POWERS OF THE CORPORATIONS

Section 35. Corporate Powers and Capacity. - Every corporation incorporated under this Code has
the power and capacity:
(a) To sue and be sued in its corporate name;
(b) To have perpetual existence unless the certificate of incorporation provides otherwise;
(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 bylaws, 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 treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a
nonstock 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 a partnership, joint venture, merger, consolidation, or any other commercial
agreement with natural and juridical persons;
(i) To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give
donations in aid of any political party or candidate or for purpose s 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.

The express powers under the RCCP include (1) the general powers under Section 35, and (2) the
specific powers under Sections 9, 15, and 36 to 43 of the RCCP. The powers expressly provided for
in the RCCP are deemed part of the Articles of Incorporation even if such powers are not
enumerated therein

 General Powers. As a rule, the Board exercises the general powers of the corporation.
Generally, approval of a resolution by the Board is enough for the exercise of such powers.
The exercise of general powers and all regular business transactions is covered by Section
52 of the RCCP that provides that every decision of at least a majority of the directors or
trustees present at a meeting at which there is a quorum shall be valid as a corporate act,
except for the election of officers which shall require the vote of a majority of all members
of the Board.
 Specific Powers. The specific powers of corporations are provided for in the RCCP, including
the specific requirements and/ or procedure for their exercise. These include the following
powers:
1. To extend or shorten the corporate term under Sections 11 and 36;
2. To amend the Articles of Incorporation under Section 15;27
3. To increase or decrease the capital stock under Section 37;
4. To incur, create or increase bonded indebtedness also under Section 37;
5. To deny pre-emptive right under Section 38;
 6. To sell or dispose of all or substantially all of the assets of the corporation under Section
39·
7. To acquire its own shares under Section 40;
8. to invest corporate funds in another corporation, business or for any other purpose
under Section 41;
9. To declare dividends under Section 42; and
10. To enter into a management contract under Section 43.
Kinds of Powers. A corporation may exercise (1) express powers, (2) implied powers, and (3)
incidental powers.

 Express Powers. Express powers are the powers expressly provided in the RCCP, applicable
special laws, administrative regulations, and the Articles of Incorporation of the
corporation.4 The express powers under the RCCP include (1) the general powers under
Section 35, and (2) the specific powers under Sections 9, 15, and 36 to 43 of the RCCP. The
powers expressly provided for in the RCCP are deemed part of the Articles of Incorporation
even if such powers are not enumerated therein
 Implied Powers. The existence of implied power is recognized under paragraph (k) of
Section 35 of the RCCP. Under paragraph (k) of Section 35 of the RCCP, a corporation is
empowered 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.
o Implied powers include all powers that are reasonably necessary or proper for the
execution of the powers expressly granted and are not expressly or impliedly
excluded.6 The term "implied powers" has also been defined as one which the law
will regard as existing by implication; such power must be one in a sense necessary,
i.e., needful, suitable and proper to accomplish the object of the grant - one that is
directly and immediately appropriate for the execution of specific powers; and not
one that has slight, indirect or remote relation to the specific purposes.
o To determine whether an act is within the implied powers of a corporation, it must
be ascertained whether the act in question is in direct and immediate furtherance
of the corporation’s business, fairly incident to the express powers and reasonably
necessary to their exercise. (University of Mindanao vs. BSP, G.R. No. 194964-65,
January 11, 2016)
 Incidental Powers. Incidental powers are powers that are deemed conferred on the
corporation because they are incidental to the existence of the corporation. Corporations
have incidental powers as a consequence of the fact that they exist as juridical persons.
Incidental powers include:
o Right to succession,
o Right to have a corporate name,
o Right to make by-laws for its government,
o Right to sue and be sued, and
o Right to acquire and hold properties for the purposes authorized by the charter.

Power to sue and be sued. One of the incidental powers of a corporation is the power to sue and be
sued. "The power is granted to a duly organized corporation, unless specifically revoked by another
law." The power to sue is exercised by the corporation through the Board and/or its duly authorized
officers and agents.
  Venue of action – instituted at the place where the principal office of the corporation is
located.
 A corporation is considered a resident of the place where its principal office is located as
stated in its Articles of Incorporation. However, when it is uncontroverted that the insolvent
corporation abandoned the old principal office, the corporation is considered a resident of
the city where its actual principal office is currently found.

Section 36. Power to Extend or Shorten Corporate Term. - 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 or members
representing at least two-thirds (2/3) of the outstanding capital stock or of its members. Written
notice of the proposed action and the time and place of the meeting shall be sent to the
stockholders or members at their respective place of residence as shown in the books of the
corporation, and must be deposited to the addressee in the post office with postage prepaid,
served personally, or when allowed in the bylaws or done with the consent of the stockholder, sent
electronically in accordance with the rules and regulations of the Commission on the use of
electronic data messages. In case of extension of corporate term, a dissenting stockholder may
exercise the right of appraisal under the conditions provided in this Code.

 Powers are subject to some limitations.

 A corporate term for a specific period may be extended or shortened by amending the
articles of incorporation (Sec. 11, RCC)
 Requirements
a. The actions must be approved by a majority vote of the board of directors or
trustees.
b. The action must be ratified at a meeting by the stockholders representing at least
2/3 of the outstanding capital stock or by at least 2/3 of the members in case of
non-stock corporations
c. For purposes of such stockholders’/ members’ meeting, written notice of the
proposed action and of the time and place of the meeting shall be addressed to
each stockholder or member at his/her/its place of residence as shown in the
books of the corporation and deposited to the addressee in the post office with
postage prepaid, or served personally, or sent electronically
d. A copy of the amended Articles of Incorporation shall be submitted to the SEC for its
approval (Sec. 36, RCC)
 Limitation for extension of period: In case of extension, the same cannot be made earlier
than 3 years prior to the original or subsequent expiry date unless there are justifiable
reasons for an earlier extension. Moreover, the same must be made during the lifetime of
the corporation. (Sec. 11, RCC)
 Shortening period with effect of dissolution
a. The shortening of the corporate term may be designed to have the effect of
dissolving the corporation
b. The dissolution takes effect on the date of the approval of the Amended Articles of
Corporation by the SEC
c. The three-year liquidation period shall likewise be reckoned from the date of the
SEC approval of the Amended Articles of Incorporation
Section 37. Power to increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness. – No corporation
shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a
majority vote of the board of directors and by two-thirds (2/3) of the outstanding capital stock at a stockholders' meeting
duly called for the purpose. Written notice of the time and place of the stockholders' meeting and the purpose for said
meeting must be sent to the stockholders at their places of residence as shown in the books of the corporation served on
the stockholders personally, or through electronic means recognized in the corporation's bylaws and/or the Commission's
rules as a valid mode for service of notices.

A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and
secretary of the stockholders' meeting, setting forth:

(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock;
(c) In case of an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof
actually subscribed, the names nationalities and addresses of the persons subscribing, the amount of capital stock or
number of no-par stock subscribed, the names, nationalities and addresses of the persons subscribing, the amount of
capital stock or number of no-par stock subscribed by each, and the amount paid by each on the subscription in cash or
property, or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if such increase
is for the purpose of making effective stock dividend therefor authorized;
(d) Any bonded indebtedness to be incurred, created ot increased;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or decrease of capital stock, or incurring, creating or increasing of bonded
indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall
require prior approval of the Commission and where appropriate, of the Philippine Competition Commission.

The application with the Commission 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.

Copies of the certificate shall be kept on file in the office of the corporation and filed with the Commission and attached
to the original articles of incorporation. After approval by the Commission and the issuance by the Commission of its
certificate of filing may declare: Provided, That the Commission shall not accept for filing any certificate of increase of
capital stock unless accompanied by a sworn statement of the treasurer of the corporation accompanied by a 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 percent (25%) of the increase in capital stock has been subscribed and that at least twenty-five
percent (25%) of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of
which is equal to twenty-five percent (25%) of the subscription, has been transferred to the corporation: Provided, further,
That no decrease in capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate
creditors.

Nonstock corporations may incur, create or increase bonded indebtedness when approved by a majority of the board of
trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose.

Bonds issued by a corporation shall be registered with the Commission, which shall have the authority to determine the
sufficiency of the terms thereof.

 Requirements (Sec. 37, RCC). Requirements for the exercise of the power of increasing and
decreasing capital stocks
a. Approval by the majority vote of the board of directors.
b. Ratification by the stockholders holding or representing at least 2/3 of the
outstanding capital stock at a meeting duly called for that purpose.
 c. Prior written notice of the proposed increase or decrease of the capital stock
indicating the time and place of meeting addressed to each stockholder must made
either by personal service or through electronic means recognized in the by-laws
and/or SEC’s rules.
d. A certificate must be signed by a majority of the directors, countersigned by the
chairman and the secretary of the stockholders meeting.
e. In case of increase in capital stock, 25% of such increase in capital must be
subscribed and at least 25% of the amount must be paid either in cash or property,
accompanied by a sworn statement of the treasurer of the corporation lawfully
holding office at the time of the filing of the certificate, attesting to such fact.
f. In case of decrease in capital stock, the same must not prejudice the right of
creditors, as such, the consent of the creditors needs to be secured.
g. Filing of the certificate of increase or decrease and amended articles with SEC.
h. Approval thereof by the SEC.
 A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and as
against creditors a reduction of the capital stock can take place only in the manner and
under the conditions prescribed by the statute or the charter or the Articles of Incorporation.
Moreover, strict compliance with the statutory regulations is necessary.
 Ways to increase capital stock:
o By increasing the number of shares and retaining the par value
o By increasing the par value of existing shares without changing the number of
shares (Estate of Ortanez vs. Lee, G.R. No. 184251, March 9, 2016)
o By increasing the number of shares and increasing the par value
 Reasons for increasing the capital stock
o To generate more working capital.
o To issue shares to sell to acquire assets.
o To have extra shares to meet the requirement for declaration of stock dividend.
(Miravide, Bar Review Materials in Commercial Law, 2002)
 Ways to decrease capital stock:
o By decreasing the number of shares and retaining the par value
o By decreasing the par value of existing shares without changing the number of
shares
o By decreasing the number of shares and decreasing the par value
 Reasons for decreasing the capital stock
o To reduce or wipe out existing deficit where no creditors would thereby be affected.
o When the capital is more than what is necessary to procreate the business or
reduction of capital surplus.
o To write down the value of its fixed assets to reflect their present actual value in
case where there is a decline in the value of the fixed assets of the corporation.
(Ladia and Reyes, The Revised Corporation Code of the Philippines, Annotated,
2021, p. 264)
 Stock Split A share is divided or converted into two or more shares but the amount of the
outstanding capital remains the same because the par value is also divided in as many
shares.
  Reverse Stock Split The pro-rata combination of all the outstanding shares of a specific
class into smaller number of shares of that class. A reverse stock split may be required to
increase the market value per share or it may be designated to eliminate minority
stockholder. (SEC Opinion No. 05-01 dated January 4, 2005)
 Bond A security representing denominated units of indebtedness issued by a corporation to
raise money or capital obliging the issuer to pay the maturity value at the end of a specified
period.
 Bonded Indebtedness Security indebtedness or indebtedness secured by real or personal
property that are covered by certificates. They refer to negotiable corporate bonds secured
by mortgage on property. (SEC Opinion dated April 29, 1987)

Section 38. Power to Deny Preemptive Right. - All stockholders of a stock corporation shall enjoy
preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of incorporation or an
amendment thereto: Provided, That such preemptive right shall not extend to shares issued in
compliance with laws requiring stock offerings or minimum stock ownership by the public; or to
shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of
the outstanding capital stock in exchange for property needed for corporate purposes or in payment
of previously contracted debt.

 Denial must be specified in AOI

o Shareholders must be made aware that preemptive right is not possible
 Can be denied as long as the denial is expressed specifically
 Preemptive right is the right of shareholders to subscribe to all issues or disposition of
shares of any class in proportion to their shareholdings. Preemptive right is also defined as
the right granted to the stockholders to have the first option to subscribe to any issuance or
disposition of shares from the capital stock in proportion to the stockholdings of the
shareholders
 General rule: Stockholders have the pre-emptive right to subscribe to all issues or
disposition of shares by the corporation of any class in proportion to their shareholdings
 Exception:
o Denied by the Articles of Incorporation or amendment thereto;
o Shares are issued in compliance with laws requiring minimum stock ownership by
the public
o Shares issued in good faith in exchange for property for corporate purposes
approved by 2/3 of the OUTSTANDING CAPITAL STOCK
o Shares in payment of previously contracted debts approved by 2/3 of OUTSTANDING
CAPITAL STOCK
 Rationale. The foundation or underlying basis of this right is to maintain the relative and
proportionate voting strength and control of existing shareholders.
 Waiver. A stockholder who neither desires nor intends to buy any of the stocks being offered
may waive such right. In such event, the shares may be offered to any interested persons
acceptable to the corporation
 Transfer. The right to subscribe to new issues and disposition may be transferred by the
shareholder. Unless there is an express restriction in the Articles of Incorporation, the pre-
emptive right is transferable.
 Not Against Public Policy. The power to deny preemptive right is not contrary to public
policy. It was explained that "there is no inequity, there is no unfairness because a
shareholder who feels that he does not desire to invest because he does not have the right
of pre-emption simply should not invest.
Section 39. Sale or Other Disposition of Assets. - Subject to the provisions of Republic Act No.
10667, otherwise known as the "Philippine Competition Act", and other related laws a corporation
may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge,
or otherwise dispose of its property and assets, upon such terms and conditions and for such
consideration, which may be money, stock, bonds, or other instruments for the payment of money
or other property or consideration, as its board of directors or trustees may deem expedient.
A sale of all or substantially all of the corporation's properties and assets, including its goodwill,
must be authorized by the vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds (2/3) of the members, meeting duly called for the
purpose.
In nonstock 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 this section.
The determination of whether or not the sale involves all or substantially all of the corporation's
properties and assets must be computed based on its net asset value, as shown in its latest
financial statements. A sale or other disposition shall be deemed to cover substantially all the
corporate property and assets if thereby the corporation would be rendered incapable of continuing
the business or accomplishing the purpose of which it was incorporated.
Written notice of the proposed action and of the time and place for the meeting shall be addressed
to stockholders or members at their places of residence as shown in the books of the corporation
and deposited to the addressee in the post office with postage prepaid, served personally, or when
allowed by the bylaws or done with the consent of the stockholder, sent electronically: Provided,
That any dissenting stockholder may exercise the right of appraisal under the conditions provided in
this Code.
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.
Nothing in this section is intended to restrict the power of any corporation, without the authorization
by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose
of any of its property and assets if the same is necessary in the usual and regular course of
business of the corporation or if the proceeds of the sale or other disposition of such property and
assets shall be appropriated for the conduct of its remaining business

 Requisites: A sale of all or substantially all of the properties and assets of the corporation,
including its goodwill, requires the following:
1. It must be approved by the majority of the directors or trustees;
2. There must be approval/assent of stockholders representing 2/3 of outstanding capital
stock or two thirds of members in a meeting duly called for the purpose after written
notice.
The sale is void if these requirements are not complied with
  Directors Approval Only. If the transaction does not cover all or substantially all of the
assets, the decision of the Board is sufficient and it is not necessary to get the approval of
the stockholders
 Meaning of "Substantially All." A sale or other disposition shall be deemed to cover
"substantially all" corporate property and assets if the corporation would thereby be
rendered incapable of continuing the business or accomplishing the purpose for which it
was incorporated. The test is not the amount involved but the nature of the transaction.
 Section 39 does not apply in these cases:
o if the sale of the entire property and assets is necessary in the usual and regular
course of business of the corporation; or
o if the proceeds of the sale or other disposition of such property and assets will be
appropriated for the conduct of its [the corporation's] remaining business
 Effect on Creditors. The transferee-corporation of all or substantially all of the assets (or
even shares) of the transferor-corporation will not be liable for the debts of said transferor-
corporation
 However, by way of exception, the transferee-corporation is liable:
o if there· is an express or implied assumption of liabilities;
o the transaction amounts to a consolidation or merger;
o if the transaction is entered into fraudulently in order to escape liability from
debtors or the purchase was in fraud of creditors; and
o if the purchaser becomes a continuation of the seller.

Section 40. Power to Acquire Own Shares. - Provided, That the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or acquired, a stock corporation shall
have the power to purchased or acquired, a stock corporation shall have the power to purchase or
acquire its own shares 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; and
(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code.

 Requirements
o The acquisition is for a legitimate corporate purpose or purposes; and
o The corporation has unrestricted retained earnings in its books to cover the shares
to be purchased or acquired.
 Requirements for the exercise of the power to acquire the corporation's own shares:
o The capital is not impaired;
o A legitimate and proper corporate purpose or objective is advanced;
o The corporate affairs warrant it;
o The transaction is designed and carried out in good faith; (5) There is no intention
and there is no resulting undue advantage to favored stockholders at the expense of
the remainder;
o The creditors are not prejudiced;
 o The corporation acts in good faith and without prejudice to the rights of creditors
and stockholders; and
o There must be unrestricted retained earnings to purchase the shares

 Purposes for acquisition of shares

o To eliminate fractional shares arising out of stock dividends;
o 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; and
o To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of the RCC
 Rationale. The general rule is that in the absence of statutory authority, the corporation
cannot acquire its own shares. The investments of the shareholders are generally locked-in
until the liquidation. The view that a corporation cannot buy its own stocks unless there is
an express grant of such power is based on the following reasons:
o the corporation cannot increase or diminish its capital without the sanction of the
legislature;
o the transaction is a fraud upon creditors; and
o it is foreign to the purposes for which the corporation is created
 When a corporation may redeem its own share
o To redeem redeemable shares; (Sec. 8, RCC)
o (b) To acquire treasury shares; (Sec. 9, RCC)
o To eliminate fractional shares arising out of stock dividends. (Sec. 40(a), RCC)
o 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; (Sec. 40(b), RCC)
o To pay dissenting or withdrawing stockholders entitled to payment for their shares –
in the exercise of appraisal right; (Sec. 40(c), RCC)
o To effect a decrease of capital stock;
o In close corporations, when there is a deadlock in the management of the business.
(Sec. 103, RCC)
o In close corporations, a stockholder may compel the corporation to purchase his
shares, for any reason, provided only that the corporation has sufficient assets in its
books to cover its debts and liabilities exclusive of capital stock (Sec. 104, RCC)
Section 41. Power to Invest Corporate Funds in Another Corporation or Business or for Any Other
Purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any
other corporation, business, or for any purpose other than the primary purpose for which it was
organized, when approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least
two-thirds (2/3) of the outstanding capital stock, or by at least two-thirds (2/3) of the members in
the case of nonstock corporations at a meeting duly called for the purpose. Notice of the proposed
investment and the time place of residence as shown in the books of the corporation and deposited
to the addressee in the post office with the postage prepaid. Served personally, or sent
electronically in accordance with the rules and regulations of the Commission on the use of
electronic data message, when allowed by the bylaws or done with the consent of the stockholders:
Provided, That any dissenting stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of incorporation, the approval of the
stockholders or members shall not be necessary

Section 42. Power to Declare Dividends. - The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in
stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall be first be applied to the unpaid balance on th subscription
plus costs and expenses, while stock holders until their unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the approval of stockholders representing at
least two-thirds (2/3)of the outstanding capital stock at a regular or special meeting duly called for
the purpose.
Stock corporations are prohibited from restraining surplus profits in excess of one hundred percent
(100%} of their paid-in capital stock, except: (a) when justified by the definite corporate expansion
projects or programs approved by the board of directors; or (b) when the corporation is prohibited
under any loan agreement with financial institutions or creditors, whether local or foreign, from
declaring dividends without their 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.
Section 43. Power to Enter into Management Contract. - No corporation shall conclude a
management contract with another corporation unless such contract is approved by the board of
directors and by the stockholders owning at least the majority of the outstanding capital stock, or
by at least a majority of the members in the case of a nonstock corporation, or both the managing
and the managed corporation, at a meeting duly called for the purpose: Provided, That (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 if 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, then 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 nonstock corporation.
These shall apply to any contract whereby a corporation undertakes to manage or operate all or
substantially all of the called services contracts, operating agreements or otherwise: Provided,
however, That such service contracts or operating agreements which relate to the exploration,
development exploitation or utilization of natural resources may entered into such periods as may
be provided by the pertinent laws or regulations.
No management contracts shall be entered into for period longer that five (5) years for any one
term.

 Management Contract. A management contract is an agreement whereby one undertakes

to manage or operate all or substantially all of the business of another, whether such
contracts are called service contracts, operating agreements or otherwise.217
Management contracts may be necessary to assure not only technical competence but also
continuity in management policy in the running of the corporation
 The maximum term prescribed under Section 43 of RCCP is five years. However, it was
intended that this period may be subject to renewal. A period is provided for to give the
stockholders the opportunity to review the management contract and to decide if the
contract will be continued. "If, on the basis of experience, there has been some abuse on
the part of the managing corporation," the contract will not be renewed for another term.

Section 44. Ultra Vires Acts of the Corporations. - No corporation shall possess or exercise corporate
powers other than those conferred by this Code or by its articles of incorporation and except as
necessary or incidental to the exercise of the powers conferred.

 Any illegal activity is deemed ultra vires act

 Purpose clause tells what the corporation can do and what the corporation “cannot” do.
 Secondary purpose requires “something else.”
 Decision to engage in secondary purpose must be ratified by holders representing 2/3 of
outstanding capital stock (Sec. 43)
 An “ultra vires” act is one committed outside the object for which a corporation is created
as defined by the law of its organization and therefore beyond the power conferred upon it
 by law. The term "ultra vires" is "distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or estoppel, while the latter is
void and cannot be validated.
 Types of Ultra Vires Acts
o Acts done beyond the powers of the corporation as provided in the law or its articles
of incorporation.
o Acts entered into on behalf of the corporation by persons who have no corporate
authority or exceeded the scope of their authority.
o Acts or contracts, which are per se illegal as being contrary to law
 When can ultra-vires act become binding and enforceable Ultra-vires act may be enforced
by performance, ratification, or estoppel, as long as there are no creditors, or the creditors
are not injured thereby, and where the rights of the state or the public are not involved
 Consequence of ultra vires acts
o If the contract is executed on both sides, the courts will not set aside or interfere to
deprive either party of what has been acquired under them.
o If the contract is executory on both sides, it will not be enforced at the suit of either
party, because their enforcement is not required by any equitable principles, and
will be contrary to public policy.
o If the contract is executed on one side, and executory on the other, courts in some
jurisdictions, although not in all, will enforce in favor of the party who has executed
the same on his part against the other party who has received and retained the
benefits on the ground that equitable principles and outweighing considerations of
public policy, require that the latter should not be permitted, while retaining the
benefits of the contract, to escape liability on the ground that it was ultra vires.
o Contracts, whether wholly executory or executed on one side, apparently authorized,
but in fact, ultra vires because they are made for a purpose not within the scope of
the business of the corporation, the ultra vires purpose being unknown to the other
party, are enforceable against the corporation
DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION No certificate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid. (Sec. 63, RCC)
All partial payments on one subscription shall be deemed applied proportionately among the
number of shares.
The failure to pay any of the installments due would necessarily affect all other installments,
because the subscription is to be treated as one, whole, entire and indivisible contract. The default
of payment on any of the installment results in the entire subscription becoming due and
demandable.
Pursuant to this doctrine, unpaid subscription cannot be transferred in parts. It is only upon full
payment of the whole subscription contract that the stockholder can transfer the same to several
transferees. (SEC Opinion 16-05 dated March 31, 2015)

DOCTRINE OF EQUALITY OF SHARES Each share shall be equal in all respects to every other share,
except as otherwise provided in the articles of incorporation and in the certificate of stock. (Sec. 6,
RCC)
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. (Commissioner of Internal
Revenue vs. CA, et al., G.R. No. 108576, January 20, 1999)

TRUST FUND DOCTRINE The trust fund doctrine provides that subscriptions to the capital stock of a
corporation constitute a fund to which the creditors have a right to look for the satisfaction of their
claims.
In a sense they have to be unimpaired for the protection of creditors. These cover the entire
consideration received for the issuance of no par value shares or the aggregate amount for the par
value shares issued by the corporation.
It must be noted, however, that the trust fund doctrine is not limited to stockholders’ subscriptions.
The scope of the doctrine encompasses not only the capital stock but also other property and
assets generally regarded in equity as a trust fund for the payment of corporate debts.
HOW POWERS ARE EXERCISED A corporation exercises its power through the BOD and/or its duly
authorized officers and agents

 By the shareholders By exercising their right to vote in the following:

o Election or removal of directors/trustees;
o Management contract;
o Adoption, amendment or repeal of by-laws;
o Fixing the issued price of no-par value shares, if Board of Directors (BOD) is not
authorized by the articles of incorporation;
o Amendment of articles of incorporation;
 o Ratification of certain acts of directors;
o Extension or shortening of corporate term;
o Increase or decrease of capital stock;
o Incur, create or increase in bonded indebtedness;
o Denial of pre-emptive right;
o Sale, lease, exchange, mortgage, pledge or disposal of all or substantially all of
corporate assets;
o Investment of corporate funds in another corporation or business or for any other
purpose other than the primary purpose
o Issuance of stock dividends;
o Merger or consolidation
 By the Board of Directors The Board of Directors exercises the powers of the corporation.
Generally, the Board alone, without the concurrence of the stockholders, cannot overrule
the directors in its exercise of the corporate powers.
 By the officers In some cases, corporate officers like the President can also bind the
corporation. The authority of such individuals to bind the corporation is generally derived
from Law, Corporate by-laws, Authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business.