Title IV – POWERS OF CORPORATIONS

I. Definitions
A. Implied powers
o Powers which are reasonably necessary to exercise the express powers and carry
the purposes for which the corporation was formed

B. Incidental power
o Powers which a corporation can exercise by the mere fact of its being a corporation
or powers which are necessary to corporate existence and are, therefore, impliedly
granted. (examples: right of succession, to have corporate name, etc)

C. Right of pre-emption
o The right of existing shareholders of a company to be offered new shares in the
company before the offer is made to external investors.

D. Dividends
o is that part or portion of the profits of a corporation set aside, declared, and
ordered by the directors to be paid ratably to the stockholders on demand or at a
fixed time

E. Retained Earnings
o The difference between the total present value of its assets after deducting losses
and liabilities and the amount of capital stock

II. Discussions
A. What are the ways of increasing (decreasing) the authorized capital stock?
o By increasing (D) the number of shares authorized to be issued without increasing
(D) the par value thereof
o By increasing (D) the par value of each share w/o increasing (D) the number thereof
o By increasing (D) both the number of shares authorized to be issued and the par
value thereof
* Authorized stock is the maximum number of shares that a corporation is legally
permitted to issue, as specified in its articles of incorporation.

B. What do you understand by the trust fund doctrine?

o principle that a corporation must pay all of its debts before it can distribute assets
to stockholders

C. Distinguish between ultra vires act from illegal act

o Ultra vires act means simply an act which is beyond the conferred powers of a
corporation or the purposes for which it is created; not necessarily illegal
o Illegal act is contrary to the law , moral, good customs, public order, or public polucy

D. What is the difference as to effect between the declaration of cash dividend and that of
stock dividend?
 o Declaration of cash dividend – corporate assets diminish, stockholders property
increases
o Declaration of stock dividend – transfer of surplus to the capital fund
E. Compare the relative powers of a corporation and a private individual or an ordinary
Partnership

o Corporation – has only such powers as are expressly granted and those which are
incident to its existence
o Individual/partnership – has absolute right fully to use, enjoy and dispose of his
properties, to perform all acts and to make all contracts without any restriction
except when against the law

III. Problems
o As a general rule, the participation of each stockholder in the earnings of the
corporation is based on his total subscription and not the amount paid by him.
o X has no cause for complaint as long has X% interest is not reduced
o Money may be temporarily borrowed for the purpose of paying dividends, if the
corporation has used its surplus assets to make improvements for which it may have
borrowed money
o Stock corporations are prohibited from retaining surplus profits in excess of 100% of
their paid-in capital stock, except:
 When justified by definite corporate expansion projects or programs
approved by the BOD
 When the corporation is prohibited under any loan agreement with any
financial institution
 When it ca 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

TITLE V – BY-LAWS
I. Definition
A. By-laws (p383)
o Rules of action adopted by the corporation for its internal regulations and for
the government of its officers and of its stockholders or members.
II. Discussions
A. What are the elements of valid-by laws? (385)
1. They must not be contrary to existing law and inconsistent with the code
2. Must not be contrary to morals and public policy
3. Must not impair obligations of contract
4. Must be general and uniform in their operation and not directed against
particular individuals
5. Must be consistent with AOI
6. Must be reasonable
 B. Distinguish articles of incorporation and by-law (390-391)
Articles of Incorporation By-laws
Executed before the incorporation by After incorporation by the
the incorporators stockholders or members
Condition precedent to corporate Condition precedent to corporate
existence existence
Fundamental law of the corporation Rules and regulations adopted by the
corporation

C. Why is it necessary that every corporation adopt a code of by-laws? (383-384)

o Corporations must have means for the accomplishment of the purposes
III. Problems

TITLE VI – MEETINGS

I. Definitions
A. Regular meeting 394
B. Voting trust agreement 412
C. Representative voting (407-408)
II. Discussions
A. Requisites of a valid meeting (395-396)
B. Three meanings of the term “proxy” (409)
C. Three distinctions between proxy and voting trust agreement (415-416)
III. Problems