2/3) of the members in the
Own Shares case of non-stock corporations at a meeting duly
1. To eliminate fractional shares arising out called for the purpose. Notice of the proposed
of stock dividends; investment and the time place of residence as
2. To collect or compromise an shown in the books of the corporation and
indebtedness to the corporation, arising out of deposited to the addressee in the post office with
unpaid subscription, in a delinquency sale, and to the postage prepaid. Served personally, or sent
purchase delinquent shares sold during said sale; electronically in accordance with the rules and
3. To pay dissenting or withdrawing stockholders regulations of the Commission on the use of
entitled to payment for their shares under the electronic data message, when allowed by the
provisions of this Code; 4. To acquire treasury bylaws or done with the consent of the
shares; stockholders: Provided, That any dissenting
5. Redeemable shares regardless of stockholder shall have appraisal right as provided
existence of retained earnings; in this Code: Provided, however, That where the
6. To effect a decrease of capital stock; and investment by the corporation is reasonably
7. In close corporations, when there is a deadlock necessary to accomplish its primary purpose as
in the management of the business, the SEC may stated in the articles of incorporation, the
order the purchase at their fair value of the shares approval of the stockholders or members shall not
of any stockholder by a be necessary.

Investment is or in the primary purpose Requisites:

1. Approval of the majority of the BOD/BOT
 2. SH/M’s approval NOT required. when it can be clearly shown that such retention
is necessary under special circumstances
Investment other than the primary purpose obtaining in the corporation, such as when there
Requisites for validity: is need for special reserve for probable
1. Approval of the majority of BOD/BOT; contingencies.
2. Ratification by the SH representing 2/3 of
the outstanding capital stock, or by 2/3 of Retained Earnings
the members in a meeting duly called for The accumulated profits realized out of
such purpose; normal and continuous operations of the business
3. Written notice of the proposed after deducting therefrom
investment and the time and place of the distributions to stockholders and transfers
meeting shall be addressed to each to capital or other accounts.
stockholder or member or served
personally, or sent electronically in UNRESTRICTED RETAINED EARNINGS
accordance with the rules and The retained earnings which have not
regulations of the Commission on the use been reserved or set aside by the board of
of electronic data message, when directors for some corporate purpose.
allowed by the bylaws or done with the DIVIDENDS
consent of the stockholders; It is the part or portion of the profits of a
4. Any dissenting stockholder shall have corporation set aside, declared and ordered by
appraisal right, and the directors to be paid ratably to the SH on
5. The ratification must be made at a demand or at a fixed time.
stockholder's or member's meeting duly
called for the purpose. When dividends may be declared
1. Existence of URE
2. Resolution of the BOD
Section 42. Power to Declare Dividends. 3. For stock dividend, vote of 2/3 of
outstanding capital stock.
The board of directors of a stock corporation may
Limitations on Dividends
declare dividends out of the unrestricted retained
1. The right to dividend is based on duly
earnings which shall be payable in cash, property,
recorded stockholdings.
or in stock to all stockholders on the basis of
2. Dividends among stockholders of the
outstanding stock held by them: Provided, That
same class must always be pro rata equal
any cash dividends due on delinquent stock shall
and without discrimination and regardless
be first be applied to the unpaid balance on the
of the time when the shares were
subscription plus costs and expenses, while stock
acquired. The right of the stockholder to
holders until their unpaid subscription is fully paid:
be paid dividends accrues as soon as the
Provided, further, That no stock dividend shall be
declaration is made.
issued without the approval of stockholders
3. The right to dividend accrues even if there
representing at least two-thirds (2/3)of the
is no SEC approval.
outstanding capital stock at a regular or special
4. Declaration of dividends is discretionary
meeting duly called for the purpose.
upon the board of directors.
5. Dividends cannot be declared out of
Stock corporations are prohibited from restraining
paid-in surplus and revaluation surplus.
surplus profits in excess of one hundred percent
6. Treasury shares cannot be declared as
(100%} of their paid-in capital stock, except: (a)
stock or cash dividends.
when justified by the definite corporate expansion
projects or programs approved by the board of
General Rule:
directors; or (b) when the corporation is prohibited
Stock corporations are prohibited from retaining
under any loan agreement with financial
surplus profits in excess of 100% of their paid-in
institutions or creditors, whether local or foreign,
capital stock.
from declaring dividends without their consent,
and such consent has not yet been secured; or (c)
Exceptions:
1. When justified by definite corporate expansion
projects or programs approved by the board of
directors;
2 When the corporation is prohibited under any
loan agreement with any financial institution or
creditor, whether local or foreign, from declaring
dividends without its/his consent, and such
consent has not yet been secured; or
3. When it can be clearly shown that such
retention is necessary under special
circumstances obtaining in the corporation, such
as when there is need for special reserve for
probable contingencies secured.
Section 43. Power to Enter into Management
Contract.
No corporation shall conclude a management
contract with another corporation unless such
contract is approved by the board of directors
and by the stockholders owning at least the
majority of the outstanding capital stock, or by at
least a majority of the members in the case of a
non-stock corporation, or both the managing and
the managed corporation, at a meeting duly
called for the purpose: Provided, That (a) where a
stockholder or stockholders representing the same
interest of both the managing and the managed
corporations own or control more than one-third
(1/3) of the total outstanding capital stock entitled
to vote of the managing corporation; or (b) where
a majority if the members of the board of directors
of the managing corporation also constitute a
majority of the members of the board of directors
of the managed corporation, then the
management contract must be approved by the
stockholders of the managed corporation owning
at least two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least two-
thirds (2/3) of the members in the case of a non-
stock corporation.
These shall apply to any contract whereby a
corporation undertakes to manage or operate all
or substantially all of the called services contracts,
operating agreements or otherwise: Provided,
however, That such service contracts or operating
agreements which relate to the exploration,
development exploitation or utilization of natural
resources may entered into such periods as may
be provided by the pertinent laws or regulations.
No management contracts shall be entered into
for period longer that five (5) years for any one
term.
Management contract
It is an agreement whereby a corporation
delegates the management of its affairs to
another corporation for a certain period of time.
No management contract shall be entered into
for a period longer than five years for any one
term. (except those relating to the exploration,
development, exploitation or utilization of natural
resources may be entered into for such periods as
may be provided by pertinent laws or
regulations.)
Requirements:
1. Approval by the majority of the quorum
of the board of directors;
2. Ratification by the stockholders owning
at least the majority of the outstanding capital
stock, or by at least a majority of the members in
the case of a non-stock corporation, of both the
managing and the managed corporation, at a
meeting duly called for the purpose; and 3.
Approval by the stockholders of the managed
corporation owning at least two-thirds (2/3) of
the total outstanding capital stock entitled to
vote, or by at least two-thirds (2/3) of the
members in the case of a non-stock corporation,
in cases of:
a. Interlocking stockholders where a
stockholder or stockholders representing the
same interest of both the managing and
the managed corporations own or
control more than 1/3 of the total
outstanding capital stock entitled to vote
of the managing corporation.
b. Interlocking directors where a majority of
the members of the board of directors of
the managing corporation also constitute
a majority of the members of the board of
directors of the managed corporation.
Section 44. Ultra Vires Acts of the
Corporations.
No corporation shall possess or exercise corporate
powers other than those conferred by this Code
or by its articles of incorporation and except as
necessary or incidental to the exercise of the
powers conferred.

Ultra vires act

Acts which are not within the corporate
powers conferred by the Corporation code or
articles of incorporation or not necessary or
incidental in the exercise of the powers so
conferred.