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Board of Directors /Trustees/Officers

Section 23. Board of Directors/trustees/officers
Corporate powers exercised by board of directors
or trustees
1. Governing body of the corporation


Binding effect of stockholders action

Stockholders->elect a BOD to oversee
the management and corporation; they
BOD: Have sole authority to determine
policy and conduct operation
BOD: A resolution adopted at a meeting
of stockholders refusing to recognize a
corporate contract effected with the
approval of BOD or repudiating it.
Extent of judicial review
-If lawful, the court will not interfere.

Reason: Stockholders may have all the profits

but shall turn over to the BOD the exclusive
authority to manage and control the transaction
of its business and the use of its assets
1. Observe limitations or restrictions
imposed by the constitution, statutes,
rules and regulations
2. Cannot perform major changes in the
corporation (Amendment of articles)
General rule: Power to bind the corporation by
contracts rests in its BOD/Trustees but the power
may be delegated.
Term of office:
-1 year and until their successors are elected and
Number of BOD/ Trustees
1. 5 to 15 people
2. Non-stock may have more than 15 people
3. Close corporation: managed by
4. Educational corporations: 5 and can
exceed 15 people
(1) Stock corporation
-Every director should own at least 1
share of the capital stock

-Share of the stock held by the director must be

registered in his name on the books of the
-Every director must continuously own at least a
share of stock during his term
(2) Non-stock corporations
-Majority should be residents of the Philippines.
-2/3 od the members of the BOD must be
citizens of the Philippines.
-one or more shares
-Qualification prescribed by the by-laws
Title IV
Powers of corporations
Section 36 Corporate Powers and Capacity
-Corporate powers refer to the tight or capacity
of a corporation to perform all acts or things,
except only those forbidden by the law.

To sue in its corporate name

Of succession by its corporate name
To adopt and use a corporate seal
Amend the articles of incorporation
Adopt by laws
Sell stocks to subscribers
To purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with such
real and personal property.
8. Enter into merger
9. Make a reasonable donation
10. Establish pension
11. Other powers that is necessary to carry
out its purpose.
Classification of corporate powers:
1. Expressively granted or authorized by
2. Those that are necessary to the exercise
of the express or incidental powers
3. Those incidental to its existence
Expressed powers:
-The powers expressly conferred upon the
corporation by the law
Implied powers:
-Those powers which are reasonably necessary
to exercise the express powers and to accomplish

and carry out the purposes for which the

corporation was formed
Incidental or inherent powers:
-Are the powers which a corporation can
exercise by the mere fact if its being a
corporation or powers which are necessary to
corporate existence and are therefore, impliedly
Section 37 Power to Extend or Shorten
Corporate Term
BoD majority vote
Shareholders 2/3 OCS
Appraisal Right
To a discerning stock holder
->Corporate term of a private corporation may be
extended or shortened by an amendment of
articles of incorporation approved by the
majority of vote by the BOD. And ratified at the
meeting of the stock holders representing at least
2/3 OCS
Section 38
Power to Increase or Decrease Capital Stock
Incur, Create or Increase Bonded Idebtedness
BoD majority vote
Shareholders 2/3 OCS
Requires approval of SEC
Treasurers Affidavit 25/25 Rule
The authority of the corporation to take such
action exists only when expressly conferred by

When shareholders, usually a majority

shareholder or a shareholder committing large
amounts of capital to a startup company,
purchase shares, they want to ensure they have as
much voting power in the future as they did
when they initially invested in the company. By
getting preemptive rights in its shareholder's
agreement, the shareholder can ensure that any
seasoned offerings will not dilute his/her
ownership percentage.

Section 40 Sale or other Disposition of

BoD majority vote
Shareholders 2/3 OCS
Appraisal Right
Refers to his right to demand payment of the fair
value of his shares, after dissenting from a
proposed corporate action involving a
fundamental change in the charter or articles of
incorporation in the cases provided by the law.
Section 41 Power to Acquire Own Shares
Unrestricted Retained Earnings (URE)
Appraisal Right

Title V By-Laws
Sec 46. Adoption of by-laws

Guide question 1: What are the by-laws?


Section 39 Power to Deny Pre-Emptive Right

-All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe all issues or
disposition of shares of any class.

They are the rules of action

adopted by the corporation for its
internal regulations and for the
government od its officers and of
its stockholders or members Until
repealed, a by-law is a continuing
rule for the government of the
corporation and the individuals
composing of it.

A privilege extended to select shareholders of a
corporation that will give them the right to
purchase additional shares in the company before
the general public has the opportunity in the
event there is a seasoned offering. A preemptive
right is written in the contract between the
purchaser and the company, but does not
function like a put option.

Valid if:


3. must not impair obligations of the contract

1.Not contrary to existing law

2. Not contrary to morals and public policy

4. They must be general and uniform in their

5. Must be consistent with the articles of

If its not filed by 1 month-> revocation

of its registration
(Section 47) Contents:
1. Place of meetings
2. Quorum

Operation and binding effect of by-laws

3. Proxies

Same as the effect as the laws

applicable to the corporation. They
become a fundamental law of the

4. Qualifications of directors


Corporation and its directors and

officers are bound and must comply

6. Compensation to stockholders


Subordinate employees without actual

knowledge of the by-laws are not bound


3rd persons: Not bound to by-laws

except when they have knowledge of its



Prescribe the rights and duties of

stockholders or members
Regulate the transaction of the business
of the corporation and among
themselves with reference to the
management of corporate affairs
*Necessity- for the government of the
corporation, its officers, and members
must be adopted.

Guide question 2: When do you file the by-laws?


Must be adopted by 1 month after

receipt of official notice of the issuance
of its certificate of incorporation
Can be adopted and filled prior to
incorporation with the articles of

5. Election and term of office of BOD

7. Disqualification for position of Director

8. Imposition of penalties or sanctions
9. Issuance of certificate or stock

Guide question 3: How do you amend by-laws?

May amend or adopt new by laws:
-Owners of at least a majority of the O.C.S. or at
least majority of the members of a non-stock
corporation at a regular or special meeting.
-Owners of 2/3 of the outstanding capital stock
or 2/3 of a member of a non-stock corporation
may delegate to the BOD the power to amend or
repeal any by-laws or adopt a new by-law
-If there are amendments, new by-laws should be
attached to the original bylaws
-Under oath of the corporate secretary
-Filed with Securities and Exchange Commission



at a regular or special meeting called for
that purpose. (Stockholders/members:

directly/indirectly by delegation to


INCORPO: Stockholders or members
and cannot be delegated to BOD.

Revocation of delegated power of board of

directors or trustees

-Stockholders or members: Shall be held in the

city or municipality where the principal office of
the corporation is located.
-BOD: Any place- >they are agents of the

Example: Makati-> can have a meeting

anywhere in metro manila (10 cities and 7

-Requires 2/3 vote of O.C.S.

-Meetings should be in writing, time and place
- Revocation is valid notwithstanding that no
previous notice was given to stockholders or

-Proceedings had and business transacted is


Power to call meetings: the person

designated in the by-laws

Meeting can be also called by the BOD

If no one s authorized, member or

stockholder can call on order of the

Removal of directors can be called by

the secretary or stockholder/member

Title VI Meetings

Guide question 1 & 2: What are the kinds of

Stockholders Meetings/BOD, and where are
these held?
Meetings for stockholders or members
A. Regular-Annually or on any date in
April of every year as determined by the
B. Special- Anytime (necessity)

Guide question number 3: Who is a proxy?

-Designates the formal written authority given
by the owner or holder of the stock who has
the right to vote it, or by a member, as principal,
to another person, as agent, to exercise the voting
rights of the former.

Meetings for BOD or trustees

A. Regular- monthly unless the by-laws
provide otherwise.

-Authority of a person to vote for him at a

stockholders meeting.
-Non-stock: proxies can be denied

B. Special- Anytime (upon call of the pres.

or as provided in the by-laws)

(Section 51) Place and time of meetings of

stockholders or members

Limitations: They must be in writing and filed

before the meeting, valid only for the meeting,
not exceeding 5 years.
-BOD/trustees cannot attend or vote by proxy at
board meetings.

-Proxies are revocable any time unless made
-Notifying proxy holder or signing a new proxy.

Guide question 4: What is a voting trust


Definition: A contractual agreement detailing

the specifics of the voting trust, including the
name of its trustee, the effective timeframe,
and the nature of its formation.

The purpose and goals must be stated in

order to create a guideline for the
trustee and protect stockholders that
have decided to transfer their ownership
rights to the trust.

-The act of writing ones name under a written

instrument; affixing ones signature for the
purpose of authenticating or attesting it.
-It is a written contract which one engages to
take and pay capital stock of a corporation or to
pay a sum of money for a designated purpose.

Guide question 2: What is a pre-incorporation

-A subscription for shares of stock of a
corporation still to be formed shall be irrevocable
for a period of 6 months.
-SEC will not accept articles of incorporation
unless at least 25% of the authorized capital
stock has been subscribed and at least 25% of the
total subscription has been fully paid.

- 1 or more S.H. of a S. Corporation may create a

voting trust (purpose: conferring upon trustee the
right to vote and other rights to shares)

Guide question 3: What is a valid consideration

for stocks?

-Not exceeding 5 years (except loan agreement)

Section 62 (Consideration for stocks)

-Must be in writing and notarized -> given to


-Stocks shall not be issued for a consideration

less than the par or issued price.

- Can be defined as: An agreement in writing

whereby one or more stockholders transfer his or
their shares to any person having the authority to
act as a trustee.

Shares of the stocks and bonds may be issued in

exchange of any of the 2 or more of the
A. Actual cash paid to subscription
B. Property, tangible or intangible, actually
received by the corporation and
necessary or convenient for its use and
lawful purposes.

Title VII Stocks and Stockholders

Guide question 1: What is a subscription


C. Labor performed for or services actually

rendered to the corporation
D. Previously incurred indebtedness of the
E. Amounts transferred from unrestricted
retained earnings to stated capital


Outstanding capital shares exchanged

for stocks in the event of reclassification
or conversion


Except treasury shares so long as the

price is reasonable. The corporation
may receive more than the par or issued


They shall not be issued in exchange for

promissory notes or future services.


Other than actual cash or consists od

intangible property, the value thereof
shall be initially determined by the
incorporators or BOD

Guide question 6: What is a call?

-A declaration officially made by a corporation
usually expressed in the form of a resolution of
the BOD requiring the payment or certain
prescribed portion of a subscribers stock
a. Paid subscriptions levy mad upon stock
generally for the purpose of correcting an
impairment of the capital.
b. Unpaid subscriptions- the term is used
interchangeably with call or installment

Guide question 4: What is a stock certificate?

-A written instrument signed by the proper
officer of a corporation stating or
acknowledging that the person named therein
is the owner of a designated number of shares
of its stock.
-Legal document that certifies a certain number
of stock.
-No certificate shall be issued to a subscriber
until the full amount of his subscription together
with interest and expenses.

-Prescribed by the law
-Made by the BOD
-Operate uniformly upon all the shareholders

-When required by the contract
-When not time is fixed for payment
-Must operate uniformly upon all the

Guide question 5: What is an unpaid


Guide question 7: What is a delinquency sale?

DEFINITION of Delinquent:
-The failure to accomplish what is required by
law or duty, such as the failure to make a
required payment or to perform a certain action.
A delinquent is an individual or corporation with

a contractual obligation to make payments

against a loan in a timely manner, such as
through a mortgage, but payments are not made
on time. In the case of a mortgage, the lender can
initialize foreclosure proceedings if the mortgage
is not brought up to date within a certain amount
of time.
-Order of sale of delinquent stock and shall
specifically state the amount due on each
subscription plus all accrued interest, and the
date, time and place of the sale which shall not
be less than 30 days nor more than 60 days from
the date the stocks

Shall be open for inspection by any director/

stockholder at reasonable hours.

Guide question 2: What is the shareholders

right to inspect?
-By express provision of our corporation law
-Includes a voting trust certificate holder
-the record of all business transactions of the
corporation and the minutes of any meeting shall
be open to the inspection of any director, trustee,
or stockholder or member of the corporation at
reasonable hours on business days

Title VIII Corporate Books and Records

Guide question 3: What is a derivative suit?
Guide question 1: What is a stock and transfer

A shareholder derivative suit is a lawsuit brought

by a shareholder on behalf of a corporation
against a third party. Often, the third party is an
insider of the corporation, such as an executive
officer or director.

Title IX Merger and Consolidation
-It must be kept a record of all stocks in the
names of the stockholders alphabetically
-The installments paid and upaid on all stock for
which subscription has been made.
-Date of payment of any installment
-Statement of any alienation
-Sale or transfer of stock made

Thereof: By and to whom made, and such other

entries as by-laws describe.


Guide question 1: What is merger?

-By this method, two (or more) corporations
unite, one corporation, which remains in being,
absorbing or merging in itself the other which
disappears as a separate corporation.

Guide question 2: What is consolidation?

-By this method, two (or more) corporation
unite, giving rise to a new corporate body and
dissolving the constituent corporations as
separate corporations.

Title XIV Dissolution

(1) Principal office

(2) Or office of its stock transfer agent

Guide question 1: What is dissolution?

-As applied to a corporation, signifies the

extinguishment of its franchise to be a
corporation and the termination of its corporate

caused upon a vote of the stockholders, subject

to statutory conditions respecting the percentage
of the stock voted in favor of dissolution, or at
the instance of the directors with the consent of
a certain proportion of the stockholders.

Guide question 2: What is voluntary dissolution?

Guide question 3: What is involuntary


It may be effected:
(a) By the vote of the board of directors or
trustees and the stock holders/members,
where no creditors are affected
(b) By judgment by SEC after hearing of
petition for voluntary dissolution where
creditors are affected
(c) By amending the articles of incorporation to
shorten the corporate term
(d) In the case of corporation sole, by
submitting to the SEC a verified declaration
of dissolution for approval
Voluntary dissolution is an action taken by
shareholders, incorporators or initial
directors to dissolve a corporation. It is

A corporation may be dissolved by SEC upon

filling of a verified complaint and after proper
notice and hearing on grounds provided by
existing laws, rules and regulations.

Guide question 4: What is liquidation?

Liquidation, as applied to a corporation, means
the winding-up of the affairs, by reducing its
assets into money, settling with creditors and
debtors, and apportioning the amount of profit
and loss.