Corporate Powers

Section 35. Corporate powers and capacity

The powers mentioned in Section 35, can only be exercised upon
issuance of certificate of registration of SEC, which are the
following:
a. The power to sue and be sued under its corporate name;
b. The power of succession – the corporation remains or can exist
despite the death or removal of its shareholders or members,
or transfer of ownership of shares from one shareholder to
another.
c. Power to adopt and use a corporate seal
d. The power to amend its articles of incorporation
e. Power to adopt by laws – provided they are not contrary to law,
morals, or public policy, and observing the procedures under
Revised Corporation code
f. Power to issue or sell stocks to subscribers and to sell treasury
stocks, if a stock corporation.
g. Power to admit members, if it be a non-stock corporation. – as a
organization it has the power to established qualifications, in
admitting members.
h. Power to own or dispose of real and personal property – this power
includes, the purchase, receipt, take or grant, hold, 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 require.
i. Power to enter into merger, joint venture, partnership or
consolidation – two (2) or more corporations may agree to merge
under one (1) corporation, or may consolidate into a single
corporation.
j. Power to make reasonable donations – no foreign corporation is
allowed to donate with any candidate or political party.
k. Power to establish pension, retirement, and other provident
funds.
l. Power to exercise such other powers as may be essential or
necessary to carry out its purpose/s.

Section 36
Power to extend or shorten corporate term.
Upon approval of the majority vote of the board of directors or
trustees, and ratified by stockholder or members representing 2/3
of the outstanding capital stock or membership.

Section 37
Power to increase or decrease capital stock, incur, create or
increase bonded indebtedness.
In case a corporation will increase or decrease its capital stock, or
incur, create or incur bonded indebtedness. It requires the majority
vote of its Board of Directors or 2/3 of the outstanding capital stock.
Bonded indebtedness means secured by a specific corporate property.

The certificate must be signed by a majority of the directors of the

corporation and countersigned by the chairman and secretary, stating
the following:
a. The requirements have been complied with;
b. Amount of increase or decrease of capital stock;
c. In case of increase, the amount of capital stock, the names,
nationalities and addresses of the persons subscribing;
d. Bonded indebdtedness;
e. Amount of stock represented in the meeting;
f. The vote authorizing the increase or decrease of capital stock, or
the incurring, creating or increasing of any bonded indedtedness.
In case, there is a increase or decrease of capital stock or the
incurring, creating or increasing of any bonded indebtedness shall
require the approval of the Securities and Exchange Commission
(SEC) or Philippine Competition Commission (PCC), in appropriate
cases.
After approval by SEC, and its issuance of Certificate of filing.
However, the SEC shall not accept, the certificate of filing unless the
treasurer states that atlest 25% of the increase in capital stock has
been subscribed and atleast 25% of the amount subscribed has been
paid in cash or the valuation of which is equal to 25% of the
subscription. The 25% subscription only refers to increase in capital
stock, not increased capital stock. Non-stock corporation may incur,
create or increase bonded indebtedness provided it was approved by
majority vote of the Board of trustees and 2/3 of the members called
in a meeting for the purpose.
Section 38
Power to deny preemptive right
Before a share may be issued, it must be offered first to the current
shareholders. The purpose of the preemptive right is to maintain the
interest of the shareholder in the corporation. This includes re-
issuance of treasury shares.

Exception:
a. Unless it is denied in the Articles of Incorporation(AOI);
b. The new issuance is in compliance of the laws; and
c. Issuance of new share in good faith and with the approval of 2/3
of the outstanding capital stock.

Section 39
Sale or other disposition of assets.
In case of sale or disposition of substantially all property and
assets of a corporation shall require the following:
a. approval of the majority vote of the board of directors;
b. ratification of the 2/3 of the outstanding capital stock or 2/3 of
the membership;
c. Notice to shareholders

In case the disposition or sale is not substantial, only approval of

the majority vote is required.
In case of dissenting shareholder, he/she may exercise right of
appraisal.
In case of non-stock corporations, where the members have no voting
rights, the vote of atleast majority of the trustees is sufficient for the
transaction in this provision.
A sale or disposition shall be deemed to cover substantially all the
corporate property and assets if the corporation would be incapable of
continuing the business or accomplishing the purpose for which it was
incorporated.

Section 40
Power to acquire shares
In acquiring shares, the corporation must have unrestricted retained
earnings. The requirement of unrestricted retained earnings is based
on Trust fund doctrine.
Trust fund doctrine states that the capital stock, property and other
assets of the corporation are regarded as equity in trust for the
payment of corporate creditors.

Instances when acquisition of shares is allowed:

a. Eliminate fractional shares;
b. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription and to purchase delinquent
shares sold; and
c. To pay dissenting or withdrawing stockholders.
Section 41
Power to invest corporate funds in another corporation or business
Only when the corporation will invest in another business or
corporation other than its primary purpose will Section 41 apply. In that
case, majority of the Board of Directors and ratification of the 2/3 of
the outstanding capital stock or membership is required.
Stockholder who dissents can exercise the right of appraisal.

Section 42
Power to declare dividends
General rule: a corporation cannot be compelled to declare dividends.
Only the Board of Directors can declare dividends, an in appropriate
case, ratified by the shareholders.
What is a dividend?
It is a portion of profit, that is set aside, declared and ordered by the
Board of Directors to be distributed to the shareholders.
Different kinds of dividends
a. Cash – board approval
- in case, there is unpaid subscription, the dividend shall be applied
first on the balance of subscription.
b. Stock – board approval and ratification of 2/3 of the shareholders
- in case there is unpaid subscription, the dividend shall be withheld
until full paymen.
c. Property – the board of approval can suffice for its issuance
General rule: a corporation may not be compelled to issue dividends
Exception: in case a corporation exceeded 100% of its paid-in capital.
Exception to the exception :
a. Justified by corporate expansion as approved by the BOD.
b. If the corporation is under loan agreement preventing it to declare
dividend.
c. To meet contingencies.

Section 43
Power to enter into a management contract
Management contracts refers to an agreement whereby one (1)
corporation called the managing corporation, shall manage, control,
administer the corporate affairs and operation of another corporation,
called the managed corporation. To be valid, the following must be
complied with:
a. The period of which shall not exceed five (5) years;
b. Approval of the majority of the board and shareholders representing
the majority of the outstanding capital stock;
c. 2/3 of the outstanding capital stock is required if the board of
directors constitute a majority of the managed and managing
corporation’s respective board, or if 1 (one) shareholder control atleast
1/3 of the capital stock.
Section 44
Ultra Vires Acts of Corporations
Ultra vires acts are beyond the scope of the corporation’s authority and,
therefore, null and void and cannot be given any effect. Any act outside the
express, implied and necessary power is ultra vires.

The corporation is not allowed to benefit from any of its ultra vires acts, and
then later on raise the issuance of its illegality to shield itself from any
liability, or from performing its obligation under the contract.

What is a derivative suit?

Is an action brought by a stockholder on behalf of the corporation to
enforce corporate rights against corporations directors, officers and insiders.