OTHER CORPORATE POWERS
1. Extension/Shortening of Corporate Term (Sec. 36)
2. Power to Increase or Decrease Capital Stock (Sec. 37)
3. Power to Incur, Create or Increase Bonded Indebtedness (Sec. 37)
4. Power to Deny Pre-emptive Right (Sec. 38)
5. Sell, dispose, lease, encumber all or substantially all of corporate
assets (Sec. 39)
6. Power to acquire own shares (Sec. 40)
7. Invest corporate funds in another corp. or business or for any Other
Purpose (Sec. 41)
8. Power to declare dividends (Sec. 42)
9. Power of a corporation to enter into a management contract. (Sec. 43)
Conditions for the Acquisition of Own Shares
1. Its capital will not be impaired
2. It is for legitimate and proper corporate purpose
3. There is unrestricted retained earnings to purchase the same
4. Done in good faith and without prejudice to the rights of creditors and
stockholders
5. That the conditions of corporate affairs warrants it.
Trust Fund Doctrine
The subscribed capital stock of the corporation is a trust fund for the
payment of debts of the corporation which the creditors have the right to
look up to satisfy their credits, and which the corporation may not
dissipate.
Application:
a. Where the corporation has distributed its capital among the
stockholders without providing for the payment of creditors
b. Where it had released the subscribers to the capital stock from their
subscriptions.
c. Where it has transferred the corporate property in fraud of its
creditors; and
d. Where the corporation is insolvent
Exceptions:
The code allows distribution of corporate capital only in these instances:
a. Amendment of Articles of Incorporation to reduce authorized capital
stock;
b. Purchase of Redeemable shares by the corporation regardless of
existence of unrestricted retained earnings;
c. Dissolution and eventual liquidation of the corporation;
d. In close corporation, when there should be a deadlock and the SEC
orders the payment of the appraised value of the stockholder’s share.
Rules/Provisions in declaring dividends:
• While cash dividends due on delinquent shares can be applied to the
payment of the unpaid balance, stock dividends cannot be applied as
a payment for unpaid subscription. Stock dividends shall be withheld
from the delinquent stockholder until his unpaid subscription if fully
paid.
• The right to dividend is based on duly recorded stockholdings,
accordingly, the corporation is prohibited from declaring dividends in
favor of non-stockholders.
• As a rule, dividends among stockholders of the same class must
always be pro rata equal and without discrimination and regardless of
the time when the shares were acquired.
• Declaration of dividends is discretionary upon the board.
• Dividends are payable only when there are profits earned and as a
general rule, even if there are existing profits, the BOD has the
discretion to decide whether or not dividends are declared subject to
the rule on non-retention of retained earnings in excess of 100% of
paid-in-capital.
• Dividends cannot be declared out of the capital except in the case
of wasting assets corporation or those corporations solely or
principally engaged in the exploitation of wasting assets to
distribute the net proceeds derived from exploitation of their
holdings such as mines, oil wells, patents and leaseholds, without
allowance or reduction for depletion.
• Stockholders at the time of declaration are entitled to dividends.
Dividends declared before the transfer of shares belong to the
transferor and those declared after the transfer belongs to the
transferee.
• Even unpaid subscribers are entitled to dividends, as well as
owners of delinquent shares.
Dividends vs. Profits
1. Dividends constitute the income of the stockholders, while profits
constitute the income of the corporation.
2. Dividends belong to the stockholders, while profits belong to the
corporation as part of its assets;
3. Dividends come from profits, while profits are the source of
dividends.
Rules in the Distribution of Dividends
General Rule:
Dividends can only by declared and paid out of actual and bona fide
unrestricted retained earnings.
Special Rules:
a. Gain from real property which is not being used for business, at a
gain, the income derived therefrom may be availed of for dividend
distribution.
b. Revaluation Surplus – RULE:
Increase in the value of a fixed asset as a rule of its revaluation is
not retained earning but may be declared as cash or stock
dividends provided that the company:
i. Has sufficient income from operations from which the
depreciation on the appraisal increase was charged
ii. Has no deficit at the time the depreciation on the
appraisal increase was charged to operations; and
iii. Such depreciation on appraisal increased previously
charged to operations has not been impaired by losses.
c. Paid-in Surplus
Dividends can be declared out of the amount received in excess of
the par value of shares (“paid-in-surplus”) when:
i. They be declared only as stock dividends and not cash;
ii. No creditors are prejudiced; and
iii. There is no impairment of capital
d. Reduction Surplus
Surplus arising from the reduction of the par value of the issued
shares of stock
They can be available for dividend declaration provided that the
rules on paid-in surplus are complied with.
e. Sale of Treasury Shares
Profits realized from sale of treasury shares are part of capital and
cannot be declared as cash or stock dividend as purchase and sale
of such shares are regarded as contractions and expansions of
paid-in capital
f. Indebtedness
Money cannot be borrowed for the payment of dividends because
indebtedness is not a retained earning of the corporation
g. Corporate earnings which have not yet been received even though
they consist in money which is due cannot be included in the profits
out of which dividends may be paid.
h. Interim income
General Rule:
There can be no dividend declaration for profits in a fiscal year that
has not yet expired.
Exceptions:
1. The amount of dividend involved would not be impaired by
losses during the remaining period of the year;
2. The projected income for the remaining period shall be
submitted to the SEC, and
3. Should the company sustain losses during the remaining period,
the dividends should be refunded
i. Previous year income
A corporation may properly pay dividends from accumulated surplus
out of previous years although realizing no profit from current
earnings.
Retained Surplus Profit
General Rule:
Stock corporations are prohibited from retaining surplus profits in excess
of 100% of their paid-in capital stock.
Exceptions:
When justified by definite corporate expansion projects approved by the
board of directors
a. When the corporation is prohibited under any loan agreement with
any financial institution or creditor from declaring dividends without
its/his consent and such consent has not yet been secured.
b. When it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when
there is a need for special reserve for probable contingencies.
Classes of Dividends
1. Cash
2. Property
3. Stock
4. Optional
5. Composite
6. Scrip
7. Preferred
8. Cumulative
9. Bond
10. Liquidating
Requirements:
a. Approval by a majority of the quorum of the board of directors
b. Ratification by the stockholders owning at least majority of the
outstanding capital stock or the members of both the managing and
the managed corporations, at a meeting duly called for the purpose.
c. Approval by the stockholders owning at least 2/3 of the outstanding
capital stock of managed corporation, or at least 2/3 of the members
in the case of a non-stock corporation:
i. Where stockholders representing the same interest of both
the managing and the managed corporations own more
than 1/3 of the outstanding capital stock of the managing
corporation; OR
ii. Where a majority of the members of the BOD of the
managing corporation also constitute a majority of the
members of the BOD of the managed corporation.
Ultra Vires Act
An act which is not within the express, implied, and incidental powers
of a corporation.
Intra Vires Act
An act within the legal legitimate power or purpose of the corporation.
Ultra Vires Act vs. Illegal Act
Ultra Vires Act Illegal Act
Not necessarily illegal Prohibited by law
Act beyond the purpose of the
corporation
Voidable, can be ratified Void, cannot be ratified
Effects of Ultra Vires Contract
1. If the contract is illegal per se – it is wholly void and cannot be
ratified.
2. If the contract is not illegal per se – it is merely beyond the power
of the corporation.
- If the contract is not illegal per se, the following rules shall
apply:
i. Executory on both sides – it cannot be forced by either
party thereto.
ii. Fully executed on both sides – neither party can
maintain an action to set aside the transaction or to
recover what has been parted with; and
iii. Executory on one side and fully executed on the other –
most court permit recovery on behalf of the latter.
By-Laws
The rules of action adopted by the corporation for its internal
regulations and for the government of its officers and of its
stockholders or members.
By-laws must be adopted with the affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or
members in case of non-stock corporation.
Requisites of Valid By-Laws
1. Must be consistent with existing law
2. Must be consistent with the articles of incorporation
3. Must not be contrary to moral & public policy
4. Must be general and uniform in their operation and not directed
against particular individual
5. Must be reasonable
6. Must not impair vested rights or the obligations of contracts
Amendment to By-Laws
Requirements:
1. Resolution by the majority of the BOD or Trustees;
2. Ratification of at least majority of the outstanding capital stock or
members in case of non-stock corporation;
3. The ratification must be made at a meeting duly called for the
purposes; and
4. Submission of a copy of the amendment or new by-laws to SEC,
certified under oath by the corporate secretary.
Kinds of Corporate Meetings
1. Meetings of stockholders or members
a. Regular – held annually on a fixed date as indicated in the by-
laws or if none any date after April 15 of every year.
b. Special – held at any time deemed necessary or as provided in
the by-laws.
2. Meetings of Directors or Trustees
a. Regular – held by the Board monthly, unless the by-laws
provide otherwise.
b. Special – held by the Board at any time upon the call of the
president or as provided in the by-laws.
Presiding Officer at Meetings Manner of Voting
1. The Chairman or in his absence the President A stockholder or member may vote:
2. Stockholders or members in a temporary capacity § Directly
3. Stockholder or member chosen § Indirectly through a representative
a. By means of proxy
Requisites of a Valid Meeting b. By trustee under a voting trust agreement
1. It must be held at the proper place c. By executor, administrator, receiver, or other legal
2. It must be held at the stated date and the appointed time representative duly appointed by the court
3. It must be called by the proper person duly authorized to make the § Through remote communication, or in absentia, when provided in
call the by-laws or AOI
4. If no authorized person, a director or trustee or by officer entrusted to
manage the corporation may call the meeting. Voting Rule in Case of Joint Ownership
5. There must be previous notice at least 21 days prior to the meeting General Rule:
6. There must be quorum Requires the consent of all the co-owners in order to vote such stock.

Votes Required for Certain Corporate Acts Exception:

Corporate Acts
§ To amend Articles of
Incorporation
§ To extend/shorten corporate
life
§ To increase/decrease capital
stock
§ To incur/create bonded debt
§ To sell, lease, pledge, dispose
all or substantially all of the
corporate assets
§ To invest in another
corporation
§ To effect or amend a plan of
merger or consolidation
§ To dissolve a corporation
§ To elect directors or trustees
§ To call a special meeting to
remove a director or trustee
§ To adopt by-laws
§ To revoke power delegated to
the BOD or Trustees
§ To remove director or trustee
§ To ratify contract
§ To issue stock dividend
§ To enter into management
contract
§ To amend or repeal by-laws, or Majority vote of the BOD or
adopt new by-laws
§ To fix the issued price of no par Majority of the quorum of BOD
value shares
Required Vote
Majority vote of BOD and vote
or written assent of
stockholders representing at
least 2/3 of the outstanding
capital stock or 2/3 of members
in case of non-stock
corporation.
Majority vote of BOD and vote
of stockholders representing at
least 2/3 of outstanding capital
stock or 2/3 of members in case
of non-stock corporation.
Majority of outstanding capital
stock or of members entitled to
vote.
2/3 of outstanding capital stock
or members
Majority of the quorum of BOD
or Trustees and 2/3 of
outstanding capital stock or
members
Majority of the quorum of BOD
or Trustees and majority of
outstanding capital stock or
members
Trustees and of the
outstanding capital stock or
members
or Trustees if authorized in AOI,
or by majority of outstanding
capital stock
1. There is written proxy executed by the joint co-owners
authorizing one or some of them or any person to vote for all,
and
2. The shares are owned in an “and/or” capacity
Proxy
§ The formal authority given by the holder of a stock, who has a
right to vote it, to another person to exercise the voting rights of
the former; or
§ The person so authorized; or
§ The instrument which evidences the authority of the agent.
Limitation on the Use of Proxy
1. Proxies must be in writing signed by the stockholder or member
and filed before the scheduled meeting with the corporate
secretary;
2. Unless otherwise provided in the proxy, it is valid only for the
meeting for which it is intended; and
3. A continuing proxy must be for a period not exceeding 5 years
Voting Trust Agreement
An agreement in writing whereby one or more stockholders transfer
their shares to any person or persons or to a corporation having
authority to act as trustee for the purpose of vesting voting or other
rights pertaining to the shares for a period not exceeding 5 years and
upon terms and conditions stated in the agreement.
Voting Trust Certificate
Is the certificate which the voting trustee executes and delivers to the
stockholder in return for the certificate of stock issued to the
stockholder to show that the latter in reality is the owner of the shares
held by the voting trustee.
Powers of the Voting Trustee
1. Possess all voting and other rights pertaining to the shares so
transferred and registered in his name subject to the terms and
conditions and specified period in the agreement.
2. May vote in person or by proxy unless the agreement provides
otherwise
3. May exercise the right of inspection of all corporate books and
records
4. The trustee is the legal title holder or owner of the shares so
transferred under the agreement
Purpose of Voting Trust Agreement
1. To enable the majority of stockholders to dispose of their
beneficial interest in their stock and still retain control; and
2. To ensure unified control of the affairs of the corporation and a
consistent policy by taking away from the stockholders the power
to change the management for a certain period.
Proxy vs. Voting Trust
1. Proxy has no legal title to the shares of stock, which trustee acquires
legal title to the shares
2. A proxy is revocable unless coupled with interest, while voting trust is
irrevocable if validly executed
3. A proxy can only act at the specified meeting while trustee is not
limited to any particular meeting
4. A proxy votes only in the absence of the owner of the stock, while a
trustee can vote and exercise all the rights of the stockholder even if
the latter is present
5. A proxy is usually of a shorter duration than a voting trust agreement
6. A proxy need not be notarized nor filed in SEC unlike voting trust
7. A proxy does not have a right of inspection of corporate books, while
trustee has such right
Subscription Contract
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription notwithstanding that the parties refer to it as a purchase or
some other contract.
Irrevocable Subscription
Subscription to corporation still to be formed:
§ For a period of six (6) months from date of subscription
notwithstanding any agreement to the contrary;
§ After the submission of the AOI to the SEC, although beyond the said
period;
Revocable Subscription
Subscription to corporation still to be formed:
§ Other subscribers consent to the revocation;
§ The incorporation of the corporation fails to materialize within the
said period or within a longer period as may be stipulated in the
subscription contract;
Manner of Acquiring of Shares
1. In Stock Corporation
a. By subscription contract
b. By purchase from the corporation of treasury shares
c. By transfer from previous stockholder
d. By issuance of stock dividend
2. In Non-stock Corporation
a. By contract with the corporation
b. By by-laws
Consideration for Issuance of Stocks
1. Actual cash paid to the corporation
2. Property necessary for its use and for lawful purpose, with fair
valuation equal to the par or issued value of stock
3. Labor performed for or services actually rendered to the corporation
4. Previously incurred indebtedness of the corporation
5. Amounts transferred from unrestricted retained earnings to stated
capital
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion
Limitation for Issuance of Stocks
1. Shall not be issued for a consideration less than the par or issued
price, but the corporation may receive more than the par value
2. They shall not be issued in exchange for promissory note or future
services
3. If paid other than cash, the value thereof shall be determined first by
the BOD or incorporators and be subject to approval by SEC
4. The issued price of no-par value share must be fixed as provided in
Sec. 61
Effects of Unregistered Transfer of Shares
1. Between the Transferor and Transferee – it is valid and binding
2. Between Corporation and Transferee – it is invalid
3. Between the Corporation and Transferor – the transferor is still
the stockholder but he is the trustee of the real owner
4. Between Corporate Creditors and Transferor – it is invalid,
transferor is still liable for any unpaid subscription
5. Between Transferee and Transferor’s Creditor – invalid against
creditor without notice of the transfer
Issuance of Stock Certificate
§ Upon full payment of the subscription including interest and
expenses, if any.
§ May be issued for less than the number of shares subscribed
provided the par value of each of the stocks represented by the
certificate is fully paid.
§ In case of no-par value share, certificate may not be issued until
full payment of subscription.
Rights and Remedies of Stockholders
1. Right to attend and vote in person or by proxy at stockholder’s
meeting;
2. Right to elect and remove directors
3. Right to approve certain corporate acts
4. Right to adopt, amend, repeal the by-laws
5. Right to compel the calling of meeting of stockholders for any
cause when there is no person authorized to call a meeting
6. Right to issuance of certificate of stock and be registered as
shareholders
7. Right to receive dividends when declared
8. Right to participate in the distribution of corporate assets upon
dissolution
9. Right to transfer of stock in corporate books
10. Right to pre-emption in the issue of shares
11. Right to inspect corporate books & records
12. Right to bring individual and representative or derivative suits
Requisites of Derivative Suit
1. There must be an existing cause of action in favor of the
corporation
2. The stockholder or members must first make a demand upon the
corporate officers to sue
3. The stockholder or member must have been such at the time of
the objectionable transaction unless such transaction continues
and are injurious to him or affect him in a particular way
4. The action must be brought in the name and for the benefit of the
corporation
Liability of Stockholder
1. Liability to the corporation for any unpaid subscription
2. Liability for interest on unpaid subscription
3. Liability to the creditors of the corporation on unpaid subscription
4. Liability for watered stock
5. Liability for dividends unlawfully paid
6. Liability for failure to create corporation
Watered Stock
Stock issued for no value at all or for a value less than its equivalent
either in cash, property, services, or stock dividend.
1. Issued without consideration
2. Issued as fully paid when the corporation has received a lesser
amount than it par or issued value
3. Issued for a consideration other than actual cash, the fair
valuation of which is less than its par or issued value
4. Issued as stock dividend when there are no sufficient retained
earnings or surplus
Interest on Unpaid Subscription
Interest on unpaid subscription shall be paid to the corporation so
required by the by-laws from the date or subscription and at a rate of
interest fixed in the by-laws, or at a legal rate if no rate of interest is fixed.

Remedies to Enforce Payment of Subscription

1. By extra-judicial sale at public auction
2. By judicial auction
3. Loss of rights

Delinquent Stock
§ A stock becomes delinquent upon failure of the holder to pay unpaid
subscription within 30 days from the date specified in the
subscription contract or from the date stated in the call made by the
board of directors.
§ Delinquent stock is subject to sale at public auction unless the board
of directors orders otherwise.

Effect of Stock Delinquency

1. The delinquent stock shall be subject to delinquency sale
2. The stock shall not be voted or be entitled to vote or to representation
at any stockholders’ meeting
3. The holder shall not be entitled to any of the rights of the stockholder,
except to right to dividend:
a. Cash dividend shall be applied first to payment of unpaid
subscription, interest, and expenses
b. To withhold stock dividend until the unpaid subscription is
fully paid.
Call
A call is a declaration officially made by a corporation usually through a
resolution of the BOD for the payment of all or a certain prescribed portion
of the subscriber’s stock subscription.

Requisites for a Valid Call

1. It must be made by the BOD
2. It must be made in the manner prescribed by law
3. It must operate uniformly upon all the shareholders