I.

DEFINITION AND CLASSIFICATION

Corporation defined
A corporation is a legal entity that is separate and distinct
from its owners. Under the law, corporations possess
many of the same rights and responsibilities as
individuals. They can enter contracts, loan and borrow
money, sue and be sued, hire employees, own assets, and
pay taxes.
 
Classes of corporations
There are four major classifications of corporations Nonprofit - A nonprofit
corporation is an organization formed to serve the public good, such as for
charitable, religious, educational, or other public service reasons, rather than
purely for the creation of profit itself, as businesses aim to do.
Municipal - A municipal corporation is created by a state's legislature which
also controls, inter alia, its duration, rights, and powers.
Professional - corporate entities for which many corporation statutes make
special provision, regulating the use of the corporate form by licensed
professionals and Business. Business corporations are divided into two types,
publicly held and closely held corporations.
CORPORATORS AND INVORPORATORS
CORPORATORS
-are those who compose a corporation, whether as stockholders
or as members.
INCORPORATORS
-are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the
corporation and who are signatories thereof.
STOCKHOLDERS AND MEMBERS
STOCKHOLDERS
-is a person who owns the shares of the company
MEMBERS
-is a person who subscribed the memorandum of the company.
CLASSIFICATION OF
SHARES
Founders shares are low-priced common stock issued
when a startup company is incorporated. The shares are
typically spread among initial parties, proportionate to
their role or investment in the company. The shares are
allocated at this point, but do not become vested, or
owned, until a later time.
REDEEMABLE SHARES (SEC.8)
Redeemable shares are also referred to as "Callable" shares. These are usually
preferred shares which are issued only under terms and conditions provided in
Articles of Incorporation and in the Certificate of Stocks. They are called
"Redeemable" shares because they are subject to redemption after the lapse of a
specified period of time by the corporation or the stockholder, or both, at a price as
may be agreed upon. While the above article states the redemption must be made
by the corporation "regardless of the existence of the unrestricted retained
earnings," there is a consensus of authority that redemption of these "redeemable
" stocks cannot be made from capital nor from corporate borrowings. Redemption
can only be made possible if there is sufficient amount in the unrestricted retained
earnings to cover the repurchase.
TREASURY SHARES (Sec.9)
Under the superseded Corporation Code, there are two (2) types of Treasury shares
, namely:
a.) Brand new shares of stock which have not yet been issued but reserved in the
Treasury at the time of incorporation for future corporate use, and
b.) Shares with have already been issued and fully paid and subsequently re-
acquired by the corporation through purchase , redemption, donation, dation in
payment, or other legal means.
However, the brand new shares of stock under (a) have been eliminated in Section
9 of the new Corporation Code, and only the shares os stock under (b) are
considered Treasury Shares under Section 9.
Re-acquires Treasury Shares are not outstanding
shares and unless retired by the corporation, they
may be re-issued or sold again for a reasonable price
as may be fixed by the Board of Directors. They have
no voting rights.
 II.INCORPORATION AND
ORGANIZATION OF PRIVATE
CORPORATIONS
 Incorporation- is the act of creating a corporation.
SECTION 10:
NUMBER AND
QUALIFICATIONS OF IN
CORPORATION
 NUMBER AND QUALIFICATIONS
OF IN CORPORATION
 Any number of natural persons not less than five (5) but not more than fifteen
(15), all of legal age and a majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or purposes. Each of the
incorporators of stock corporation must own or be a subscriber to at least one(1)
share of the capital stock of the corporation.

QUALIFICATIONS OF INCORPORATION
1. Must be a natural person.
2. Must be of legal age.
SECTION 11:
CORPORATE TERM
 CORPORATE TERM

-A corporation shall exist for a period not exceeding fifty (50)

years from the date of incorporation unless sooner dissolved or unless
said period is extended.

The corporate term as originally stated in the articles of incorporation

may be extended for periods not exceeding fifty (50) years in any single
instance by an amendment of the articles of incorporation.
Minimum capital stock required of stock
corporations.
 Sec. 12
 Minimum capital stock required of stock corporations. –
Stock corporations incorporated under this Code shall not be
required to have any minimum authorized capital stock except as
otherwise specifically provided for by special law, and subject to
the provisions of the following section.
Amount of capital stock to be subscribed and paid for purpose of
incorporation
 Sec.13
 Amount of capital stock to be subscribed and paid for purpose of incorporation. – At least
twenty-five percent (25%) of the authorized capital stock as stated in the articles of
incorporation must be subscribed at the time of incorporation, and at least twentyfive percent
(25%) of the total subscription must be paid upon subscription, the balance to be payable on a
date or dates fixed in the contract of subscription without need of call, or in the absence of
fixed date or dates, upon call for payment by the board of directors: Provided, however, that in
no case shall the paid-up capital be less than five thousand (P5,0000) pesos.
Articles of Incorporation
A set of formal documents that establish the existence of
a company
For a business to be legally recognized as a corporation, it
must file these documents with the Secretary of State or
company registrar where the company chooses to
operate.
The main components of the Articles of
Incorporation
*the name of the corporation
* type of corporate structure
*registered agent
*number of authorized shares
*names and signatures of the owners of the
corporation.
Purpose of Incorporating
°Establishment of perpetual existence
*It makes corporations more permanent
*makes it easy to transfer ownership of the company to another entity
°Tax advantages
*The tax cuts help the corporation reduce its overall tax liability substantially.
°Protection from liabilities
*An incorporated entity operates as a separate entity from the owners, and this means that the
personal assets of the owners/founders are protected from business liabilities.
Example:
if the corporation owes money to creditors, the creditors cannot auction the personal assets of the
owners, such as residential properties, motor vehicles, and bank accounts to pay the business debts.
However, if the business operates as an unincorporated entity, the owners face the risk of losing their
assets to pay business debts.
However, if the business operates as an unincorporated entity,
the owners face the risk of losing their assets to pay business
debts.
°Enhanced corporate image
Operating a business as a corporation adds
Customers tend to trust businesses with the terms “Inc” or
“Incorporated” at the end of their brand name
Trading as a corporation also helps gain the trust of investors
and banks
Requirements for Articles of Incorporation
°Application and fee
*When applying for incorporation with the Secretary of State or
registrar,
*the incorporator is required to file the application documents and pay
the filing fee in the state of its principal address
°Required provisions
*must comply with state laws and statutes on registration of
corporations
*The incorporator must meet all the required provisions for the
 AMENDING
ARTICLES OF
INCORPORATION
The power to amend the articles of incorporation is
one of the powers expressly granted by law to
corporation. There are many reasons why a
corporation may want to amend the articles of
incorporation. The corporation may want to change
its name or add a new purpose or change its principal
place of business.
The Corporation Code provides for the
steps to be followed for an effective
amendment of the articles of
incorporation. Section 16 of the
Corporation Code states that:
Sec. 16. Amendment of Articles of Incorporation. Unless
otherwise prescribed by this Code or by special law, and for
legitimate purposes, any provision or matter stated in the articles
of incorporation may be amended by a majority vote of the board
of directors or trustees and the vote or written assent of the
stockholders representing at least two-thirds of the outstanding
capital stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this
Code, or the vote or written assent of at least two-thirds of the
members if it be a non-stock corporation.
The original and amended articles together shall contain all
provisions required by law to be set out in the articles of
incorporation. Such articles, as amended shall be indicated by
underscoring the change or changes made, and a copy thereof
duly certified under oath by the corporate secretary and a
majority of the directors or trustees stating the fact that said
amendment or amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted
to the Securities and Exchange Commission.
The amendments shall take effect upon their
approval by the Securities and Exchange
Commission or from the date of filing with the
said Commission if not acted upon within 6
months from the date of filing for a cause not
attributable to the corporation.
 COMMENCEMENT
OF
CORPORATE EXISTENCE
Commencement of Corporate Existence

- A private corporation formed or organized under this code

commences to have corporate existence and juridical personality and is
deemed incorporated from the date the Securities and Exchange
Commission issues a certificate of Incorporation under its official seal;
and there upon the incorporators, stockholders/members, and their
successors shall constitute a body politic and corporate under the name
stated in the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is sooner
dissolved in accordance with law.
 DE FACTO
CORPORATION
 De Facto Corporation
- The due incorporation of any corporation claiming in good
faith to be a corporation under this code, wnd it’s right to
exercise corporate powers, shall not be required into collateraly
in any private suit to which such corporation may be a party.
Such inquiry may be made by the Solicitor General in quo
warranto proceeding.
 THREE ELEMENTS OF DE
FACTO CORPORATION

Existence of a valid law under which a corporation

can be organized.
An attempt in good faith to incorporate.
Actual exercise of Incorporate powers.
Corporation by Estoppel
*refers to someone contracting and dealing with a business as if it were a corporation.
*it is an admission that the entity is a corporation
*estopped to deny its incorporation should an action arise out of the contract or course
of dealing.
*It is a concept applied in equity to avoid unfairness and injustice.
*often used as a defense by an individual or individuals who have organized a corporation
in a defective manner
*The concept of corporation by estoppel doctrine overlaps the de facto corporation
doctrine
* It is used in most cases serving as the second line of defense to the de facto doctrine.
*the doctrine of incorporation, also referred to as corporation by estoppel
Applying the Doctrine of Incorporation by Estoppel
*For plaintiffs who bring claims, especially when it's for a breach of contract
*corporate existence is critical to the impact the plaintiffs will have.
*Since nonexistent entities cannot acquire rights or assume liabilities, a corporation
that has yet to be formed does not have the ability or capacity to enter into a
contract.
De Jure Corporation
*It is considered a de jure corporation when everything that needs to be done has
been done to become a corporation
*Once the corporation is viewed as a de jure company, the officers are free to hold
a board of director's, issue stock to shareholders, and begin conducting business.
III. Board of directors/ Trustees/
Officers
 3.1 THE BOARD OF DIRECTORS OR
TRUSTEES
a board of trustees is an appointed or elected group of
individuals that has overall responsibility for the management
of an organization. The board of trustees is typically the
governing body of an organization and seeks to ensure the best
interest of stakeholders in all types of management decisions.
 3.2 ELECTION OF DIRECTORS OR
TRUSTEES
at all elections of directors or trustees, there must be present,
either in person or by representative authorized to act by
written proxy, the owners of a majority of the outstanding
capital stock, or if there be no capital stock, a majority of the
members entitled to vote.
 3.3 Corporate Officers, quorum

SEC. 25
 SEC. 25 Corporate Officers, quorum

> Immediately after their election, the directors of a corporation must formally organize and
elect: (a) a president, who must be a director; (b) a treasurer, who must be a resident; (c) a
secretary, who must be a citizen and resident of the Philippines; and (d) such other officers as
may be provided in the by-laws. If the corporation is vested with public interest, the board shall
also elect a compliance officer. The same person may hold two (2) or more positions concurrently,
except that no one shall act as president and secretary or as president and treasurer at the same
time, unless otherwise allowed in this code.

> The officers shall manage the corporation and perform such duties as may be provided in the
by-laws and/ or as resolved by the Board of directors.
3.4 Disqualification of Directors, trustees, or
officers
 Disqualification of Directors, trustees, or
officers
1. Convicted of a final Judgement:
a. Of an offense punishable by imprisonment for a period exceeding 6 years;
b. For violating this code; and
c. For violating Republic Act. No. 8799, otherwise known as “ The Securities
Regulation Code”.
2. Found administratively liable for any offense involving fraud acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraph (a) and (b) above.
 3.5 REMOVAL OF
DIRECTORS, OR TRUSTEES
Sec. 28. Removal of director or trustees.
Any director or trustee of the corporation
may be removed from office by a vote of the
stockholders holding or representing at least two-
thirds (2/3) of the outstanding capital stock, or if the
corporation be a nonstock corporation , by a vote of
at least two thirds (2/3) of the members entitled to
vote
Provided, That such removal shall take place either at
a regular meeting of the corporation or at the special
meeting called for the purpose, and in either case,
after previous notice to stockholders or members of
the corporation of the intention to propose such
removal at the meeting.
Directors or trustee may be removed even without
cause
The legislative policy is that the shareholders shall be the
ultimate masters, not the directors. The shareholders
should be clothed with the power of judging the
competency and fitness of the directors and of choosing a
board that will carry out of their business policy.
Directors representing minority may not be removed without
cause. The power to
removed director or trustee even without
cause given to shareholders or members
may not be used to deprived minority
shareholders or members of the right of
representation to which they may be
entitled under Section 24 of the Corporation Code.
Cumulative voting of directors in a stock corporation
is mandatory and cannot be dispensed with in the by-
laws. Being a statutory right, the stockholders cannot
be deprived of the use of cumulative voting.
 3.6 Liability Of directors, Trustees Or
Officers
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.
 Liability Of directors, Trustees Or
Officers
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.
 Liability of Directors
Here it is to be also noted that the directors, who act in
good faith and within the scope of their authority, will
not be held liable for the tortuous acts of the association.
It is only when directors act in bad faith or outside the
scope of their authority, will they have a problem. For
example, an employee may be fired without just cause,
but the dismissal may be in the best interests of the
association.
 Liability of Directors
 The liabilities of Directors can be considered under the following
 Liability to the Company
 The liability of directors to the company arises under few circumstances only for
example the directors have acted ultra vires the company.
 The liability of the Director to the company may arise from:
 (a) Breach of fiduciary duty.
 (b) Ultra Vires acts
 (c) Negligence, and
(d) Mala fide Acts.
 Liability of Trustees
A breach of trust denotes the failure of a trustee to
conduct their duties and responsibilities to the
standard instructed by the trust deed and at law.
Trustees are obligated to act in good faith and in the
best interest of the trust and beneficiaries, never
prioritising personal gain.
 Liability of Trustees
Liabilitiesof trustees include:
1. Exploiting funds from the trust for personal gain.
2. Accepting bonuses or commissions from third parties.
3. Engaging with a competitor business.

4. Becoming compromised by a conflict of interests.

 Liability of Officers
Liability can exist for officers when they cause
financial harm to the corporation, act solely on their
own behalf and to the detriment of the corporation,
or commit a crime or wrongful act. Certain acts may
subject an officer to personal liability and other acts,
although they would otherwise subject them to
liability, may be either indemnified by or insured
against by the corporation.
3.7 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 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 courts as manner on the fairness and good faith
of the transaction and whether it is just and reasonable as to the
corporation.
 Exceptions in Signing contract without authority of
Board of Directors is void

If a private corporation intentionally or negligently clothed

its officers or agents with apparent power to perform acts
of it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents.
 Corporate president presumed to have
authority
As a strict rule, the corporate president has no inherent power to
act for the corporation, slowly giving way to realization that such
officer has certain limited powers in the transaction of the usual
and ordinary business of the corporation. In the absence of
agreement or by law provision to the contrary, the president is
presumed to have the authority to act within the domain of the
general of his or her usual duties.
3.8. 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.
 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.
 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.
3.9. EXECUTIVE COMMITTEE
The by-laws 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 by- laws 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.
 IV. POWERS OF CORPORATION
 
CORPORATE POWERS AND CAPACITY (SEC. 36)
 
Every corporation incorporated under this Code has the power and
capacity:
To sue and be sued in its corporate name (to sue through its BOD)
 
Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation
 
To adopt and use a corporate seal (no longer necessary)
 
To amend its articles of incorporation in accordance with the provisions of
this Code
To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code
 
In case of stock corporations, to issue or sell stocks to
subscribers and to sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code;
 
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
To enter into merger or consolidation with other corporations as
provided in this Code;
 
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
 
To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees
 
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.
POWER TO EXTEND OR SHORTEN CORPORATE TERM (SEC. 37)
 
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 representing at
least 2/3 of the outstanding capital stock or members in case of non-stock
corporations.
 
Written notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or 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.
POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR, CREATE OR
INCREASE BONDED INDEBTEDNESS (SEC. 38)
 
Requirements:
 Approved by a majority vote of the board of directors
 Favored by two-thirds (2/3) of the outstanding capital stock
 
Any increase or decrease in the capital stock or the incurring, creating or increasing of
any bonded indebtedness shall require prior approval of the Securities and Exchange
Commission.
 
Treasurer’s Affidavit showing that at least twenty-five (25%) percent of such increased
capital stock has been subscribed and that at least twenty-five (25%) percent of the
amount subscribed has been paid either in actual cash to the corporation or that there
has been transferred to the corporation property the valuation of which is equal to
twenty-five (25%) percent of the subscription.
Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval by a
majority vote 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
Securities and Exchange Commission, which shall have
the authority to determine the sufficiency of the terms
thereof.
POWER TO DENY PRE-EMPTIVE RIGHT (SEC. 39)
 
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.
SALE OR OTHER DISPOSITION OF ASSETS (SEC. 40)
 
Subject to the provisions of republic Act No. 10667, otherwise known as the
“Philippine Competition Act”, and other related laws, a corporation may, by a
majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge, or otherwise dispose its property and assets, 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.
A sale of all or substantially all of the corporation’s properties and assets,
including its goodwill, must be authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or at
least two-thirds (2/3) of the members, in a stockholder’s or members’
meeting duly called for the purpose.
POWER TO ACQUIRE OWN SHARES (SEC. 41)
 
Provided that the corporation has unrestricted retained earnings in
its books to cover the shares to be purchased or acquired, a stock
corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including
the following case:
(a) To eliminate fractional shares arising out of stock dividends;
(b) To collect or compromise and 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 of their shares under the provisions of this Code.
POWER TO INVEST CORPORATE FUNDS IN ANOTHER
CORPORATION OR BUSINESS OR FOR ANY OTHER
PURPOSE (SEC. 42)
 
Private corporation may invest its funds in any other
corporation or business or for any purpose other than the
primary purpose for which it was organized when approved
by a majority of the board of directors or trustees and
ratified by the stockholders
 
POWER TO DECLARE DIVIDENDS (SEC. 43)
 
The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be
payable in cash, in property, or in stock to all stockholders on the
basis of outstanding stock held by them.
Except
(1) when justified 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;
(3) when it can be clearly shown that such retention is necessary
under special circumstance obtaining in the corporation, such as
when there is a need for special reserve for probable
contingencies.
 
Concept of Dividends
Scrip dividend
writing or a certificate issued to a stockholder entitling him to the
payment of money or
 
Liquidating dividend
involves the distribution of assets by a corporation to its
stockholders upon dissolution.
POWER TO ENTER INTO MANAGEMENT CONTRACT (SEC.44)
 
1. Management contract
 
It is a contract whereby a corporation delegates the management or operation of its business to
another corporation. It is also called “service contract or operating agreement”.
 
2. Voting requirement
The management contact must be approved by a :
 
a. Majority vote of the board of directors or trustees present provided there is a quorum, and
b. Majority of the outstanding capital stock or majority of the members entitled to vote in a meeting called
for the purpose.
 
1. Duration of management contract
 
General rule : the period of the management contract shall not exceed 5 years for an one team.
 
Exception : Service contracts or operating agreements which relate to exploration, development,
exploitation or utilization of natural resources may be provided by pertinent laws or regulations.
 
ULTRA-VIRES ACTS (SEC.45)
 
1.Concept
 
An Ultra-vires act is an act or contract which is beyond the
powers that a corporation can lawfully exercise. It is an act
performed outside the express, implied and incidental powers of
corporation.
 
2. Ultra-vires act distinguish from illegal act
 
Illegal acts of a corporation contemplate the doing of an act
which is contrary to law, morals or public order, or
contravene some rules of public policy or public duty, and
are, like similar transactions between individuals, void.
 
Illegal act is always Ultra-vires, an Ultra-vires act may
not necessarily be illegal as it may be valid in itself.
 
3. Requisites for ratification of ultra vires act which is not illegal

a. The act must be consummated

b. The creditors are not prejudiced or all of them have given their consent thereto.
c. The rights of the public or of the State are not involved.
d. All stockholder must give their consent.

4. Doctrine of apparent authority

 
- a corporate officer in dealing with third persons is derived not merely from practice.

1). Its existence may be as ascertained through ;

the general manner in which the corporation hold out an officer or agent as having the power to
act,or
2). the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers.

 
V. BY-LAWS
BY-LAWS
• rules and action adopted by a corporation for its internal government
and for the government of its stockholders or members and those
having the direction, management and control of its affairs in their
relation to the corporation and as among themselves including rules for
routine matters.
FUNCTION OF BY-LAWS
is to define the rights and duties of corporate officers and directors or
trustees and stockholders or members towards the corporation.
 
NECESSITY OF ADOPTING BY-LAWS
 
A. A MATTER OF PRACTICAL AND LEGAL ENTITY
- the corporation may not be able to act for the purposes of its
creation. It must have the means or intrumentalities for the
accomplishments of its purposes.
- it must have executive officers charged with the task of actual
management and rules governing the management if its affairs.
B. IN THE CASE OF CORPORATION SOLE
- while an ordinary corporation is governed by its by-laws, a corporation
sole is governed by Rules, Regulations and Discipline of its Religious
Denomination which already contain the provisions embodied in the by-
laws of ordinary corporations.
 
C. IN THE CASE OF ONE PERSON CORPORATION
- a one person corporation is not required to file by-laws in accordance
with section 119.
TIME AND PROCEDURE FOR THE ADOPTION OF BY-LAWS
 
A. BEFORE INCORPORATION
- By- laws may be adopted and filed prior to incorporation.
 
B. AFTER INCORPORATION
- 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.
 
EFFECT OF FAILURE TO FILE BY-LAWS
pursuant to the SEC Reorganization Act (SRA), P.D. No.
902-A as amended March 11, 1976 the failure to file a
code of by laws with the SEC shall render the corporation
liable to the revocation of its registration, suspension or
imposition of administrative fine.
 
ELEMENTS OF VALID BY-LAWS
A. They must not be contrary to existing law and inconsistent with the
RCCP
B. They must not be contrary to morals and public policy
C. They must not impair obligations of contracts nor impair vested
rights
D. They must be general and uniform in their operation and not
directed against particular individuals and not discriminatory
E. They must be consistent with the articles of incorporation
F. They must be reasonable.
OPERATION AND BINDING EFFECT OF BY-LAWS
 
A. By-laws have substantially the same force and effect as laws of the
corporation as have the provisions of its charter insofor as the
corporation and the persons within it are concerned.
B. The corporation and its directors or trustees and officers are bound.
C. Subordinate employees without actual knowledge of the by-laws are
not bound.
D. As to third person, they are also not bound by the laws of a
corporation except when they have knowledge of its provisions.
 
CONTENTS OF BY-LAWS
 
Sec 47. Contents of by-laws
– Subject to the provisions of the Constitution, this Code, other special laws, and
the articles of incorporation, a private corporation may provide in its by-laws for:1.
The time, place and manner of calling and conducting regular or special meetings
of the directors or trustees.
2. The time and manner of calling and conducting regular or special meetings of
the stockholders or members.
3. The required quorum in meetings of stockholders or members and the manner
of voting therein.
4. The form for proxies of stockholders and members and the manner of voting
them.
5. The qualifications, duties and compensation of directors or trustees, officer and
employees.
6. The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof.
7. The manner of election or appointment and the term of office of all offices other
than directors or trustees.
8. The penalties for violation of the bylaws.
9. In the case of stick corporations, the manner of issuing stock certificates.10. Such
other matter as may be necessary for the proper or convenient transaction of its
corporate business and affairs.
The enumerations of contents of by-laws are not exclusive and
neither does the provision require all the matters mentioned to
appear in the by-laws.
The By-laws must not violate the Constitution, the Corporation
Code, other special laws and the articles of incorporation.
A corporation which has failed to file its bylaws within the
prescribed period does not ipso facto lost its powers as such.
AMENDMENTS TO BY-LAWS
Amendments to by-laws
- the power to make by-laws implies the power to
alter or repeat them enact new ones, but the power
to alter by-laws or adopt new by-laws has the same
limits as the power to make them in the first
instance.
Two ways to amend the by-laws.
 
1. Amendment by the Board and Stockholders
Majority vote of board of directors+ majority vote of OCS
owner.
2. Delegation to the Board
2/3 of OCS or members.