Corporate Powers and Voting Requirements

RCC Section 2. A corporation is an 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.

Sec. 35. Corporate powers and capacity – Every corporation incorporated under this Code has
the power and capacity:

GENERAL POWERS:
1. Sue and be sued in its corporate name;
2. Succession;
3. Adopt and use a corporate seal;
4. Amend Articles of Incorporation;
5. Adopt, amend, or repeal by-laws;
6. For stock corporations - Issue stocks top subscribers and to sell treasury stocks; For non
stock corporation - admit members;
7. Purchase, receive, take, or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with real and personal property, pursuant to its lawful business;
8. Enter into partnership, joint venture, merger, consolidation, or any other commercial
agreement with natural and juridical persons;
9. Reasonable donations for public welfare, hospital, charitable, cultural, scientific, civil or
similar purposes (Prohibited: for partisan political activity)
10. Establish pension, retirement and other plans for the benefit of directors, trustees,
officers and employees, and
11. Other powers essential or necessary to carry out its purposes as stated in articles of
incorporation.

SPECIFIC POWERS:
1. Power to extend or shorten corporate term (Sec. 36)
2. Power to increase or decrease capital stock or incur, create, increase bonded
indebtedness (Sec. 37)
3. Power to deny pre-emptive rights (Sec. 38)
4. Power to sell or dispose corporate assets (Sec. 39)
5. Power to acquire own shares (Sec. 40)
6. Power to invest corporate funds in another corporation or business (Sec. 41)
7. Power to declare dividends (Sec. 42)
8. Power to enter into management contract (Sec. 43)
 1. Power to extend or shorten corporate term
There should be a written notice of stockholders/members meeting stating:
a. Proposed action and time and place of meeting;
b. Addressed to each stockholder/ member;
c. Deposited to the addressee in post office, with postage prepaid or served
personally;
Note: When allowed in the by-laws or done with the consent of the stockholder, sent
electronically in accordance with the rules and regulations of the SEC on the use of electronic
data messages
Vote needed:
1. Board majority (in board meeting) and
2. Ratified by 2/3 of OCS or members in a meeting – mere written assent is not enough

2. Power to increase or decrease capital stock or incur, create, increase bonded

indebtedness
There shall be no increase or decrease of capital stock unless:
● Approved by majority of the board;
● Approved by at least 2/3 of OCS in a meeting;
● With notice of the proposal and meeting given to stockholders - given
personally or through electronic means if allowed;
● With prior approval of the SEC
- The application with the SEC shall be made within six (6) months from
the date of approval of the board of directors and stockholders, which period may
be extended for justifiable reasons;
● Accompanied by a sworn statement of the treasurer showing that the 25-25
rule has been complied with.

3. Power to deny pre-emptive rights

General rule: Stockholders have the preemptive right to subscribe to all issues or disposition
of shares by the corporation of any class in proportion to their shareholdings
Exceptions:
1. Denied by the Articles of Incorporation or amendment thereto;
2. Shares are issued in compliance with laws requiring minimum stock ownership
by the public;
3. Shares issued in good faith in exchange for property for corporate purposes
approved by 2/3 of the OCS;
4. Shares in payment of previously contracted debts approved by 2/3 of OCS

4. Power to sell or dispose corporate assets

Votes Required:
1. Power to Sell or Dispose Corporate Assets (Not all or Substantially All) - Majority Vote
by Board of Directors or Trustees ONLY
 2. Power to Sell or Dispose All or Substantially All Corporate Assets Including its
Goodwill
Needs vote of:
a. Majority Vote by Board of Directors or Trustees; and
b. 2/3 of OCS or members

5. Power to acquire own shares

Requirements:
1. Corporation has unrestricted retained earnings in its books to cover the shares to be
purchased or acquired; and
2. It is for a legitimate corporate purpose or purposes, including the following cases:
a. To eliminate fractional shares arising out of stock dividends;
b. 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;
c. To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of the Corporation Code.

6. Power to invest corporate funds in another corporation or business

Needs vote of:
1. Board majority in meeting;
2. 2/3 of OCS or members - Stockholders/members’ approval not needed if
investment in stock of other corporations is reasonably necessary to accomplish
primary purpose;
3. Written notice of proposed investment and time and place of meeting sent to
stockholders;
4. Dissenting stockholders have appraisal rights

7. Power to declare dividends

Unrestricted retained earnings: the undistributed earnings of the corporation which have not
been allocated for any managerial, contractual or legal purposes and which are free for
distribution to the stockholders as dividends.

TYpes of Dividends:
1. Cash dividends – payable in lawful money or currency;
2. Property dividends - those paid in the form property (e.g., bonds, notes, shares in
another corporation);
3. Stock dividends – corporation’s own shares of stock out of the remaining unissued
shares which would require the approval of the stockholders representing 2/3 of the
outstanding capital stock at a regular or special meeting duly called for that
purpose. This is to be valued at par value or issue price.
Cash and property dividends have the effect of reducing corporate assets to the extent of the
dividends declared. In stock dividends, it would generally not increase the proportionate interest
of the stockholders of the corporation although it will have the effect of increasing
the subscribed and paid-up capital (exception is when the stock dividend declaration would
result in fractional shares like when 1 share is declared as dividend for every 9 shares held)

Overissuance of shares: happens when a corporation issues shares beyond its authorized
capital stock, even in the form of stock dividends.

Who can declare dividends? BOD.

They cannot be compelled to declare dividends, except: (1) When the unrestricted retained
earnings is in excess of 100% of the paid-up capital; and (2) In the case of Mandatory If Earned
Preference Shares.

The judgment of the BOD is conclusive, EXCEPT: (1) when they act in bad faith; (2) for a
dishonest purpose; (3) they act fraudulently, oppressively, unreasonably or unjustly; or (4)
abuse of discretion can be shown as to impair the rights of the complaining shareholders. The
test of bad faith is to determine if the policy of the directors is dictated by their personal
interest rather than corporate welfare.

When the dividends rights vest(entitled): It has been briefly said that the right of the
stockholders to be paid dividends vest as soon as they have been lawfully and finally declared
by the BOD. It is not revocable unless: (1) it has not been officially communicated to the
stockholders; or (2) it is in the form of stock dividends which is revocable any time prior to
distribution because this does not result in the distribution of assets but merely the division of
existing shares of a stockholder into smaller units or integers.

8. Power to enter into management contract

Where one corporation undertakes to manage all or substantially all of the business of another
corporation, whether the contract is called “service contracts” or “operating agreement”

General Rule: Contract may not exceed 5 years per term.

Exception: Contracts relating to exploration, development, exploitation or utilization of natural
Resources,may be entered into for such periods as may be provided by pertinent
(suitable/related) laws or regulations.

Requirements to have a valid management contract:

1. Resolution of the BOD;
2. Approval by the stockholders representing a majority of the outstanding capital stock or
majority of the members of both the managing and the managed corporation;
3. The approval of the stockholders or members must be made at the meeting called for that
purpose; and
4. The contract shall not be for a period longer than 5 years for any one term, except those
which
relate to exploration, development or utilization of natural resources which may be entered into
for such periods as may be provided by pertinent laws and regulations;
5. 2/3 of the stockholders or members would be required, where:
a. The stockholders representing the same interest of both the managing and the
managed corporation own or control more than 1/3 of the total outstanding capital
stock of the managing corporation;
b. A majority of the members of the BOD of the managing corporation also
constitute a majority of the directors of the managed corporation;
c. The contract would constitute the management or operation of all or substantially all of
the business of another corporation, whether such contracts are called service contracts.
If it will not constitute the management of all or substantially all of the business of
another corporation, the first paragraph of Sec. 44 will apply and not that of the second,
that is, only the vote of the majority is required.

Ultra vires acts – An act not within the express or implied, and incidental powers of the
Corporation.
Type of Ultra Vires Cases
a. First type: Acts done beyond the powers of the corporation as provided for in
the law or its articles of incorporation (Sec. 44)
b. Second type: Acts or contracts entered into on behalf of the corporation by
persons without corporate authority, even though the contract is within the
powers of the corporation; and
c. Third type: Acts or contracts, which are per se illegal as being contrary to law.

Doctrine of individuality of subscription

No certificate of stock shall be issued to a subscriber until the full amount of the subscription
together with interest and expenses (in case of delinquent shares), if any is due, has been paid.
(Sec. 63)

Doctrine of equality of shares

All stocks issued by the corporation are presumed equal with the same privileges and liabilities,
provided that the Articles of Incorporation is silent on such differences.

Trust fund doctrine

The subscriptions to the capital stock of a corporation constitute a fund to which the creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment
of its debts.