REVISED CORPORATION

CODE (“RCC”)
Title IV – POWERS OF THE
CORPORATION
Title V – BYLAWS
TITLE IV – POWERS OF THE
CORPORATION
 What are the corporate powers and
capacity?
Every corporation incorporated under the RCC has the power and
capacity:
(a) To sue and be sued in its corporate name;
(b) To have perpetual existence unless the certificate of incorporation
provides otherwise;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation in accordance with the
provisions of the RCC;
(e) To adopt bylaws, not contrary to law, morals or public policy, and to
amend or repeal the same in accordance with the RCC;
(f) In case of stock corporations, to issue or sell stocks to subscribers and
to sell treasury stocks in accordance with the provisions of the RCC; and
to admit members to the corporation if it be a nonstock corporation;
 What are the corporate powers and
capacity?
Every corporation incorporated under the RCC has the power and capacity:
(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful
business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the constitution;
(h) To enter into a partnership, joint venture, merger, consolidation, or any
other commercial agreement with natural and juridical persons;
(i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That
no foreign corporation shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
(j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
(k) To exercise such other powers as may be essential or necessary to carry out
its purpose or purposes as stated in the articles of incorporation
How may the corporation extend or shorten
its term?

A private corporation may extend or shorten its

term as stated in the articles of incorporation
when approved by (1) a majority vote of the
board of directors or trustees, and (2) 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 in
case of non-stock corporation.
 What right does a dissenting stockholder
have in case of extension of corporate term?

In case of extension of corporate term, a

dissenting stockholder may exercise the right of
appraisal under the conditions provided in the
RCC.
May a corporation extend its life by amendment of
its AoI after the expiration of its term and during
the three-year period of liquidation?

No. A corporation cannot extend its life during

the period of liquidation when its original term
had already expired. The steps necessary to
effect the extension must be taken during the
life of the corporation and before the expiration
of its term of existence as originally fixed in the
charter. This is because, as a rule, the
corporation is ipso facto dissolved as soon as
that time expires.
When may a stock corporation increase or decrease
its capital stock, or incur, create or increase any
bonded indebtedness?

A corporation may increase or decrease its

capital stock or incur, create or increase any
bonded indebtedness when (1) approved by a
majority vote of the board of directors and (2)
by two-thirds (2/3) of the outstanding capital
stock at a stockholders' meeting duly called for
the purpose.
 What must be signed by the BOD with
regard to the change in capital stock or
bonded indebtedness?
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 of 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 be incurred, created or 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
Whose approval is necessary for the change
in capital stock or 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 SEC and where appropriate, of the
Philippine Competition Commission (PCC). The
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.
 What must accompany the certificate of
increase of capital stock?

The certificate of increase of capital stock must be

accompanied by a sworn statement of the treasurer of
the 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 the corporation.
 ILLUSTRATION

Q: A corporation has an authorized capital stock

of P20,000,000.00 which is fully subscribed and
fully paid. Said corporation is increasing its
capital stock by P30,000,000 so that its
increased authorized capital stock would
become P50,000,000.00. How much must be
subscribed and paid?
 ILLUSTRATION

A: At least 25% of the additional authorized

capital stock of P30,000,000.00 or equivalent to
P7,500,000.00 must be newly subscribed in
addition to the existing subscription of
P20,000,000.00.
At least 25% of the amount subscribed (e.g.
P7,500,000.00) or P1,875,000.00 must be paid in
cash or in property.
When may a non-stock corporation incur or create
bonded indebtedness or increase the same?

Nonstock 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
What does the RCC require as regards bonds
issued by corporations?
Bonds issued by a corporation shall be
registered with the SEC, which shall have the
authority to determine the sufficiency of the
terms thereof
Explain corporate notes, bonds and bonded
indebtedness
When a corporation borrows money, its indebtedness
may be evidenced by notes or bonds. Both are promises
to pay money.
If the amount is small and if it is borrowed in a single
sum, or from a few persons, or for a short period of time,
notes are usually issued.
If however, the amount is large and obtained from a
large number of people and extends over a period of
years, the corporate obligation is usually evidenced by
bonds.
Whenever the corporation issues bonds, the resulting
obligation is a bonded indebtedness.
Do stockholders of a stock corporation have
pre-emptive rights?
All stockholders of a stock corporation shall enjoy preemptive
right to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings, except:
(1) such right is denied by the articles of incorporation or an
amendment thereto;
(2) as to shares issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public;
(3) as to shares issued in good faith with the approval of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock in exchange for property needed for
corporate purposes or in payment of previously contracted
debt
What is the purpose of the stockholders’ pre-
emptive right?
The purpose of the stockholders’ pre-emptive
right is the preservation, unimpaired and
undiluted, of the stockholders’ relative and
proportionate voting strength and control, that
is, the existing ratio of his proprietary interest
and voting power in the corporation.
Thus, if a stockholder has 20% shareholding
in a corporation, that percentage of
shareholding should not be diminished by the
issuance of new shares.
 Is there a pre-emptive right on the re-
issuance of treasury shares?
Yes. When a corporation reacquires its own
shares which thereby become treasury shares,
all shareholders are entitled to pre-emptive right
when the corporation reissues or sells these
treasury shares.
When is there a sale of all or substantially all
of the assets of the corporation?
A sale or other disposition shall be deemed to
cover substantially all the corporate property
and assets if thereby the corporation would be
rendered incapable of continuing the business
or accomplishing the purpose for which it was
incorporated.
 What are the requirements so that a corporation
may sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its
property and assets, including its goodwill?
1. It should comply with the requirements of Republic Act
No. 10667, otherwise known as the "Philippine
Competition Act", and other related laws;
2. It must be: (a) by a majority vote of its board of directors
or trustees, and (b) must be authorized by the vote of
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds (2/3) of
the members, meeting duly called for the purpose;
3. In case of sale, transfer, mortgage or assignment, the
same should comply with the requirements of the Bulk
Sales Law.
 When will the Bulk Sales Law apply?
This applies to sale, transfer, mortgage or assignment
of the corporation’s stocks of goods, wares, provisions
or materials:
(1) other than in the ordinary course of trade and the
regular prosecution of its business
(2) of all or substantially all of the business or trade,
or
(3) of all or substantially all of the fixtures and
equipment used in and about the business,
except when the vendor’s or mortgagor’s creditors
execute written waivers of the provisions of said law.
What are the requirements of the Bulk Sales
Law?
The vendor must:
(1) execute and deliver to the creditors a written
statement of the names and addresses of all creditors,
together with the amount of indebtedness due or
owing said vendor or mortgagor and that the proceeds
of the sale or mortgage be applied to the pro rata
payment of the bona fide claims of the creditors;
(2) make an inventory of the goods to be transferred and
send notices thereof to the creditors at least 10 days
before the sale or mortgage; and
(3) register the sworn statement with the Bureau of
Domestic Trade
What are the instances when the sale in bulk
is not covered by the Bulk Sales Law?
The following sales in bulk are not covered by
the Bulk Sales Law:
1. If the vendor or mortgagor produces and
delivers a written waiver of the provision of
the Bulk Sales Law from his creditors
2. If the vendor or mortgagor is an executor,
administrator, receiver, assignee in insolvency,
or public officer, acting under judicial process
3. If the sale is in the ordinary course of trade
and regular execution of business
 In non-stock corporation where there are no
members with voting rights, whose authority must
be obtained prior to the transactions mentioned in
Section 39 of the RCC?
In nonstock corporations where there are no
members with voting rights, the vote of at least
a majority of the trustees in office will be
sufficient authorization for the corporation to
enter into any transaction authorized by Section
39.
 May a corporation acquire its own shares?

Yes. A stock corporation shall have the power to purchase or

acquire its own shares for a legitimate corporate purpose or
purposes, including the following cases:
(a) To eliminate fractional shares arising out of stock
dividends;
(b) To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold
during said sale; and
(c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
 What is the limitation of the power of a
corporation to acquire its own shares?

The corporation must have unrestricted retained

earnings in its books to cover the shares to be
purchased or acquired, a stock corporation shall have
the power to purchased or acquired.
Also, a corporation may not acquire its own shares if
it will violate the trust fund doctrine which means that
the subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look
for satisfaction of their claims. Thus, redemption of
shares should not be made if it will cause insolvency or
inability of the corporation to pay its creditors.
 May a corporation invest its funds in another
corporation or business or for any purpose other
than the primary purpose for which it was
organized?
Yes. A private corporation may invest its funds in
any other corporation, business, or for any
purpose other than the primary purpose for
which it was organized, (1) when approved by a
majority of the board of directors or trustees and
(2) ratified by the stockholders representing at
least two-thirds (2/3) of the outstanding capital
stock, or by at least two-thirds (2/3) of the
members in the case of nonstock corporations at
a meeting duly called for the purpose.
 What are dividends?

Dividend is that portion of the profits and surplus

funds of the corporation which has been actually
set apart, by a valid act of the corporation, for
distribution among the stockholders according to
their respective interest.
As distinguished from profits, dividends are
declared only from profit after they are earned.
Profits of a corporation do not become a
dividend until they have been set apart or at least
declared as a dividend.
 What are the kinds of dividends?
Cash dividends – which is paid in cash.
Property dividends – paid in specific property instead
of cash. Thus, the proposal of a corporation to
distribute to its stockholders its investment in the form
of stocks in another corporation was treated as
property dividends
Stock dividend - payable in shares of stock of the
corporation declaring the stock dividend. Stock
dividends are payable out of the unissued or increased
capital stock of the corporation, as the case may be.
 Who may declare dividends?

Cash and property dividends may be declared

by majority vote of the board of directors. In
case of stock dividends, the same may be
declared by the board of directors with the
approval of the stockholders representing at
least 2/3 of the outstanding capital stock at a
regular or special meeting duly called for that
purpose.
 Who are entitled to dividends?

Dividends may be declared only in favor of all

stockholders on the basis of the outstanding
stock held by them. The stockholders at the time
of declaration and not the stockholders at the
time of payment are entitled to dividends,
regardless of the time the retained earnings
were earned.
 Are stockholders who have not fully paid
their subscriptions entitled to dividends?

Yes. Holders of subscribed shares not fully paid

which are not delinquent shall have all the rights
of a stockholder and therefore, entitled to
receive dividends.
Any cash dividends due on delinquent stock
shall be first be applied to the unpaid balance on
the subscription plus costs and expenses, while
stock dividends shall be withheld until their
unpaid subscription is fully paid.
 May dividends declared be withdrawn or
revoked later?
For cash and property dividends, NO.
For stock dividends, YES.
The reason for the difference in the said rule is that
in the case of cash dividend, the amount to be
distributed is severed from the general fund and
become the property of the stockholders pro rata as
soon as the dividend is voted, while in the case of stock
dividends, all the formalities to a valid increase of stock
must be complied with before the stockholders are
entitled to anything, and the mere declaration of
dividend does not give them vested right.
 May Board of Directors be compelled to
declare dividends?
As a general rule, NO. The power of management of the corporation
of the BOD includes the discretion to determine when and to what
extent dividends may be declared.
However, stock corporations are prohibited from retaining surplus
profits in excess of 100% of their paid-in capital stock and in such
instance, must declare dividends, except:
(a) when justified by the definite corporate expansion projects or
programs approved by the board of directors; or
(b) when the corporation is prohibited under any loan agreement with
financial institutions or creditors, whether local or foreign, from
declaring dividends without their consent, and such consent has
not yet been secured; or
(c) when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as
What are the requirements for the validity of
a management contract?
1. The majority of the members of the board of
directors/trustees of both the managing and managed
corporation approved the management contract.
2. The stockholders owning at least the majority of the
outstanding capital stock or majority of the members in
case of a non-stock corporation of both the managing and
managed corporation likewise approved the said contract.
3. The management contract is not longer than 5 years for
any term, except service contracts or operating
agreements which relate to the exploration, development
exploitation or utilization of natural resources which may
be entered into for such periods as may be provided by
the pertinent laws or regulations.
 When is a greater vote of the stockholders or
members of the managed corporation necessary to
approve a management contract?
The management contract must be approved by the stockholder 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 nonstock corporation,
in the following cases:
(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 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
 What are ultra vires acts?
An ultra vires act is one not within the express or implied
powers of the corporation as fixed by its charter or the statutes.
The term includes not only contracts (1) entirely without the
scope and purpose of the charter and not pertaining to the
objects for which the corporation was chartered, but also (2)
contract beyond the limitations of the powers conferred by the
charter, although within the purposes contemplated by the
articles of incorporation.
The term ultra vires act may also refer to the acts done by
the directors or officers of a corporation in excess of the powers
conferred upon them. But in such case, said act may not
necessarily be an ultra vires act of the corporation although an
ultra vires act of the directors or officers.
 Distinguish ultra vires act from an illegal
act.
An ultra vires act is not necessarily illegal,
immoral or injurious to the others. This simply
means an act which is beyond the scope of
powers conferred upon the corporation by its
charter. An illegal act is one expressly prohibited
by the charter or a general statute, or which is
immortal or against public policy.
An ultra vires act is voidable while an illegal
act is void.
 May an ultra vires act be ratified?

It depends.
If the ultra vires act is also contrary to law, morals or
public policy, it becomes void and therefore cannot
be ratified.
But if the ultra vires act is not illegal and therefore
merely voidable, the act may be ratified expressly or
impliedly. Thus, performance or acceptance of
benefits may be considered as an implied ratification
of an ultra vires act, or may give rise to estoppel to
prevent the repudiation of the transaction.
TITLE V – BY-LAWS
 How and when may the bylaws of the
corporation be adopted?
If the code of by-laws is adopted by the corporation after
incorporation, the following must be followed:
 It must be approved by the affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or
of at least a majority of the members in case on nonstock
corporations;
 The bylaws shall be signed by the stockholders or members voting
for them and shall be kept in the principal office of the corporation,
subject to the inspection of the stockholders or members during
office hours;
 A copy thereof, duly certified by a majority of the directors or
trustees and countersigned by the secretary of the corporation, shall
be filed with the SEC and attached to the original articles of
incorporation
 How and when may the bylaws of the
corporation be adopted?

If the code of by-laws is adopted by the

corporation before incorporation, the following
must be followed:
 It must be approved and signed by all
incorporators and submitted to the SEC,
together with the articles of incorporation
 When will the bylaws be effective?

Bylaws shall be effective only upon the issuance

by the SEC of a certification that the bylaws are
in accordance with the RCC.
 Whose bylaws shall not be accepted by the SEC unless
accompanied by a certification of the appropriate
government agency that such bylaws or amendments are in
accordance with law?
The SEC shall not accept for filing the bylaws or
any amendment thereto of any bank, banking
institution, building and loan association, trust
company, insurance company, public utility,
educational institution, or any other
corporations governed by special laws, unless
accompanied by a certificate of the appropriate
government agency to the effect that such by
laws or amendments are in accordance with law.
 What are the requisites of valid bylaws?

The following are the requisites of valid bylaws:

1. It must not be contrary to law, morals, public
order or public policy.
2. It must not impair the obligations of contracts or
rights.
3. It must be general and uniform in their operation
and effect
4. It must be reasonable and not arbitrary or
oppressive.
5. It must be consistent with the charter or AoI.
 What are the contents of the bylaws?
 A private corporation may provide the following in its bylaws:
• (a) The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
• (b) The time and manner of calling and conducting regular or special meetings
and mode of notifying the stockholders or members thereof;
• (c) The required quorum in meetings of stockholders or members and the
manner of voting therein;
• (d) The modes by which a stockholder, member, director or trustees may attend
meetings and cast their votes;
• (e) The form for proxies of stockholders and members and the manner of voting
them;
• (f) The directors' or trustees' qualifications, duties and responsibilities, the
guidelines for setting the compensation of directors or trustees and officers, and
the maximum number of other board representations that an independent
director or trustee may have which shall, in no case, be more than the number
prescribed by the SEC
 What are the contents of the bylaws?
 A private corporation may provide the following in its bylaws:
• (g) The time for holding the annual election of directors or trustees
and the mode or manner of giving notice thereof;
• (h)The manner of election or appointment and the term of officers
other than directors or trustees;
• (i) The penalties for violation of the bylaws;
• (j) In the case of stock corporations, the manner of issuing stock
certificates; and
• (k) Such other matters as may be necessary for the proper or
convenient transaction of its corporate affairs for the promotion of
good governance and anti-graft and corruption measures.
• An arbitration agreement maybe provided in the bylaws pursuant
to Section 181 of the RCC
Are the by-laws of a corporation binding on
third persons?
 Bylaws merely operate as internal rules among
the stockholders and therefore, they cannot
affect or prejudice third persons who deal
with the corporation unless they have
knowledge of the same.
 How may the bylaws be amended or
repealed or new bylaws be adopted?
The bylaws may be amended or repealed or new
bylaws may be adopted by: (1) majority of the
board of directors or trustees and (2) the owners
of at least a majority of the outstanding capital
stock, or at least a majority of the members of a
nonstock corporation, at a regular or special
meeting duly called for the purpose.
How may the power to amend or repeal the
bylaws be delegated to the BOD or BOT?
How may this delegated power be revoked?
The power to amend or repeal the bylaws or adopt new
bylaws may be delegated to the BOD or BOT by the
owners of at least two-thirds (2/3) of the outstanding
capital stock or two-third (2/3) of the members in a
nonstock corporation may delegate to the board of
directors or trustees.
The delegated power to amend or repeal the bylaws or
adopt new bylaws shall be considered as revoke
whenever stockholders owning or representing a majority
of the outstanding capital stock or majority of the
members shall so vote at a regular or special meeting.
What are the other requirements when the
bylaws are amended or new bylaws are
adopted?
Whenever the bylaws are amended or new
bylaws are adopted, the corporation shall file
with the SEC such amended or new bylaws and,
if applicable, the stockholders' or members'
resolution authorizing the delegation of the
power to amend and/or adopt new bylaws, duly
certified under oath by the corporate secretary
and majority of the directors or trustees
 When will the amended bylaws or new bylaws
take effect?

The amended or new bylaws shall only be

effective upon the issuance by the SEC of
certification that the bylaws is in accordance
with the RCC and other relevant laws.
 What are the distinctions between the AoI and
the Bylaws?
Articles of Incorporation Bylaws
Fundamental laws of the corporation Internal rules
Executed before incorporation May be executed at the time of
incorporation or after
Filing of the AoI is a condition precedent Filing is NOT a condition precedent to
to corporate existence corporate existence
May be amended by at least a majority May be amended by at least a majority
vote of the BOD or BOT plus at least 2/3 of vote of the BOD or BOT plus at least
the OCS or members majority of the OCS or members
Power to amend the AoI may not be Power to amend may be delegated by the
delegated by the stockholders or stockholder or members by at least 2/3 of
members to the BOD or BOT OCS or members
Amendment may give rise to appraisal Amendment may not give rise to appraisal
right right
Changes to this are considered fundamental matters for which even non-voting shares
may vote.
Thanks!