POWERS OF CORPORATIONS 1.

Concurrence of 2/3 of the outstanding capital stock

GENERAL TYPES OF POWERS OF A a. Power to extend or shorten corporate term;
CORPORATION: b. Increase/Decrease Corporate Stock;
1. Express – those expressly authorized by the c. Incur, Create Bonded Indebtedness;
Corporation Code and other laws, and its Articles of d. To deny pre-emptive right;
Incorporation or Charter e. Sell, dispose, lease, encumber all or substantially all
2. Implied Powers – those that can be inferred of corporate assets;
from or necessary for the exercise of the express f. To invest in another corporation, business other than
powers. the primary purpose;
3. Incidental Powers – those that are incidental to the g. To declare stock dividends
existence of the corporation. h. To enter into management contract if (1) a stockholder
or stockholders
EXPRESS POWERS UNDER THE CORPORATION representing the same interest of both the managing and
CODE: the managed corporations own or control more than 1/3
1. General of the total outstanding capital entitled to vote of the
a. Sue and be sued in its corporate name; managing corporation; or (2) a majority of the members
b. Succession; of the board of directors of the managing corporation
c. Adopt and use a corporate seal; also constitute a majority of the members of the board of
d. Amend Articles of Incorporation the managed corporation;
e. To adopt, amend or repeal by-laws; i. To amend the articles of incorporation
f. For stock corporations – issue stocks to subscribers
and to sell treasury stocks; for non-stock corporations – 2. Concurrence of majority of the outstanding capital
admit members; stock
g. Purchase, receive, take, or grant, hold, convey, sell, a. To enter into management contract if any of the two
lease, pledge, mortgage and otherwise deal with real instances stated above are absent;
and personal property, pursuant to its lawful business; b. To adopt, amend or repeal the by-laws.
h. Enter into merger or consolidation;
i. To make reasonable donations for public welfare, 3. Without board resolution
hospital, charitable, cultural, scientific, civil or similar a. 2/3 of outstanding capital stock – Delegate to the
purposes (Prohibited: for partisan political activity); board the power to amend the by-laws;
j. To establish pension, retirement and other plans for b. Majority of outstanding capital stock – Revoke the
the benefit of directors, trustees, officers and employees; power of the board to amend the by-laws which was
k. Other powers essential or necessary to previously delegated.
carry out its purposes.
BY-LAWS Relatively permanent and continuing rules of
2. Specific action adopted by the corporation for its own
a. Power to extend or shorten corporate term; government and that of the individuals composing it and
b. Increase/Decrease Corporate Stock; those having direction, management and control of its
c. Incur, Create Bonded Indebtedness; affairs, in whole or in part, in the management and
d. To deny pre-emptive right; control of its affairs and activities.
e. Sell, dispose, lease, encumber all or substantially all
of corporate assets; SHARES OF STOCK This is the interest or right which
f. Purchase or acquire own shares; an owner has in the management of the corporation, and
g. To invest in another corporation, business other than its surplus profits, and, on dissolution, in all of its assets
the primary purpose; remaining after the payment of its debt. The stockholder
h. To declare dividends; may own the share even if he is not holding a certificate
i. To enter into management contract; of stock
j. To amend the articles of incorporation. .
Certificate of Stock- Evidence of the holder’s
Ultra Vires Acts An act not within the express or implied ownership of the stock and of his right as a shareholder
powers of the corporation as fixed by its charter or the and up to the extend specified therein.
statutes. The term not only includes contracts: (1)
Entirely without the scope and purpose of the charter No certificate of stock shall be issued to a subscriber
and not pertaining to the objects for which the until the full amount of his subscription together with
corporation was chartered, but also contracts; and, (2) interest and expense (in case of delinquent shares), if
Beyond the limitations conferred by the charter although any is due, has been paid.
within the purposes contemplated by the articles of
incorporation. TRANSFER OF SHARES:
1. If represented by a certificate, the following must be
INSTANCES WHEN THE CONCURRENCE OF strictly complied with:
STOCKHOLDERS IS NECESSARY FOR THE a. Delivery of the certificate;
EXERCISE OF CORPORATE POWERS: b. Indorsement by the owner or his agent;
c. To be valid to third parties, the transfer must be REQUISITES OF DERIVATIVE ACTIONS:
recorded in the books of the corporation. 1. The party bringing the suit should be a shareholder as
2. If NOT represented by the certificate (such as when of the time of the act ortransaction complained of;
the certificate has not yet been issued or where for some 2. He has exhausted intra-corporate remedies; and
reason is not in the possession of the stockholder) 3. The cause of action actually devolved on the
a. By means of deed of assignment, corporation, the wrongdoings or harm having been
b. Such is duly recorded in the books of the corporation. caused to the corporation and not to the particular
stockholder bringing the suit.
TRUST FUND DOCTRINE the subscribed capital stock
of the corporation is a trust fund for the payment of debts MERGER AND CONSOLIDATION
of the corporation which the creditors have the right to MERGER A corporation absorbs the other and remains
look up to satisfy their credits. Corporations may not in existence while the others are dissolved.
dissipate this and the creditors may sue the stockholders CONSOLIDATION A new corporation is created, and
directly for their unpaid subscriptions. consolidating corporations are extinguished.

RIGHTS OF STOCKHOLDERS: APPRAISAL RIGHT The right to withdraw from the

1. Direct or indirect participation in management; corporation and demand payment of the fair value of his
2. Voting rights; shares after dissenting from certain corporate acts
3. Right to remove directors; involving fundamental changes in corporate structure.
4. Proprietary rights;
a. Right to dividends; INSTANCES WHEREIN APPRAISAL RIGHT MAY BE
b. Appraisal right; EXERCISED:
c. Right to issuance of stock certificate for fully 1. Extension or reduction of corporate term;
paid shares; 2. Change in the rights of stockholders, authorize
d. Proportionate participation in the distribution preferences superior to those stockholders, or restrict
of assets in liquidation; the right of any stockholder;
e. Right to transfer of stocks in corporate books; 3. Corporation authorized the board to invest corporate
f. Pre-emptive right. funds in another business or purpose;
5. Right to inspect books and records; 4. Corporation decides to sell or dispose of all or
6. Right to be furnished with the most recent financial substantially all assets of corporation;
statement/financial report; 5. Merger or consolidation.
7. Right to recover stocks unlawfully sold for delinquent
payment of subscription; NON-STOCK CORPORATIONS
8. Right to file individual suit, representative suit and A non-stock corporation cannot be converted into a
derivative suits. stock corporation through mere amendment of its
Articles of Incorporation as this would be in violation of
OBLIGATIONS OF STOCKHOLDERS: Section 87 which prohibits distribution of income as
1. Liability to the corporation for unpaid subscription; dividends to members. (SEC Opinion, 20 March 1995)
2. Liability to the corporation for interest on unpaid However, a non-stock corporation can be converted into
subscription if so required by the bylaws; a stock corporation only if the members dissolve it first
3. Liability to the creditors o the corporation for unpaid and then organize a stock corporation. The result is a
subscription; new corporation. (SEC Opinion, 13 May 1992) On the
4. Liability for watered stock; other hand, a stock corporation may be converted into a
5. Liability for dividends unlawfully paid; non-stock corporation by mere amendment provided all
6. Liability for failure to create corporation. the requirements are complied with. Its rights and
liabilities will remain.
SUITS BY STOCKHOLDERS/MEMBERS:
1. Derivative Suits – those brought by one or more CLOSE CORPORATIONS
stockholders/members in the name and on behalf of the CHARACTERISTICS:
corporation to redress wrongs committed against it, or 1. The stockholders themselves can directly manage the
protect/vindicate corporate rights whenever the officials corporation and perform the functions of directors
of the corporation refuse to sue,or the ones to be sued, without need of election:
or has control of the corporation. a. When they manage, stockholders are liable as
2. Individual Actions – those brought by the directors;
shareholder in his own name against the corporation b. There is no need to call a meeting to elect directors;
when a wrong is directly inflicted against him. c. The stockholders are liable for tort.
3. Representative Actions – those brought by the 2. Despite the presence of the requisites, the corporation
stockholder in behalf of himself and all other shall not be deemed a close corporation if at least 2/3 of
stockholders similarly situated when a wrong is the voting stocks or voting rights belong to a corporation
committed against a group of stockholders. which is not a close corporation.
REQUIREMENTS FOR CLOSE CORPORATIONS: 2. Voluntary dissolution where creditors are affected
1. The Articles of Incorporation must state that the a. Approval of the stockholders representing at least 2/3
number of stockholders shall not exceed 20; of the outstanding capital stock or 2/3 of members in a
2. The Articles of Incorporation must contain restriction meeting called for that purpose;
on the transfer of issued stocks; b. Filing a Petition with the SEC signed by majority of
3. The stocks cannot be listed in the stock exchange nor directors or trustees or other officers having the
be publicly offered. management of its affairs verified by President or
COMPANIES THAT CANNOT BE CLOSE Secretary or Director. Claims and demands must be
CORPORATIONS: stated in the petition;
1. Mining companies; c. If Petition is sufficient in form and substance, the SEC
2. Oil companies; shall issue an Order fixing a hearing date for objections;
3. Stock exchanges; d. A copy of the Order shall be published at least once a
4. Banks; week for 3 consecutive weeks in a newspaper of general
5. Insurance companies; circulation or if there is no newspaper in the municipality
6. Public utilities; or city of the principal office, posting for 3 consecutive
7. Educational institutions; weeks in 3 public places is sufficient;
8. Other corporations declared to be vested with public e. Objections must be filed no less than 30 days nor
interest. more than 60 days after the entry of the Order;
f. After the expiration of the time to file objections, a
SPECIAL CORPORATIONS KINDS: hearing shall be conducted upon prior 5 day notice to
1. Educational Corporations hear the objections;
2. Religious Corporations g. Judgment shall be rendered dissolving the corporation
a. Corporation Sole and directing the disposition of assets; the judgment may
b. Religious Societies include appointment of a receiver.
3. Dissolution by shortening corporate term
CORPORATION SOLE Special form of corporation, – This is done by amending the Articles of Incorporation.
usually associated with the clergy and consists of one 4. Involuntary dissolution – By filing a verified
person only and his successors, who are incorporated complaint with the SEC based on any ground provided
by law to give some legal capacities and advantages. by law or rules, including:
a. Failure to organize and commence business within 2
RELIGIOUS SOCIETIES Non-stock corporation formed years from incorporation;
by a religious society, group, diocese, synod or district of b. Continuously inoperative for 5 years;
any religious denomination, sect or church after getting c. Failure to file by-laws within 30 days from issue of
the approval 2/3 of its members. certificate of incorporation;
d. Continuance of business not feasible as found by
DISSOLUTION Management Committee or Rehabilitation Receiver;
DISSOLUTION – Extinguishment of the franchise of a e. Fraud in procuring Certificate of Registration;
corporation and the termination of its corporate f. Serious Misrepresentation; and
existence. g. Failure to file required reports.
MODES OF DISSOLUTION:
1. Voluntary dissolution where no creditors are EFFECTS OF DISSOLUTION:
affected 1. Transfer of Legal Title to Corporate Property
a. A meeting must be held on the call of directors or 2. On Continuation of Corporate Business
trustees; 3. Creation of a New Corporation
b. Notice of the meeting should be given to the 4. Reincorporation of Dissolved Corporation
stockholders by personal delivery or registered mail at 5. Continuation of a Body Corporation
least 30 days prior to the meeting; 6. Cessation of Corporate Existence for all Purposes
c. The notice of meeting should also be published for 3
consecutive weeks in a newspaper published in the LIQUIDATION – Process by which all the assets of the
place; corporation are converted into liquid assets in order to
d. The resolution to dissolve must be approved by the facilitate the payment of obligations to creditors, and the
majority of the directors/trustees and approved by the remaining balance if any is to be distributed to the
stockholders representing at least 2/3 of the outstanding stockholders.
capital stock or 2/3 of members;
e. A copy of the resolution shall be certified by the
majority of the directors or trustees and countersigned
by the secretary;
f. The signed and countersigned copy will be filed with
the SEC and the latter will issue the certificate of
dissolution.