PRINCE NEYRA

2014
Business Organization II
Assignment
M-T 5:30-7:30

February 4,

Kinds of Corporate Power

Express powers Granted by law, Corporation Code, and its Articles of
Incorporation or Charter, and administrative regulations
Inherent/incidental powers Not expressly stated but are deemed to be
within the capacity of corporate entities.
Implied/necessary powers Exists as a necessary consequence of the
exercise of the express powers of the corporation or the pursuit of its
purposes as provided for in the Charter
General Powers
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of
this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to
amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to
sell stocks to subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful
business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided
in this Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,

that no corporation, domestic or foreign, shall give donations in aid of any

political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
11. 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
Specific Powers Provided in the Code
1.
2.
3.
4.
5.

Power to extend or shorten corporate term. (Sec. 37)

Increase or decrease corporate stock. (Sec. 38)
Incur, create, or increase bonded indebtedness. (Sec. 38)
Deny preemptive right. (Sec. 39)
Sell, dispose, lease, encumber all or substantially all of corporate assets.
(Sec. 40)
6. Purchase or acquire shares. (Sec. 41)
7. Invest corporate funds in another corporation or business for other
purpose other than primary purpose .(Sec. 42)
8. Declare dividends out of unrestricted retained earnings. (Sec. 43)
9. Enter into management contract with another corporation (not with an
individual or a partnership within general powers) whereby one
corporation undertakes to manage all or substantially all of the business
of the other corporation for a period not longer than five (5) years for any
one term. (Sec. 44)
10. Amend Articles of Incorporation. (Sec. 16)
Rules and Guidelines in the Exercise of Corporate Powers
The rule or guideline in the exercise of corporate power depends on
what type of corporate power is exercised. Generally some of the guidelines
are found in the code while other guidelines are to be provided for in the
corporate by-laws.
The general flow usually is:
1. That the board passes a resolution by a vote
2. To be approved by the stockholders by a vote also (if required by the
law or the by-laws) otherwise this requisite shall be forego.
3. If such was ratified then the resolution is considered passed, if not the
resolution is rejected
4. If passed then corporate officers may now exercise such power by
virtue of that resolution

The corporate powers are exercised generally by:

By the shareholders The shareholders participate in controlling the
affairs of the corporation by exercising their right to vote. They can elect the
directors who will actually govern the corporation and they can also vote on
important matters that are still reserved to them by the Corporation Code.

By the Board of Directors The Board of Directors is primarily responsible

for the governance of the corporation. Their primary duty is to set the
policies for the accomplishment of the corporate objectives. They elect the
officers who carry out the policies that they have established.
By the Officers They are elected by the Board of Directors tasked to carry
out the policies laid down by the Board, the articles of incorporation and the
bylaws.
Limitations
As to the exercise of some of the general powers of the corporation here
are some of its limitations.
As to the power to sue and be sued it commences upon the issuance by
SEC of Certificate of Incorporation.
In dealing with properties
1. In dealing with any kind of property, it must be in the furtherance of the
purpose for which the corporation was organized.
2. Constitutional limitations cannot acquire public lands except by lease.
With regard to private land, 60% of the corporation must be owned by the
Filipinos, same with the acquisition of a condo unit.
3. Special law subject to the provisions of the Bulk Sales Law
As to donations
1. Donation must be reasonable
2. Must be for valid purposes including public welfare, hospital, charitable,
cultural, scientific, civic or similar purposes
3. Must not be an aid in any
a. Political party,
b. Candidate and
c. Partisan political activity
4. Donation must bear a reasonable relation to the corporations interest and
not be so remote and fanciful.
Other Limitations
Ultra Vires Acts are those powers that are not conferred to the corporation
by law, by its Articles of Incorporation and those that are not implied or
necessary or incidental to the exercise of the powers so conferred. (Sec 45)
Types of ultra vires acts
1. Acts done beyond the powers of the corporation (through BOD)
2. Ultra vires acts by corporate officers
3. Acts or contracts which are per se illegal as being contrary to law.

Limitations, voting requirements and ratification as to specific

powers provided for in the corporate code.
Power to extend or shorten corporate term. (Sec. 37)
1. Majority vote of the BOD or BOT;
2. Ratification by 2/3 of the SH representing outstanding capital stock or by
at least 2/3 of the members in case of nonstock corporation;
3. Written notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally;
4. Copy of the amended AOI shall be submitted to the SEC for its approval;
and
5. In case of special corporation, a favorable recommendation of appropriate
government agency. (Sec. 37)
The extension must be done during the lifetime of the corporation not earlier
than 5 years prior to the expiry date unless exempted. The extension must
not exceed 50 years. After the term had expired without extension, the
corporation is dissolved. The remedy of the stockholders is reincorporation.
Any dissenting stockholder may exercise his appraisal right in case of
shortening or extending corporate term (Sec. 37).
Increase or decrease corporate stock and incur, create, or increase
bonded indebtedness. (Sec. 38)
1. Majority vote of the BOD;
2. Ratification by stockholders representing 2/3 of the outstanding capital
stock;
3. Written notice of the proposed increase or diminution of the capital stock
and of the time and place of the stockholders meeting at which the
proposed increase or diminution of the capital stock must be addressed to
each stockholder 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
4. A certificate in duplicate must be signed by a majority vote of the directors
of the corporation and countersigned by the chairman and the secretary of
the stockholders meeting, setting forth:
a. That the foregoing requirements have been complied with;
b. The amount of increase or diminution of the capital stock;
c. If an increase of the capital stock, the amount of capital stock or
number of shares of no par stock actually subscribed, the names,
nationalities and residences 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 his 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 authorized;
d. The amount of stock represented at the meeting; and

e. The vote authorizing the increase or diminution of the capital stock

The increase or decrease in the capital stock or the incurring, creating or
increasing bonded indebtedness shall require prior approval of the SEC. The
application to be filed with the SEC shall be accompanied by the sworn
statement of the treasurer of the corporation, showing that at least 25% of
the amount subscribed has been paid either in cash or property or that there
has been transferred to the corporation property the valuation of which is
equal to 25% of the subscription. It shall be based on the additional amount
by which the capital stock increased and not on the total capital stock as
increased.
Power to deny preemptive right. (Sec. 39)
Pre-emptive right is the preferential right of shareholders to subscribe to all
issues or disposition of shares of any class in proportion to their present
shareholdings. Its purpose is to enable the shareholder to retain his
proportionate control in the corporation and to retain his equity in the
surplus.
Pre-emptive right is not available when:
1. Shares to be issued to comply with laws requiring stock offering or
minimum stock ownership by the public;
2. Shares issued in good faith with the approval of the stockholders
representing 2/3 of the outstanding capital stock in exchange for property
needed for corporate purposes;
3. Shares issued in payment of previously contracted debts;
4. In case the right is denied in the Articles of Incorporation;
5. Waiver of the right by the stockholder.
Sell, dispose, lease, and encumber all or substantially all of
corporate assets. (Sec. 40)
1. Majority vote of the BOD or BOT
2. Ratification by stockholders representing at least 2/3 of the outstanding
capital stock or by at least 2/3 of the members in case of nonstock
corporation
3. Written notice of the proposed action and of the time and place of the
meeting addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.
(Sec. 40)
The sale of the assets shall be subject to the provisions of existing laws on
illegal combinations and monopolies. After such authorization or approval by
the stockholders the board may, nevertheless, in its discretion, abandon
such. Any dissenting stockholder shall have the option to exercise his
appraisal right.
Corporation may forego the ratification in the following instances:
1. If sale is necessary in the usual and regular course of business;

2. If the proceeds of the sale or other disposition of such property and

assets are to be appropriated for the conduct of the remaining
business;
3. If the transaction does not cover all or substantially all of the assets.
Purchase or acquire shares. (Sec. 41)
As a general rule in the absence of statutory authority, the corporation
cannot acquire its own shares. However in SEC Opinion, Oct. 12, 1992
corporations may acquire their own shares, provided that the following
conditions are present:
1.
2.
3.
4.
5.

The capital of the corporation must not be impaired;

Legitimate and proper corporate objective is advanced;
Condition of the corporate affairs warrants it;
Transaction is designed and carried out in good faith
Interest of creditors not impaired, that is, not violative of the trust fund
doctrine.

Sec. 41 of the Code requires that:

1. the acquisition should be for a legitimate corporate purpose; and
2. there should be unrestricted retained earnings
Instances where the corporation may acquire its own share
1. To eliminate fractional shares out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out
of unpaid subscription, in a delinquency sale and to purchase delinquent
shares sold during said sale;
3. To pay dissenting or withdrawing stockholders (in the exercise of the
stockholders appraisal right);
4. To acquire treasury shares;
5. Redeemable shares regardless of existence of retained earnings;
6. To effect a decrease of capital stock;
7. In close corporations, when there is a deadlock in the management of the
business.
Invest corporate funds in another corporation or business for other
purpose other than primary purpose. (Sec. 42)
1. Approval by the majority vote of the BOD or BOT
2. Ratification by stockholders representing at least 2/3 of the outstanding
capital stock or by at least 2/3 of the members in case of nonstock
corporation
3. Ratification must be made at a meeting duly called for the purposes, and
4. Prior written notice of the proposed investment and the time and place of
the meeting shall be made addressed to each stockholder or member by
mail or by personal service.
Investment of a corporation in a business which is in line with its primary
purpose requires only the approval of the board. Any dissenting stockholder
shall have appraisal right.

Declare dividends out of unrestricted retained earnings. (Sec. 43)

1. Existence of unrestricted retained earnings
2. Resolution of the board
3. In case of stock dividend, resolution of the board with the concurrence of
votes representing 2/3 of outstanding capital.
Form of dividends.
1. Cash - Cash dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus cost and expenses.
2. Stock - Stock dividends are withheld from the delinquent stockholder until
his unpaid subscription is fully paid.
3. Property - Stockholders are entitled to dividends PRORATA based on the
total number of shares and not on the amount paid on shares.
Enter into management contract with another corporation for a
period not longer than five (5) years for any one term. (Sec. 44)
1. Contract must be approved by the majority of the BOD or BOT of both
managing and managed corporation;
2. Ratified by the stockholders owning at least the majority of the
outstanding capital stock, or members in case of a nonstock corporation,
of both the managing and the managed corporation, at a meeting duly
called for the purpose
3. Contract must be approved by the stockholders of the managed
corporation owning at least 2/3 of the outstanding capital stock entitled to
vote, 2/3 members when:
a. Stockholders representing the same interest in both of the managing
and the managed corporation own or control more al outstanding capital
stock entitled to vote of the managing corporation;
b. Majority of the members of the BOD of the managing corporation also
constitute a majority of the BOD of the managed corporation.
Sec. 44 refers only to a management contract with another corporation.
Hence, it does not apply to management contracts entered into by a
corporation with natural persons.
Amend Articles of Incorporation. (Sec. 16)
1. The amendment must be for legitimate purposes and must not be
contrary to other provisions of the Corporation Code and Special laws;
2. Approved by majority of BOD/BOT;
3. Vote or written assent of stockholders representing 2/3 of the outstanding
capital stock or 2/3 of members;

4. 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/s made;
5. Certification under oath by corporate secretary and a majority of the
BOD/BOT stating the fact that said amendment/s have been duly
approved by the required vote of the stockholders or members, shall be
submitted to the SEC;
6. Must be approved by SEC. (Sec. 16);
7. Must be accompanied by a favorable recommendation of the appropriate
government agency if required.