Title IV -POWERS OF CORPORATION

1. How are corporate powers classified?

a) Those expressly granted or authorized by law
b) Those that are necessary to the exercise of the express or incidental powers
c) Those incidental to its existence
2. Give examples of implied powers of a corporation?
a) Acts in the usual course of business
b) Acts to protect debts owing to a corporation
c) Embarking in different business
d) Acts in part or wholly to protect or aid employees
e) Acts to increase business
3. Which are the express powers of the corporation?
a) To sue and be sued in its corporate name;
b) Of succession by its corporate name for the period of time stated in the articles of incorporation
and the certificate of incorporation;
c) To adopt and use a corporate seal;
d) To amend its articles of incorporation in accordance with the provisions of this Code;
e) To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same
in accordance with this Code;
f) 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;
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 merger or consolidation with other corporations as provided in this Code;
i) 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;
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. (13a)
4. How much real property or real estate may a corporation hold?
 Under the constitution, a private corporation or association may not hold alienable lands of the
public domain except by lease for a period not exceeding 25 years, renewable for not more than
25 years, and not to exceed 1000 hectares in area
5. Can a corporation about to be incorporated for import and export business accept real property as
payment on subscription?
 Yes
6. How much real property may banks acquired, hold or convey?
 Under the General Banking Law of 2000, any real property acquired or held under the
circumstances enumerated in the law shall be disposed of by the bank within a period of five (5)
years or as may be prescribed by the Monetary Board: Provided, however, that the bank may,
after said period, continue to hold the property for its own use, subject to the limitations with
respect to ceiling on investments in certain assets.
7. May the corporate term be reduced or extended?
 Yes. 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 two-thirds (2/3) of the outstanding capital stock of two-
thirds (2/3) of the members in case of non-stock corporations.
8. May the reduction or extension of the corporate term be approved by merely assent of 2/3 of
outstanding capital stock or 2/3 of members in case of non-stock?
 The amendment under section 37 must be taken at the meeting of the stockholders or members
and upon a vote. “Mere written assent” would not be sufficient.
9. If the corporate term is reduced will that bring about a voluntary dissolution?
 Yes, a voluntary dissolution of a corporation may be effected by amending the articles of
incorporation to shorten the corporate term. Upon approval of the amended articles of
incorporation of the expiration of the shortened tnerm, as the case may be, the corporation shall
 be deemed dissolved without any further proceedings, subject to the provisions of this Code on
liquidation.
10. What vote is necessary to increase or decrease capital stock and to incur or create bonded
indebtedness?
 Approved by a majority vote of the board of directors and, at a stockholder's meeting duly called
for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness.
11. What requirements must be met for the increase in capital stock?
 Securities and Exchange Commission shall not accept for filing any certificate of increase of
capital stock unless accompanied by the 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
(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.
12. May non-stock corporations incur, create or increase bonded indebtedness?
 Yes, 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.
13. What are the classes of bonds a corporation may issue?
 Corporate Bonds
14. What is meant by stockholder’s pre-emptive right?
 Whenever the capital stock of a corporation is increased and new shares of stock are issued, the
new issue must be offered first to the stockholders who are such at the time the increase was
made in proportion to their existing shareholdings and on equal terms with other holders of the
original stocks before subscriptions are received from the general public.
15. What are the purposes of the pre-emptive right of stockholders?
 The rule aims to safeguard the right of a stockholder to preserve his proportionate influence and
interest in the corporation and the relative value of his holdings.
 The purpose of the right is to protect from impairment and dilution the basic rights of stockholder
in the corporation.
16. To what case may a stockholder exercise his pre-emptive right?
 To all issues or disposition of shares of any class in proportion to their respective shareholdings
17. To what cases is the pre-emptive right not applicable?
 Unless denied by the articles of incorporation or an amendment thereto, and except to the
following cases:
a) shares to be issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public
b) shares to be 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 and;
c) shares to be issued in good faith with the approval of the stockholders representing 2/3 of
the outstanding capital stock in payment of previously contracted debt.
18. Do stockholders of close corporations enjoy the same pre-emptive right?
 Yes
19. To what cases shall such pre-emptive right in close corporations extend?
 The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether for money, property or personal services, or in
payment of corporate debts, unless the articles of incorporation provide otherwise.
20. May the pre-emptive right of stockholders in close corporations be limited?
 Yes
21. What are the limitations on the power of the corporation to sell or dispose all or substantially all its
corporate assets including goodwill?
 The sale etc., must be approved by the board of directors or trustees;
 The action of the board of directors or trustees must be duly authorized by the vote of
stockholders representing 2/3 of the outstanding capital stock or 2/3 of the members, as the case
may be.
 The authorization must be done at a stockholders’ or members’ meeting duly called for that
purpose after written notice.
The sale, etc., shall be subject to the provisions of existing laws on illegal combinations and
monopolies.
22. What is the test to apply in order to determine whether the disposition is for all or substantially all
the assets of the corporation?
 A sale or disposition shall be deemed to cover substantially all the corporate property and assets if
the corporation would be rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
23. What may be the consideration for such sale or disposition?
 The consideration 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,
24. In case where there are no members with voting rights in a non-stock corporation who may approve
the same disposition as mentioned?
 In non-stock 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 Sec 40 of the Code.
25. May such disposition after having been approved by the required vote of stockholders or members
be abandoned?
 After such authorization or approval by the stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge
or other disposition of property and assets, subject to the rights of third parties under any contract
relating thereto, without further action or approval by the stockholders or members.
26. In cases of disposition of corporate assets in the course of business done by the Board of Directors
or trustees, do they require the approval of the stockholders or members?
27. No, it does not require the approval of the stockholders or members and would not entitle any
dissenting stockholder to exercise his appraisal right.
28. Suppose all or substantially all the corporate property or assets shall be disposed of, is the
corporation dissolved?
 Yes, for it would render the corporation incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
29. When may a corporation be allowed to acquire its own shares?
 When it is for a legitimate corporate purpose or purposes and that there is unrestricted retained
earnings in its books to cover the shares acquired.
30. What basic conditions must be met before a corporation can acquire its own shares?
a) that its capital is not thereby impaired
b) that it be for a legitimate and proper corporate purpose
c) that there is unrestricted retained earnings in its books to cover the shares acquired and its capital
is not thereby impaired.
d) that the corporation acts in good faith and without prejudice to the rights of creditors and
stockholders; and
e) that the conditions of corporate affairs warrant it.
31. May a corporation invest its corporate funds in another corporation or for a purpose other than its
main purpose?
 Yes, a 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.
32. May such investment be made even without the approval of the stockholders or members?
 Yes, if the investment is reasonably necessary to accomplish the corporation’s primary purpose,
the approval of the stockholders or members shall not be necessary.
33. Define dividend.
 Dividend is that part or portion of the profits of corporation set aside, declared and ordered and
ordered by the directors to be paid ratably to the stockholders on demand or at a fixed time.
34. Who has the power to declare dividends in a corporation?
 The board of directors of a stock corporation may declare dividends.
35. From what source shall dividends be declared?
 Out of the unrestricted retained earnings.
36. In what forms shall dividends be declared?
 Dividends shall be payable in cash, in property, or in stock.
37. Which stockholders are entitled to dividends?
 All stockholders on the basis of outstanding stock held by them
38. May delinquent stocks earn dividends?
 Yes, any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent
stock holder until his unpaid subscription is fully paid.
39. Can the Board alone declare stock dividends?
 No, stock dividend is declared by the board in concurrence of the stockholders representing 2/3 of

the outstanding capital stock at a regular or special meeting called for the purpose.
40. May stock corporations retain surplus profits without declaring them into dividends?
 A stock corporation is prohibited from retaining surplus profit in excess of 100% of their paid-in
capital stock except when justified by any of the reasons mentioned in the 2 nd paragraph of
Section 43 of the Code.
41. When may SEC compel corporations to declare dividends?

42. What are the valid reasons acceptable to the SEC for retaining surplus profits in excess of 100% of
paid-in without having to declare said excess into dividends?
a) When justified by definite corporate expansion projects or programs approved by the board of
directors; or
b) 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; or
c) When it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
contingencies.
43. Is stock dividend taxable income to the stockholder?
 No, it is generally not subject to income tax.
44. Can stock dividends be issued to a person who is not a stockholder in payment for services
rendered?
 Yes, consideration for the issuance of stock may be in payment for services rendered to the
corporation.
45. Can dividends be declared out of capital?
 Yes, with respect only to dividends from investments in wasting assets corporations and
liquidating dividends.
46. What is a wasting assets corporation?
 Wasting Assets Corporation is a corporation engaged in mining or cutting timber or some such
business, so that dividends are in fact paid out of capital, the assets being consumed in the regular
course of operations.
47. Can dividends be declared out if re-appraisal surplus?
 No, unrestricted surplus does not include the unrealized increase in value of fixed assets.
48. May cash dividends be declared out of paid-in or premium surplus
 No, paid-in surplus may be declared only as stock dividends but not cash dividends, per SEC
ruling.
49. May dividend declaration be revoked?
 No.
50. May a corporation be managed by another corporation?
 Yes, under Sec 44, a corporation is expressly allowed to enter into a management contract with
another corporation.
51. What two basic regulatory conditions are required before a corporation conclude a management
contract with another corporation?
a) The contract must be approved by a majority of the quorum of the board of directors or trustees
and ratified by the prescribed vote of the stockholders or members, of both the managing and the
managed corporations, at a meeting duly called for the purpose; and
b) The period of the contract must not be longer than 5 years for any one term. However, service
contracts which relate to the exploitation, development, exploration or utilization of natural
resources may be entered into for such periods provided by law or regulation.
52. When shall a bigger vote of stockholders or members be required to approve such management
contract?
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
53. What is the vote required in the above two cases?
 The management contract must be approved by the stockholders 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 non-stock corporation.
54. What is an ultra-vires act?
  This is an act which is beyond the conferred powers of a corporation or the purposes for which it is
created.
55. Is an ultra-vires act necessary illegal?
 No, by itself, an ultra vires act is not necessarily illegal.
56. What is an intra-vires act?
 This is an act within the scope of the corporation’s powers or authority.
57. What is the effect if an ultra-vires act is executory on both sides?
 If executory on both sides, it cannot be enforced by either party thereto.
58. Can an ultra vires act be ratified?
 Yes, when a contract is not illegal per se but merely beyond the power of a corporation, the same is
merely voidable and may be enforced by performance, ratification, or estoppels or on equitable
ground.