Specific express powers of a corporation under the Corporation Code
Specific express powers
1. power to extend or shorten corporate
term
2. power to increase or decrease capital
stock
3. power to incur, create, or increase
bonded indebtedness
4. power to deny pre-emptive right
5. power to sell, lease, exchange,
mortgage, pledge or otherwise dispose all
or substantially all of its property
6. power to acquire its own shares
7. power to invest corporate funds in
another corporation or business or for any
other purpose
8. power to declare dividends
9. power to enter into management
contract
Requisites
General requisite: vote required
1. majority of the board of directors or trustees;
and
2. 2/3 of the outstanding capital stock/members
in a meeting called for the purpose
(except for powers #4, 6, 8, and 9)
*articles or incorporation are amended
(a) certified to in a certificate duly signed by a
majority of the directors and countersigned by
the chairman and the secretary of the
stockholders’ meeting
(b) subscription and paid-in capital
requirements
(c) should not prejudice the rights of corporate
creditors (i.e. should not violate the Trust Fund
Doctrine)
(d) must be approved by the SEC
(a) certified to in a certificate duly signed by a
majority of the directors and countersigned by
the chairman and the secretary of the
stockholders’ meeting
(b) must be approved by the SEC
(c) bonds so issued must be registered with SEC
when right not available:
(a) denied by the articles of incorporation
(b) shares are to be issued in compliance with
laws requiring stock offerings or min stock
ownership by the public
(c) shares are to be issued in good faith
(a) acquisition must be for a legitimate purpose
or purposes
(b) corporation must have unrestricted retained
earnings to cover the purchase of the shares
voting requirement
(a) stock dividend: general req. stated above
(b) cash dividend: majority vote of the directors
present provided there is a quorum
management contract must be approved by:
(a) majority vote of the BOD or BOT present
provided there is a quorum
(b) majority of the outstanding capital stock or
majority of the members entitled to vote in a
meeting called for the purpose
Other information
*stockholder may exercise his appraisal right:
right to demand payment of the fair value of his
shares when he dissents from certain corporate
acts
*Trust fund doctrine: the capital stock & assets
of the corporation are held in trust for creditors;
no distribution of assets to shareholders until
the claims of the creditors have been paid or an
appropriation of such assets has been made for
the payment of such claims
*pre-emptive right: right of existing
stockholders to purchase or subscribe to all
issuances or disposition of shares of any class,
in proportion to their respective stockholdings,
before such shares are offered to the public
When vote of the BOT or BOT is sufficient:
(a) when necessary in the usual and regular
course of business
(b) when the proceeds of such sale or
disposition are to be appropriated for the
conduct of the remaining business of the
corporation
*When vote of the BOT or BOT is sufficient:
-reasonably necessary to accomplish its primary
purpose
* stockholder may exercise his appraisal right
*dividends: portion of the accumulated profits
of a corporation which is set aside by the
directors for distribution to stockholders
*property dividends are actually cash dividends
payable in property
*paid-in surplus may be declared only as stock
dividends but not cash dividends, per SEC ruling
*management contract: contract whereby a
corporation delegates the management or
operation of its business to another corporation;
shall not exceed 5 years for any one term
Notes by: Mich Calanog
CORPORATION
 Artificial being created by operation of law, having
the right of succession and the powers, attributes
and properties expressly authorized by law or
incident to its existence
 Doctrine of piercing the veil of corporate entity or
corporate fiction: separate personality of a
corporation may be disregarded if such entity is
used to defeat public convenience, justify a wrong,
protect fraud, or defend crime
 Doctrine of limited capacity: corporation can
exercise only the powers expressly conferred upon it
by law and its articles of incorporation
 Incorporation test: nationality of a corporation
follows that of the country under whose laws it was
incorporated; test applied in our jurisdiction
 Control test: nationality of a corporation follows that
of the stockholders owning the controlling interest;
applied during wartime
Requisites for a de facto corporation to exist
(1) There must be valid law under which it is
incorporated
(2) There must be an attempt in good faith to
incorporate
(3) There must be an actual exercise of corporate
powers
(4) A certificate of incorporation is issued despite a
defect in its incorporation
Promoter
 A person, natural or juridical, who usually discovers
a prospective business and brings persons
interested to invest in it through the formation of a
corporation
 Personally liable for contracts made for the benefit
of the proposed corporation until the corporation
ratifies
*Legal capital: total par value of all issued par value share or
the total cash or consideration received for all issued no par
value shares
*Share of stock may be issued even if not fully paid, except
shares without par value which are deemed fully paid and
non-assessable upon issuance; stock certificate is issued only
if the subscription is fully paid
Shares
Rules on redeemable shares
(a) They may be issued by the corporation only if
expressly provided in the articles of incorporation
(b) They may be deprived of voting rights
(c) They may be purchased or taken up by the
corporation upon the expiration of a fixed period,
regardless of the existence of unrestricted RE in the
books of the corporation
(d) The terms and conditions for their redemption must
be stated in the articles of incorporation and the
stock certificate representing the said shares
Founders’ shares
 Those that grant to the founders certain rights and
privileges not enjoyed by other shares
 Must be classified as such in the articles of
incorporation
 Limitations: exclusive right to vote and be voted for
in the election of directors must be for a limited
period not exceeding 5 years which begins from the
date of the said approval
Treasury shares
 They shall have no voting rights as long as they
remain in the Treasury
 They may again be disposed of for a reasonable
price fixed by the BOD
*Only those classified as redeemable or preferred shares may
be deprived of the voting right, unless otherwise provided by
the Corporation Code
Limitations when no-par shares are issued
(a) Subscriptions to no-par shares shall be deemed fully
paid and non-assessable & the holder of such shares
shall not be liable to the corporation or to its
creditors in respect thereto
(b) Shares without par value may not be issued for a
consideration less than P5/share
(c) The entire consideration received for no-par shares
shall all be treated as capital and shall not be
available for distribution as dividends
Incorporation and Organization od Private
Corporations
(1) Verification with the SEC of the name to be used.
(2) Drafting and execution of the articles of
incorporation signed by the incorporators
(3) Filing of the articles of incorporation with SEC
(4) Payment of the filing, publication, and other fees
(5) Issuance of the certificate of incorporation by the
SEC
 Operative act that will grant juridical
personality to the corporation
 Kinds of franchise
o Primary franchise/corporate franchise:
refers to the right and privilege
granted by the State to exist as a
corporation; vested in the individuals
who compose the corporation and not
on the corporation itself
o Secondary franchise: different rights,
privileges, and powers which are
obtained by the corporation which are
not a prerequisite to corporate
existence
Contents of the articles of incorporation
(1) name of the corporation
(2) purpose/s of the corporation
(3) place of the principal office which must be in the
Philippines
(4) term of existence
a. may be shortened
b. may be extended for periods not
exceeding 50 years in any single instance
i. extension may not be made
earlier than 5 years prior to the
Notes by: Mich Calanog
 original or subsequent expiry
date(s)
c. shortening or extension requires
amendment of articles of incorporation
(5) names, nationalities and residences of incorporators
(6) names, nationalities and residences of
directors/trustees
(7) amount of authorized capital stock in lawful money
of the Philippines, the # of shares, and the par
value of each
(8) names of subscribers, nationalities, # of shares
subscribed, amount subscribed, and amount paid-in
(9) other matters
(10) name of the temporary treasurer elected (treasurer-
in-trust)
(11) notarial acknowledgement
(12) treasurer’s affidavit
Amendment of the articles of incorporation
 vote required
o majority vote of the directors
o vote or written assent of 2/3 of the
outstanding capital stock/members
 requirements of amendments
o original & the amended articles shall
contain all provisions required by law to be
set out in the articles of incorporation
o amendment shall be indicated by
underscoring the change or changes made
Effect of non-use of corporate charter for 2 years
 deemed dissolves, unless the cause is beyond the
control of the corporation as may be determined by
the SEC
Effect of continuous non-operation for 5 years
 ground for the revocation of its corporate franchise
or certificate of incorporation, unless the cause is
beyond the control of the corporation as may be
determined by the SEC
Board of Directors, Trustees, and Officers
 governing body of a corporation
 these individuals cannot bind the corporation
separately as directors or trustees
 principal functions:
o exercise corporate powers
o conduct all corporate business
o control and hold corporate property
Qualifications of a director or trustee
(1) must be the owner of at least 1 share of stock
(2) majority of the directors or trustees must be
residents of the Philippines
(3) must not be less than 5 nor more than 15
(4) must not have been convicted by final judgment of
an offense punishable for a period exceeding 6
years committed within 5 years prior to his election
Term of office
 shall hold office for 1 year and until their successors
are elected and qualified
 principle of holdover: the incumbent directors do not
automatically cease to hold office upon the
expiration of their term if they have yet no
successors
Election of directors or trustees
 stock corporation: cumulative voting
 non-stock corporation: a member may cast as many
votes as there are trustees to be elected but may
not cast more than one vote for one candidate
Corporate officers
 president: must be a director
 treasurer: may be a director or not
 secretary: must be a resident and citizen of the Phil
 no one can be the president and secretary or
president and treasurer at the same time
Meeting of directors or trustees
 quorum: # of directors or trustees sufficient to
transact business
 majority of the # of directors or trustees fixed in the
articles of incorporation, unless by-laws provide for
a greater number
Executive committee
 small group within a corporation composed of not
less than 3 members of the board the creation of
which is provided in the by-laws
 serve as a screening committee
 take immediate action on important matters without
the need of a board meeting
Removal of directors or trustees
 previous notice of the intention to propose such
removal must have been given to the stockholders
or members
 2/3 of the outstanding capital stock/members
 cause of removal may be with or without cause but
must not be used to deprive minority stockholders
or members of the representation in the BOD/BOT
Compensation of directors
 directors are not entitled to compensation as such
directors except:
o when fixed in the by-laws
o when the giving of compensation is
approved by the stockholders representing
at least a majority of the outstanding
capital stock
o when the compensation refers to
reasonable per diem
Rule on self-dealing directors, trustees or officers
 voidable at the option of the corporation, unless:
o the presence of such director or trustee in
the board meeting in which the contract
was approved was not necessary to
constitute a quorum at such meeting
o the vote of such director or trustee was
not necessary for the approval of the
contract
o the contract is fair & reasonable under the
circumstances
o authorized by the BOD/BOT
Notes by: Mich Calanog
Rule on contracts between corporations with o General manner in which the corporation
interlocking directorate holds out an officer or agent as having the
 interlocking directorate: when a director holds seats power to act
in the BOD of 2 or more corporations o The acquiescence in his acts of a particular
 requisites for validity of contract between 2 or more nature, with actual or constructive
corporations with interlocking directorate knowledge thereof, within or beyond the
o no fraud scope of his ordinary powers
o contract is fair and reasonable under the
circumstances By- Laws
o interest of the interlocking director in one  Rules of action adopted by a corporation for its own
corporation(s) is merely nominal government and for the government of its
 the presence of such director or stockholders or members and those having the
trustee in the board meeting in direction, management and control of its affairs
which the contract was approved  Effective upon the issuance of the SEC of a
was not necessary to constitute a certification
quorum at such meeting
 the vote of such director or When by-laws are adopted and filed; by whom
trustee was not necessary for the adopted
approval of the contract prior to corporation - submitted together with the
articles of incorporation to
Fiduciary duties of directors the SEC
 duty of obedience - approved and signed by all
o directors must restrict their acts within the the incorporators
scope of the powers of the corporation after incorporation - submitted within 1 month
 duty of diligence after the receipt of the
o directors are obligated to perform their official notice of the
duties with the degree of due care issuance of certificate of
 duty of directors or trustees for damages incorporation
o forbids a director from acquiring business - approved by the
deals that belong to the corporation or stockholders representing at
prejudicing the corporation because of least a majority of the
undisclosed conflict of interest outstanding capital stock, or
o doctrine of corporate opportunity by a majority of the
members.
Powers of Corporations
Effect of failure to file by-laws within the period
Kinds of powers required
(1) express powers: expressly granted to a corporation  SEC may revoke or suspend the certificate of
by its charter registration of the corporation
(2) implied powers: powers which are necessary to
carry into effect powers which are expressly Articles of incorporation vs by-laws
granted, and which must therefore be presumed to Articles of incorporation By-laws
have been the intention in the grant of the franchise constitute the charter of the rules of action adopted by a
(3) incidental or inherent powers: powers that a corporation corporation
corporation may exercise by reason of its very executed before adopted before or after
existence as a corporation incorporation incorporation
adopted by the incorporators adopted by the incorporators,
Specific express powers of a corporation under the stockholders, or members
Corporation Code filing is a condition precedent condition subsequent thereto
(see table) for the acquisition by the
corporation of juridical
Ultra-vires acts personality
 an act or contract which is beyond the powers that a
corporation can lawfully exercise
Meetings of directors or trustees, stockholders or
 act performed outside the express, implied, and
members
incidental powers of a corporation
 Requisites:
Meetings of directors or trustees
o Act must be consummated
Regular meeting Special meeting
o Creditors are not prejudiced or all of them
date of meeting monthly, unless any time upon the
have given their consent thereto
provided call of the
o Rights of the public or of the State are not
otherwise president or as
involved
provided by the
o All stockholders must give their consent
by-laws
 Doctrine of apparent authority: existence may be
notice and must be sent at least a day before
ascertained through

Notes by: Mich Calanog

contents must be sent at least a day before
place of meeting anywhere in or outside the Phil
quorum majority of the directors or trustees
stated in the AIC
presiding officer president shall preside at all meetings
manner of voting per head; proxy nor allowed

Meetings of stockholders or members

Regular meeting Special meeting
date of meeting held annually on a anytime deemed
date fixed in the necessary
by-laws
if not fixed, any
date in April as
determined by the
BOD/BOT
notice and written notice at at least 1 week
contents least 2 weeks prior prior to the
to the meeting meeting
place of meeting in the city or municipality where the
principal office of the corporation is
located
*Metro Manila shall be considered a city
or municipality
quorum majority of the outstanding capital
stock/members
presiding officer president shall preside at all meetings
who may call - person authorized in the by-laws
meeting - director, trustee, or officer entrusted
with the management of the
corporation
- petitioning stockholder or member, on
order of the SEC
- secretary of the corporation,
stockholder, or member in case of
meeting to remove directors/trustees
requisites for a
valid meeting
effect if meeting is
improperly held or
called
manner of voting

Notes by: Mich Calanog