POWERS OF CORPORATION foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
DOCTRINE OF CREATURE OF IMITED POWERS
Section 2. 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.
THEORY OF CONCESSION
A corporation as a creature of law has a limited powers and
completely within the control of the state.
ULTRA VIRES DOCTRINE
Section 45. No corporation shall possess or exercise any
corporate powers except those conferred by this code or by its
articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred.
DOCTRINE OF CENTRALIZED MANAGEMENT
Section 23. Unless otherwise provided in the corporation code,
“all corporate powers shall be exercised by, and all corporate
business shall be conducted through, the Board of Directors of
the corporation.
 SEC. 22. The Board of Directors or Trustees of a
Corporation; Qualification and Term. – Unless
otherwise provided in this Code, the board of directors
or trustees shall exercise the corporate powers,
conduct all business, and control all properties of the
corporation.
CORPORATE POWERS AND CAPACITY
1. EXPRESS POWERS
Sec. 36. 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. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate of
incorporation;
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 by-laws, 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 1 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 non-stock 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 with other corporations merger or consolidation
as provided In this Code;
i. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: Provided, That no corporation, domestic or
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 its
articles of incorporation.
REVISED CORPORATION CODE
SEC. 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 non-stock 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
purposes 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.
Express powers explained.
Express powers are the powers expressly conferred upon the
corporation by law. These powers can be ascertained from the
special law creating the corporation, or in case the corporation
is formed under the general incorporation law, from such law,
the general laws of the land applicable to corporations, and its
articles of incorporation.
Relative powers of natural persons/partnerships and
corporations.
(1) Any act not prohibited. — An individual has absolute right
to fully use, enjoy and dispose of his properties, to perform all
acts and to make all contracts without any control except when
they are forbidden by the law. The same is true of an ordinary
partnership. Since a natural person and an ordinary
partnership do not owe their existence to the State, they can
perform any act not prohibited by law.
(2) Only powers granted. — On the other hand, the civil rights
of a corporation are widely different. Under the doctrine of
limited capacity adopted by our corporation law (Sec. 2.), a
corporation has only such powers as are expressly granted
and those that are necessarily implied from those expressly
granted or those which are incidental to its existence.
Classification of corporate powers.
(1) Those expressly granted or authorized by law i.e., those
conferred by the Corporation Code and its articles of
incorporation (Sec. 45.);
Page 1 of 12

(2) Those that are necessary to the exercise of the express or
incidental powers; and
(3) Those incidental to its existence.
POWER TO SUE AND BE SUED
This power (Sec. 36[1].) is an incident to corporate existence.
As a rule, suits are to be brought by or against the corporation
in its own name.
Shipside Inc. v. Court of Appeals 352 SCRA 334 (2001)
The power of the corporation to sue and be sued in any court
is lodged with the Board of Directors that exercises its
corporate powers. No person, not even its officers, could
validly sue in behalf of a corporation in the absence of any
resolution from the Board of Directors authorizing the filing of
such suit.
(1) Dissolved corporation. — Corporations de facto may sue
or be sued but a corporation which has been dissolved after
the expiration of the three (3)-year winding-up period ceases to
exist de jure or de facto and, therefore, it cannot sue nor be
sued.
(2) Unregistered corporation. — A corporation not duly
registered in accordance with law has no legal capacity to sue
as such.
(3) Foreign corporation. — Neither can a foreign corporation
which transacts business in the Philippines without the
necessary license from the Securities and Exchange
Commission sue in the Philippine courts.
(4) Right to claim moral damages. — General rule,
corporation is not entitled to moral damages. An artificial
person like a corporation cannot experience physical suffering,
mental anguish, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury.
Except, where a corporation has a good reputation or business
standing may recover moral damages, if besmirched or
debased, (Mambulao vs. Phil. National Bank, 22 SCRA 359
[1968].)
(5) Real party in interest. - As a general rule, the right and
power of a corporation to sue in any court must be brought by
the board of directors or trustees that exercises its corporate
powers on behalf of the corporation or by any of its duly
authorized officer or agent.
(a) Under Section 36(1), in relation to Section 23, it is clear that
where a corporation is the injured party, its power to sue is
lodged with its board of directors or trustees. A minority
stockholder and member of the board of directors has no such
power or authority to sue on the corporations behalf. (Tam
Wing Tak vs. Makasiar, 350 SCRA 475 [2001].)
(b) Under Section 3, Rule 46 of the Rules of Court, a petitioner
is required to submit together with the petition; a sworn
certification of non-forum shopping and failure to comply with
the requirement is sufficient ground for dismissal of the
petition. The requirement applies even to corporations, the
Rules of Court making no distinction between natural and
juridical persons. A certification not signed by a person not duly
authorized by board resolution renders the petition subject to
dismissal. (Gonzales vs. Climax Mining Ltd., 452 SCRA 607
[2005]
(Cagayan Valley Drug Corp. vs. Comm. of Internal
Revenue, 545 SCRA 10 [2008].)
The Supreme Court ruled that the following officials or
employees of the company can sign the verification and
certification without need of a board resolution:
1) Chairperson of the Board of Directors;
2) President of the Corporation;
3) General Manager or Acting General Manager;
4) Personnel Officer; and
5) Employment Specialist in a labor case.
Rationale: They are "in a position to verify the truthfulness and
correctness of the allegations in the petition.
(6) Right of shareholders to intervene. — General rule,
Shareholders have no right to intervene in an action for or
against a corporation Shareholders are, in no legal sense, the
owners of corporate property which is owned by the
corporation as a distinct legal person, their interest being
inchoate or beneficial in nature, not direct and immediate in
character.no right to intervene in an action for or against a
corporation. (Saw vs. Court of Appeals, 195 SCRA 740
[1991].)
Except, In case, a stockholder who was one of the largest
individual stockholders of the corporation and was, until it was
placed under receivership, exercising control of the company,
and was the one who asked for the appointment of the receiver
and pledged his own property to the extent of P4,000,000 (in
1927) to assist in the rehabilitation of the corporation was
allowed to intervene in an action by a creditor to foreclose the
mortgage executed by its officers, for "he is injuriously affected
by the mortgage" and "is more virtually interested in the
outcome of this case than the corporation." (Phil. National
Bank vs. Phil. Vegetable Oil Co., 49 Phil. 857 [1927].)
(7) Service of summons. — The rationale of all rules with
respect to service of summons on a corporation is that such
service must be to an agent or a representative, in
contemplation of Rule 14, Rules of Court:
Sec. 11. Service upon domestic private juridical entity. – When
the defendant is a corporation, partnership or association
organized under the laws of the Philippines with a juridical
personality, service may be made on the (1) president, (2)
managing partner, (3) general manager (4) corporate
secretary, (5) treasurer, or (6) in-house counsel.
One who performs vital functions in the corporation that it
would be reasonable to presume that he would be able to
discuss the importance of paper delivered to him, and be
responsible enough to transmit the same to the corporation. (
Vlason Enterprises Corp. vs. Court of Appeals, 310 SCRA 26
[1999].)
(8) Derivative suit - the minority stockholder or
stockholders may bring an action against erring
corporate officers in the name of the corporation with
the corporation as the real party in interest.
Angeles v. Santos
G.R. No. L-43412, August 31, 1937
The board of directors of a corporation is a creation of
stockholders and controls and directs the affairs of the
corporation by delegation of the stockholders. Where the
Page 2 of 12
majority of the board directors wastes or dissipates the funds
of the corporation or fraudulently disposes of its properties, or
performs ultra vires acts, the courts, in the exercise of equity
jurisdiction, and upon showing that intra-corporate remedy is
unavailing, will entertain a suit filed by the minority members of
the board of directors, for and in behalf of the corporation, to
prevent waste and dissipation and the commission of illegal
acts and otherwise redress the injuries of the minority
stockholders against the wrongdoings of the majority.
Derivative suit distinguish from individual suit and class
suit.
Derivative Suit – In case of mismanagement where the
wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no
redress because the former are vested by law with the right to
decide whether or not the corporation should sue, and they will
never be willing to sue themselves.
Individual Suit – Where the stockholder or member is denied
the right of inspection, and the wrong is done to him personally
and not to other stockholders or the corporation.
Class Suit – Where the wrong is done to a group of
stockholders, as where preferred stockholders’ right is violated.
Requisites for a proper derivative suit:
San Miguel Corp. v. Kahn
G.R. No. 85339, August 11, 1989
(a) The party bringing suit shout be a shareholder as of the
time of the act or transaction complained of, and at the time of
the filing of the suit, the number of his shares not being
material;
(b) The party has tried to exhaust intra-corporate remedies;
(c) The cause of action actually devolves on the corporation,
the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the
suit.
Requisites under the Interim Rules
Section 1, Rule 8 of the Interim Rules of Procedure for Intra-
Corporate Controversies:
(a) The plaintiff was a stockholder or member at the time the
questioned act or transaction subject of the action occurred, as
well as at the time the action was filed, and remain as such
during the pendency of the action;
(b) The plaintiff exerted all reasonable means, and alleges with
particularity in the complaint, to exhaust all remedies available
under the article of incorporation, by-laws, laws or rules
governing the corporation to obtain the relief he desires;
(c) The relief sought pertains to the corporation;
(d) No appraisal rights are available for the act(s) complained
of;
(e) The suit is not a nuisance or harassment.
Ang v.Ang
G.R. No. 201675, June 19, 2013
When a derivative suit is filed which seeks primarily to collect a
personal debt from the controlling stockholder and there is no
indication that the cause of action sought would affect the
corporation nor is any cause of action that seeks to recover
damaged caused to the corporation, then it should be properly
dismissed for being a nuisance or harassment suit.
Ching v. Subic Bay Golf and Country Club
G.R. No. 174353, September 10, 2014
Smallness of the equity interests of the minority stockholders
does not justify the dismissal of a derivative suit based on the
ground that it is a nuisance suit.
POWER OF PERPETUAL EXISTENCE
SEC. 11. Corporate Term. – A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise.
Corporations with certificates of incorporation issued prior to
the effectivity of this Code, and which continue to exist, shall
have perpetual existence, unless the corporation, upon a vote
of its stockholders representing a majority of its outstanding
capital stock, notifies the Commission that it elects to retain its
specific corporate term pursuant to its articles of incorporation:
Provided, that any change in the corporate term under this
section is without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this Code.
Perpetual Existence - The Corporation may go out of business,
be acquired by another entity, or otherwise cease to exist at
some point in the future. The term states that a corporation
exists at its own entity, regardless of what happens to the
individuals involved in the business.
Right of Succession - A corporation has a capacity of
continuous existence irrespective of the death, withdrawal,
insolvency, or incapacity of the individual stockholders or
members and regardless of the transfer of their interest or
shares of stock.
(1) Under the Corporation Code, the life of the corporation is
limited to the period of time stated in the articles of
incorporation not exceeding 50 years from the date of
incorporation unless sooner dissolved or unless said period is
extended.
(2) The power of succession gives a corporation continuous
existence. Unlike a sole proprietorship, where the death of the
owner proprietor ceases its existence, the death of a
shareholder will not terminate the corporation. The shares of
ownership or interest of corporation can be transferred from
one owner to another owner. A corporation continues to exist
until the shareholders decide to dissolve it or merge with
another business.
(3) A corporation is a legal or juridical person with a personality
separate and distinct from its stockholders or members.
 Any change in the stockholders/members of
a corporation does not affect the status of
the corporation.
 Death insolvency, insanity etc. of any
stockholders/members of a corporation does
not affect the continuity of the corporation.
Thus, the life of the corporation does not
depend upon the life of its stockholders or
members.
 It shall continue forever irrespective of
continuity of its members or stockholders,
except in case of liquidation (or winding up)
of a corporation.
Page 3 of 12
(4)The power of perpetual existence is the key by which it is
deemed to have strong juridical personality, and is the
foundation of the primary doctrine that the personality of the
corporation is separate and distinct from that of its
stockholders or members.
Reasons for perpetual existence:
O If a corporation has a perpetual existence, the
corporation will continue to even if the shareholders,
directors, and officers come and go. This means that
the corporation is a safer, more stable place for
investors to put their money and raises the chances
that the investors will see a return on their money;
O It allows the corporation’s directors to create a long
term plan for profit growth, since they can be sure the
corporation will still be there long into the future;
O Perpetual existence benefits the corporation because
there is no need to constantly file all the documents
that started the organization. Instead, it can carry
information from year to year so valuable time and
effort will not be wasted duplicating effort.
POWER TO ADOPT AND USE CORPORATE SEAL
(1) A seal is a device (as an emblem, symbol, or word) used to
identify or replace the signature of an individual or organization
and to authenticate (as under common law) written matter
purportedly emanating from such individual or organization. It
may refer also to the impression of such a device on
documents like certificates of stocks.
Section 63. The capital stock of a stock corporations shall be
divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws.
(2) A seal is not required for the validity of any corporate act.
The use of a corporate seal in certificates of stock must be
deemed merely directory rather than mandatory. A corporation
may exist even without a seal. The failure to seal a stock
certificate will not legally impair its validity, or undermine the
ability to negotiate it or assign it.
The reason it is desirable to attest all contracts and other acts
of the corporation with its seal, when this is possible, is that the
presence of such seal establishes, prima facie, that the
instrument to which it is affixed is the act of the corporation.
POWER TO AMEND ITS ARTICLES OF INCORPORATION
Section 16. Amendment of articles of Incorporation. -
Unless otherwise prescribed by this code or by special law,
and for legitimate purposes, any provision or matter stated in
the articles of incorporation may be amended by a majority
vote of the board of directors or trustees and the vote or written
assent of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders in accordance with
the provisions of this code, or the vote or written assent of two-
thirds (2/3) of the members if it be a non-stock corporation.
Section 37. 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 representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds (2/3) of the
members in case of non-stock corporation.
Section 38. 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, at a
stockholders’ meeting duly called for the purpose, two-thirds
(2/3) of the outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness.
Limitations on power of corporation to amend its articles
of incorporation:
(1) The amendment of any provision or matters stated in the
articles of incorporation is not allowed when it will be contrary
to any provision or requirement prescribed by the Code or by
special law;
(2) It must be "for legitimate purposes;
(3) It must be approved by the required vote of the board of
directors or trustees and the stockholders or members;
(4) The original articles and amended articles together must
contain all provisions required by law to be set out in the
articles of incorporation;
(5) Such articles, as amended, must be indicated by
underscoring the change or changes made, and a copy thereof
duly certified under oath by the corporate secretary and a
majority of the directors or trustees stating that the amendment
or amendments have been duly approved by the required vote
of the stockholders or members must be submitted to the
Securities and Exchange Commission. Filing fees must be
paid;
(6) The amendments shall take effect only upon their approval
by the Securities and Exchange Commission. They are
deemed approved by the Commission from the date of filing if
not acted upon within six (6) months from said date for a cause
not attributable to the corporation, assuming that the
amendments are not illegal;
(7) If the corporation is governed by a special law such as
banks, banking and quasi-banking institutions, insurance
companies, etc., the amendments must be accompanied by a
favorable recommendation of the appropriate government
agency to the effect that such amendments are in accordance
with law.
Matters in Articles that are beyond amendment:
(a) Names of the incorporators;
(b) Names of the incorporating directors/trustees;
(c) Names of the original subscribers to the capital stock of the
corporation and their subscribed and paid-up capital;
(d) The Treasurer-in-trust elected by the original subscribers;
(e) Members who contributed to the initial capital of a non-
stock corporation;
(f) Witnesses and the acknowledgment thereof.
All of the foregoing items refer to facts existing as of the date of
incorporation and hence, are not subject to amendment.
POWER TO ADOPT BY-LAWS
Sec. 46. Adoption of by-laws. — Every corporation formed
under this Code, must, within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation
by the Securities and Exchange Commission, adopt a code of
by-laws for its government not inconsistent with this Code. For
the adoption of by-laws by the corporation, the affirmative vote
of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the
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members, in the case of non-stock corporations, shall be
necessary. The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the principal
office of the corporation, subject to the stockholders or
members voting for them and shall be kept in the principal
office of the corporation, subject to the inspection of the
stockholders or members during office hours; and a copy
thereof, duly certified to by a majority of the directors or
trustees and counter-signed by the secretary of the
corporation, shall be filed with the Securities and Exchange
Commission which shall be attached to the original articles of
incorporation.
 SEC. 45. Adoption of Bylaws. – For the adoption of
bylaws by the corporation, the affirmative vote of the
stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of
the members in case of non-stock corporations, shall
be necessary. The bylaws shall be signed by the
stockholders or members voting for them and shall be kept
in the principal office of the corporation, subject to the
inspection of the stockholders or members during office
hours. A copy thereof, duly certified by a majority of the
directors or trustees and countersigned by the secretary of
the corporation, shall be filed with the Commission and
attached to the original articles of incorporation.
Meaning of by-laws. -By-laws may be defined as the rules of
action adopted by a corporation (or association) for its internal
government and for the government of its stockholders or
members and those having the direction, management and
control of its affairs in their relation to the corporation and as
among themselves, including rules for routine matters such as
calling meetings and the like.
The corporate power to adopt by-laws is inherent in every
corporation as one of its necessary and inseparable legal
incidents. This power is regarded as of so much importance,
being essential to enable the corporation to accomplish the
purposes of its creation, that it is ordinarily conferred in
express terms by the law.
Function of by-laws. The function of by-laws is to define the
rights and duties of corporate officers and directors or trustees,
and of stockholders or members towards the corporation and
among themselves with reference to the management of
corporate affairs and to regulate transaction of the business of
the corporation in a particular way. By-laws are a source of
authority for corporate officers and agents of the corporation.
Elements of valid by-laws.
(1) They must not be contrary to existing law and inconsistent
with the Code;
(2) They must not be contrary to morals and public policy;
(3) They must not impair obligations of contract;
(4) They must be general and uniform in their operation and
not directed against particular individuals, not discriminatory;
(5) They must be consistent with the charter or articles of
incorporation; and
(6) They must be reasonable.
POWER TO AMEND BY-LAWS
Sec. 48. Amendments to by-laws. — The board of directors
or trustees, by a majority vote thereof, and the owners of at
least a majority of the outstanding capital stock, or at least a
majority of the members of a non-stock corporation, at a
regular or special meeting duly called for the purpose, may
amend or repeal any by-laws or adopt new by-laws. The
owners of two-thirds (2/3) of the outstanding capital stock or
two-thirds (2/3) of the members in a non-stock corporation may
delegate to the board of directors or trustees the power to
amend or repeal any by-laws or adopt new by-laws: s:
Provided, That any power delegated to the board of directors
or trustees to amend or repeal any by-laws or adopt new by-
laws shall be considered as revoked whenever stockholders
owning or representing a majority of the outstanding capital
stock or a majority of the members in a non-stock corporation,
shall so vote at a regular or special meeting.
 SEC. 47. Amendment to By-laws. – A majority of the
board of directors or trustees, and the owners of at least a
majority of the outstanding capital stock, or at least a
majority of the members of a non-stock corporation, at a
regular or special meeting duly called for the purpose, may
amend or repeal the bylaws or adopt new bylaws. The
owners of two-thirds (2/3) of the outstanding capital stock
or two-thirds (2/3) of the members in a non-stock
corporation may delegate to the board of directors or
trustees the power to amend or repeal the bylaws or adopt
new bylaws: Provided, That any power delegated to the
board of directors or trustees to amend or repeal the
bylaws or adopt new bylaws shall be considered as
revoked whenever stockholders owning or representing a
majority of the outstanding capital stock or majority of the
members shall so vote at a regular or special meeting.
Implied repeal or amendment of by-law.
A by-law is impliedly repealed by a subsequent by-law
inconsistent with it.
Non-delegable power.
The power to amend the articles of incorporation lies with the
stockholders or members and cannot be delegated to the
board of directors or trustees, neither can the power to adopt
the original (not new) by-laws be delegated.
Articles of incorporation and by-laws distinguished.
(1) The articles of incorporation constitute the charter or
fundamental law of the corporation, while the by-laws are
merely rules and regulations adopted by the corporation;
(2) The articles of incorporation is executed before
incorporation by the incorporators, while the by-laws, usually
after incorporation by the stockholders or members; and
(3) The filing of the articles of incorporation is a condition
precedent to corporate existence, while the filing of the by-laws
is a condition subsequent.
POWER TO ACQUIRE AND CONVEY PROPERTY
The power to purchase real property is vested in the board of
directors or trustees. While a corporation may appoint agents
to negotiate for the purchase of real property needed by the
corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only
exercise its powers and transact its business through its board
of directors and through its officers and agents when
authorized by a board resolution or its by-laws.
Page 5 of 12
The Securities and Exchange Commission (SEC) has opined
that investments of a corporation in another corporation in the
form of shares of stock constitute part of the assets or
properties of the investor corporation, and cannot be legally
disposed of by mere endorsement of the President, since such
shares fall within disposition of properties being part of the
management powers of the board of directors.
AF Realty & Dev., Inc. v. Dieselman Freight
Services Co.
G.R. No. 111448, January 16, 2002
Under Article 1874 of the Civil Code, when a sale of land is
effected through an agent, the lack of written authority of the
agent, would make the sale void and the principles of
corporate ratification cannot be given effect to save the
contract from its nullity.
Limitations.
(a) Art. XII, Sec. 3, 1987 Constitution. - No private corporation
or association may hold alienable lands of the public domain
except by lease for a period not exceeding 25 years,
renewable for not more than 25 years, and not to exceed 1,000
hectares in area,
(b) General Banking Law of 2000, - Any real property acquired
by a bank by way of satisfaction of claims under the
circumstances enumerated in the law shall be disposed of by it
within a period of five (5) years or as may be prescribed by the
Monetary Board. The bank may, after said period, continue to
hold the property for its own use, subject to limitations with
respect to ceiling on investments in certain assets.
POWER TO ACQUIRE SHARES OR SECURITIES
De la Rama vs. Ma-ao Sugar Central Co., Inc., 27 SCRA 247
[1969].
(a) The power to acquire shares or securities does not need
the approval of the stockholders if done in pursuance of the
purpose or purposes of the corporation as stated in its articles
of incorporation. But when the purpose is done solely for
investment, the approval of the stockholders as required by
Section 42 is necessary. A corporation has no power to
purchase or hold stock in another corporation unless it is one
of the activities permitted by its articles of incorporation.
(b) The power to acquire shares in other corporations is
subject to specific limitations established by the Code, special
laws, and the Constitution. The shares must be limited to
shares of existing corporations because only natural persons
can be incorporators.
The Corporation Code expressly authorizes a corporation
subject to limitations stated therein to acquire its own stocks. A
corporation may purchase its own stock, only when it has
"unrestricted retained earnings" to cover the shares to be
purchased or acquired.
POWER TO BARROW OR ENTER INTO LOAN
It is an inherent or implied power of every corporation since it
flows from its being granted the capacity to contract or to
obligate itself as a juridical person. The decision to borrow
money to finance the operations of the corporate enterprise
falls within the business discretion of the board of directors or
trustees of every corporation.
Yasuma v. Heirs of Cecilio S. De Villa
G.R. 150350, AUGUST 22, 2006
The power of an agent to borrow money on behalf of the
principal is one of those cases that require the existence of a
special power of attorney in order to validly borrow in behalf of
the corporation.
POWER TO MERGER OR CONSOLIDATION
Definition/Distinction
Merger- Is the union whereby one or more existing
corporations are absorbed by another corporation which
survives and continues the combined business. In the merger
of two or more existing corporations, one of the corporations
survives and continues the combined business, while the rest
are dissolved and all their rights, properties and liabilities are
acquired by the surviving corporation.
Consolidation- Is the union of two or more existing
corporations to form a new corporation called the consolidated
corporation. It is a combination by agreement between two or
more corporations by which their rights, franchise, privileges
and properties are united and become those of a single, new
corporation, composed generally, although not necessarily, of
the stockholders of the original corporations.
-In merger, all constituent corporations, except the surviving
corporation, are dissolved. In consolidation, all constituent
corporations are dissolved and absorbed by the new
consolidated enterprise.
-In both cases, there is no liquidation of the assets of the
dissolved corporations, and the surviving or consolidated
corporation assumes ipso jure the liabilities of the dissolved
corporations, regardless of whether the creditors have
consented or not to such merger or consolidation.
Levels of acquisition or transfer
1. Assets-Only level;
2. Business-Enterprise level;
3. Equity level.
(1.) Assets-Only Transfers
Acquisitions and transfers, the purchaser is only interested in
the raw assets and properties of the business, perhaps to be
used to establish its own business enterprise or to be used for
its ongoing business enterprise. The purchaser is not
interested in the juridical entity of the corporate owner of the
assets, nor of the goodwill and other factors relating to the
business enterprise of the transferring corporation. The
purchaser is interested only in purchasing the assets to ensure
that it would not be embroiled in issues relating to the liabilities
and other contractual commitments of the business enterprise
or those pertaining to the corporate transferor.
In assets-Only transfer, the transferee is not liable for the debts
of the transferor, except where the transferee expressly or
impliedly agrees to assume such debts.
Dissolved corporation
When another corporation takes over the assets of another
corporation which is dissolved, the succeeding corporation is
liable for the claims against the dissolved corporation to the
extent of the fair value of the assets assumed.
Gonzales v. Sugar Regulatory Administration
G.R. No. 84606, June 28, 1989
The termination of the life of a juridical entity does not by itself
imply the diminution of extinction of rights demandable against
such juridical entity, among which would be the priority claims
of corporate creditors against corporate assets. Since the
assets must respond to the payment of the lawful obligations of
a dissolved corporation, then the succeeding corporation would
be liable for all such lawful claims to the extent of the fair value
of assets actually taken over.
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Effects - In assets-only transfer, the transferee is not bound to
retain the employees of the transferor, since the does not really
step into the shoes of the latter. The transferee is also not
liable for any of the claims against the transferor, even if the
sale of the business assets of the transferor should result in
the shutting down of the transferor’s operations and the laying-
off of the transferor’s employees. However, although the
purchaser of the assets or enterprise is not legally bound to
absorb in its employ the employees of the seller of such assets
or enterprise, the parties are liable to the employees if the
transaction between the parties is colored or clothed with bad
faith.
MDII Supervisors and Confidential Employees Asso. V.
Presidential Assisstant on Legal Affairs
G.R No. L-45421, September 9, 1977
Where a corporation engaged in manufacture of dairy
products, sold the plant and parts of its assets to another
company, held that the buyer of the assets cannot be held
liable for the labor claims interposed against the corporate
seller, thus: There is no law requiring that the purchaser of
MDII’s assets should absorb its employees.as there is no such
law, the most that the NLRC could do, for reasons of public
policy and social justice, was to direct the buyer to give
preference to the qualified separated employees of MDII in the
filling up of vacancies in the facilities.
(2.) Business-Enterprise Transfers
In the Business-Enterprise acquisition, the purchaser’s interest
goes beyond the assets or properties used in the company’s
business. The purchaser’s primary interest is to obtain the
earning capability of the venture. However, the purchaser in
such transaction is not interested in obtaining the juridical
entity that owns the business enterprise, and therefore
purchases directly the business from corporate owner.
A business enterprise, apart from the juridical personality
under which it operates, has a separate accountability of its
own, although not in the concept of juridical person. It
comprises more just the properties of the business, but
includes a going concern that covers the employees, the
goodwill, list of clientele and suppliers, etc., which give it value
separate and distinct from its owners or the juridical entity
under which it operates. In business-transfers the transferee is
liable for the liabilities of the transferor arising from the
business enterprise transferred.
Villa Rey Transit, Inc. v. Ferrer
G.R. No. L-23893, October 29, 1968
When a purchaser buys the business of another as going
concern, he usually wishes to keep it going; he wishes to get
the location, the building, the stock in trade, and the
costumers; he wishes to step into the seller’s shoes and to
enjoy the same business relations with other men. The buyer is
willing to pay much more if he can get the goodwill of the
business that they may continue to tread the old footpath to his
door and maintain with him the business relations enjoyed by
the seller.
Free and Harmless Clause
In business enterprise transfers, it is possible that the
transferor and the transferee may enter into a contractual
stipulation stating either that the transferee shall not be liable
for any or all debts arising from the business which were
contracted or accrued prior to the time of transfer, or that the
transferor shall hold the transferee free and harmless against
all claims arising from the business transferred which accrued
prior to the time of transfer.
Effects - The transferee should be bound to retain the services
of the employees of the business that it has acquired, although
it is not liable for the violations that the transferor had
committed in the past and for which the transferor remains
solely liable.
Central Azucarera del Danao v. Court of Appeals
G.R. No. L-4165-7, June 29, 1985
The change of ownership or management of a business
establishment or enterprise is not one of the just causes for
lawful termination under the law, and cannot be construed as
synonymous with nor analogous to closing or cessation of
operation of an establishment or enterprise and therefore
cannot exempt the transferor from liability for separation pay.
(3.) Equity
The equity level of acquisition or transfer constitute of looking
at the entity of the business enterprise as it is owned and
operated by the corporation. The purchaser takes control and
ownership of the business by purchasing the controlling
shareholdings of the corporate owners. The control of the
business enterprise is therefore indirect, since the corporate
owner remains the direct owner of the business, and what the
purchaser has actually purchased is the ability to elect the
members of the board of directors of the corporation which
runs the business.
In an equity transfer, the transferee is not liable for the
liabilities of the transferor, except where the transferee
expressly or impliedly agreed to assume such debts.
Effects - In equity transfer, since the only result of the
transaction is a changed in ownership or control of the
corporate employer, the employees remain with the corporate
employer in exactly the same manner as before the equity
transfer, and therefore the purchaser does not assume any
personal liability to the employees.
Procedure in Merger or Consolidation
(a) Plan of merger or consolidation;
(b) Approval by stockholders or members;
(c) Appraisal of dissenting stockholders;
(d) Amendment of plan of merger or consolidation;
(e) Articles of merger or consolidation;
(f) Submission of financial statement;
(g) Approval by the SEC.
Effects of Merger or Consolidation
Section 79 of the revised corporation code provides for the
following legal effects of merger or consolidation:
(a) The constituent corporations shall become a single
corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and in case of
consolidation, shall be the consolidated corporation designated
in the plan of consolidation;
(b) The separate existence of the constituent corporations shall
cease, except that of the surviving or consolidated corporation;
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(c) The surviving or consolidated corporation shall thereupon
and thereafter possess all the rights, privileges, immunities and
franchise of each of the constituent corporations;
(d) All property, real or personal, and all receivables due on
whatever chooses in action, and all the every other interest of,
or belonging to, or due to each constituent corporation, shall be
taken and deemed to be transferred to and vested in such
surviving or consolidated corporation without further act or
deed;
(e) The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and obligations of
each of the constituent corporations in the same manner as if
such surviving or consolidated corporation had itself incurred
such liabilities or obligations;
(f) Any claim, action or proceeding pending by or against any
such constituent corporations may be prosecuted by or against
the surviving or consolidated corporation, as the case may be;
(g) Neither the rights of creditors nor any lien upon the property
of any of each constituent corporation shall be impaired by
such merger or consolidation.
POWER TO ENTER INTO A PARTNERSHIP
SEC Rues
General rule – A corporation cannot enter into a contract of
partnership with an individual or another corporation on the
premise that it would be bound by the acts of the persons who
are not its duly appointed and authorized agents and officers,
which is inconsistent with the policy of the law that the
corporation shall manage its affairs separately and exclusively.
Exceptions:
(a) The authority to enter into a partnership relation is
expressly conferred by the charter or the articles of
incorporation of the corporation, and the nature of the business
venture to be undertaken by the partnership is in line with the
business authorized by the charter or articles of incorporation
of the corporation involved; and
(b) The agreement on the articles of partnership must provide
that all the partners shall manage the partnership, and the
articles of partnership must stipulate that all the partners shall
be jointly and severally liable for all the obligations of the
partnership.
POWER TO MAKE DONATIONS
Doctrine of Corporate responsibility
Corporations, being creature of the law and receiving the
protection of the State as well as profiting from society, must
bear certain non-profit and social responsibility towards
society; and that the board of directors must properly meet
such social obligations of the corporation to society.
Limitations
(a) The amount thereof must be reasonable; and
(b) The donations must not be in aid of any political party or
candidate or for purposes of partisan political activity.
What constitute “reasonable” Donation?
Business Test. – Corporate donations must be of such nature
and of such amount that they promote the best interest of the
corporation and its stockholders, in the sense that the main
purpose is to build the name and goodwill of the company as a
good corporate citizen, thereby enhancing the patronage for its
business on a long term basis.
If donations constitute merely a wastage or have no
reasonable means of enhancing the business enterprise, then
they would be unreasonable donations and amount to being
ultra vires acts.
POWER TO ESTABLISH PENSION, RETIREMENT AND
OTHER PLANS
Rationale – Granting gratuities to employees engendered
loyalty among corporation’s human resources and grant them
motivation to remain with the corporation, and thereby increase
their productivity and avoid wastage occurring through
unnecessary high turn-over of personnel. The power to
establish pension, retirement and other plans also promote
corporate purpose or purposes and promote better relations
with corporate employees.
Lopez Realty v. Fontecha
G.R. No. 76801, August 11, 1995
Providing gratuity pay for its employees is one of the express
powers of a corporation under the corporation code, and
cannot be considered to be ultra vires to avoid any liability
arising from the issuance of resolution granting such gratuity
pay. Such resolution does not also require the ratification of the
stockholders under section 40 of the corporation code because
such provision is applicable to the sale, lease, exchange, or
disposition of all or substantially all of the corporation’s assets
including its goodwill.
2. INCIDENTAL POWERS
Powers incident to corporate existence are those that attach to
a corporation at the moment of its creation without regard to its
express powers or particular primary purpose, and may be said
to necessarily arise from its being a juridical person engaged in
business.
These powers include the power to sue and be sued, to grant
and receive, in the corporate name; the power to purchase,
hold, and convey real and personal property for such purposes
as are within the objects of its creation; the power to have
corporate seal; the to adopt and amen by-laws for its
government; and the power, in the proper cases, to
disenfranchise or remove members.
3. IMPLIED ORNECESSARY POWERS
Section 36(11). - A corporation has the power and capacity to
exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in its articles of
incorporation.
An implied or necessary power is a necessary consequence of
the grant and/or exercise of the express powers of the
corporation or the pursuit of its purposes as provided for in the
articles of incorporation.
POWER TO EXTEND OR SHORTEN CORPORATE TERM
Section 37. A private corporation may extent or shorten its
term 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 at least two-thirds of the
members in the case of non-stock corporations.
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Written notice of the proposed action and of the time and place
of the meeting shall be addressed to each stockholders or
members at his place of residence as shown on the books of
the corporation and deposited to the addressee I the post
office with postage prepaid, or served personally.
 SEC. 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 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.
Nature of Power - The power to extend corporate life is not an
inherent power of a corporation, since the corporate term is not
only a matter that constitutes an integral clause of the articles
of incorporation, but also the state in granting juridical
personality to a corporation is presumed to have granted it only
for the period of time provided in the corporation’s charter.
Sec. 11. Corporate term. — A corporation shall exist for a
period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is
extended. That corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with
this Code: Provided, That no extension can be made earlier
than five (5) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the Securities and
Exchange Commission.
 SEC. 11. Corporate Term. – A corporation shall have
perpetual existence unless its articles of incorporation
provides otherwise. Corporations with certificates of
incorporation issued prior to the affectivity of this Code,
and which continue to exist, shall have perpetual
existence, unless the corporation, upon a vote of its
stockholders representing a majority of its outstanding
capital stock, notifies the Commission that it elects to
retain its specific corporate term pursuant to its articles of
incorporation: Provided, that any change in the corporate
term under this section is without prejudice to the
appraisal right of dissenting stockholders in accordance
with the provisions of this Code. A corporate term for a
specific period may be extended or shortened by
amending the articles of incorporation: Provided, That no
extension may be made earlier than three (3) years
prior to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier
extension as may be determined by the Commission:
Provided, further, That such extension of the corporate
term shall take effect only on the day following the original
or subsequent expiry date(s).
The power to shorten corporate life is an inherent right on the
part of the corporation, since the decision to shorten the
business life of a business endeavor should really be
addressed to the business decision of the co-ventures.
Sec. 120. Dissolution by shortening corporate term. — A
voluntary dissolution may be effected by amending the articles
of incorporation to shorten the corporate term pursuant to the
provisions of this Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and
Exchange Commission in accordance with this Code. Upon
approval of the amended articles of incorporation or the
expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on
liquidation.
 SEC. 136. Dissolution by Shortening Corporate Term.
– A voluntary dissolution may be effected by amending the
articles of incorporation to shorten the corporate term
pursuant to the provisions of this Code. A copy of the
amended articles of incorporation shall be submitted to the
Commission in accordance with this Code.
 Upon the expiration of the shortened term, as stated in the
approved amended articles of incorporation, the
corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on
liquidation.
 In the case of expiration of corporate term, dissolution
shall automatically take effect on the day following the last
day of the corporate term stated in the articles of
incorporation, without the need for the issuance by the
Commission of a certificate of dissolution.
Appraisal Right - In case of extension of corporate term that a
dissenting stockholder may exercise his appraisal right to have
his shares bought back at fair value by the corporation.
Section 81 of the code, the appraisal right is also available to a
dissenting stockholder even when it covers the shortening of
the term of corporate term.
POWER TO TEMPORARY CEASE CORPORATE
OPERATIONS
The Securities and Exchange Commission (SEC) has ruled
that the temporary stoppage of the operations of the
corporation cannot be classified as an ordinary business
transaction such as to limit its approval to the board of
directors; that the cessation of business operations, though
temporary, is a fundamental concern which should be decided
not only by the board but also by the stockholders themselves
who stand to be primarily affected by such event.
POWER TO INCREASE OR DECREASE CAPITAL STOCK
Nature of Power - The power to increase or decrease capital
stock is not an inherent power of the corporation, not only
because it touches upon an item expressly required to be
provided for in the articles of incorporation, but also the capital
stock of a corporation by common law doctrines, such as trust
fund doctrine and pre-emptive rights.
TRUST FUND DOCTRINE
The assets of the corporation as represented by its capital
stock are “trust funds” to be maintained unimpaired and to be
used to pay corporate creditors in the sense that there can be
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no distribution of such assets among the stockholders without
provision being first made for the payment of corporate debts
and that any such disposition of its assets to the prejudice of
the creditors of the corporation is null and void.
PRE-EMPTIVE RIGHT
Whenever the capital stock of a corporation is increased and
new shares of stock are issued, the new issue must be offered
first to the stockholders who are such at the time the increase
was made in proportion to their existing share-holdings and on
equal terms with other holders of the original stock before
subscription are received from the general public.
Appraisal Right - No appraisal right in increase or decrease of
capital stock. An increase of the authorized capital stock
actually has the potential effect of diluting stockholders’
proportionate interest in the equity of the corporation. The
decrease of capital stock would result in returning part of the
investments of the stockholders, including those stockholders
who dissented.
POWER TO INCUR, CREATE, OR INCREASE BONDED
INDEBTEDNESS
Section 38. No corporation shall increase or decrease its
capital stock, unless approved by a majority vote of the board
of directors and at stockholders’ meeting duly called for the
purpose, two-thirds (2/3) of the outstanding capital stock shall
favor the increase or diminution of the capital stock.
Written notice of the proposed increase or diminution of the
capital of the capital stock is to be considered, must be
addressed to each stockholder at his place of residence as
shown on the books of the corporation and deposited to the
addressee in the post office, with postage prepaid, or served
personally.
 SEC. 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 and 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.
Nature of Power - The power to incur, create, or increase
bonded indebtedness constitutes an aspect of the inherent
power of every corporation to borrow or to incur obligations. It
is presumed that they would need to incur or create liabilities
as part of the normal operations of the business and the
pursuit of the purpose of the corporation.
Appraisal right - No appraisal right is granted to dissenting
stockholders when the corporation validly incurs, creates, or
increase bonded indebtedness, since the granting of such
appraisal right under such circumstances would drain the
corporation of financial resources contrary to the purpose for
which the power is exercise to raise funds for corporate affairs.
POWER TO SELL, DISPOSE, LEASE, OR ENCUMBER
ASSETS
Section 40. Sale or other disposition of assets. – Subject to the
provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board
of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its
property and assets, including its goodwill, upon such terms
and conditions and for such consideration, which may be
money, stocks, bonds or other instruments for the payment of
money or other property or consideration, as its board of
directors or trustees may deem expedient, when authorized by
the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or in case of non-stock
corporation, by the vote of at least to two-thirds (2/3) of the
members, in a stockholder’s or member’s meeting duly called
for the purpose.
 SEC. 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, stocks, 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 the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds (2/3)
of the members, in a stockholders’ or members’
meeting duly called for the purpose.
 In non-stock 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 for 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
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 of appraisal under the conditions provided in this
Code.
Nature of Power - The exercise of the power to sell or dispose
of all or substantially all of the assets of the corporation is
deemed to undermine the contractual relationship between the
corporation acting through its board of directors and the group
of stockholders. The exercise of such power does not really
affect the relationship of corporation with the state, since it not
only goes into the exercise of the business judgment of the
board of what is best to do with the affairs of the corporation,
but more so since a corporation in such instance does not
really lose its juridical entity.
Nature of Transaction - The sale, disposition or encumbrance
of all or substantially all of the assets of the corporation does
not render it empty, since the corporation is still left with assets
received in exchange, albeit cash, or other forms of assets,
and neither does it change its primary purpose indicated in its
articles of incorporation.
Appraisal Right - Ant dissenting stockholder may exercise his
appraisal right in case of sale of all or substantially all of the
corporate assets or property.
POWER TO INVEST CORPORATE FUNDS IN ANOTHER
CORPORATION OR BUSINESS
Sec. 42. A private corporation may invest its funds in any other
corporation or 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
members in the case of non-stock corporations, at a
stockholders' or members' meeting duly called for the purpose.
Written notice of the proposed investment and the time and
place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of
the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally.
 SEC. 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 members in the case of non-stock corporations, at a
meeting duly called for the purpose.
 Notice of the proposed investment and the time and place
of the meeting shall be addressed to each stockholder or
member at the place 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
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.
Rationale - When a corporation through its board of directors,
invests funds in another corporation or business other than the
pursuant to its primary purpose, even if it seeks to pursue a
secondary purpose provided for in its articles of incorporation,
the ratification of the stockholder or members is still required.
POWER TO ENTER INTO MANAGEMENT CONTRACT
Section 44 of the corporation code provides that no corporation
shall conclude a management contract with another
corporation, unless such contract shall have been approved by
the board of directors and by stockholders owning at least the
majority of the outstanding capital stock, or by at least majority
of the members in the case of non-stock corporation, of both
the managing and managed corporations, at a meeting duly
called for the purpose.
 SEC. 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 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
non-stock corporation, of 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 of 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 non-stock corporation.
Coverage of management Contract - Management Contract
do not cover contract denominated as management contract;
they apply only to a contract whereby a corporation undertakes
to manage or operate all or substantially all of the business of
another corporation, whether such contract is called service
contracts, operating agreements, or otherwise.
ULTRA VIRES DOCTRINE
The ultra vires doctrine deals with the corporate capacity to
validly enter into contracts and transaction, and involves either
of the two principles in Philippine corporate law:
(a) Every corporation organized under the law is a creature of
the State and that consequently is a creature of limited powers
in that it only has such powers and authority as are expressly
granted by law or incident to its existence; and that only any
act or contract entered into by corporation outside of its powers
is ultra vires and void; and
(b) Every corporation can validly act only through its board of
directors and agents duly authorized by its board; and any
contract entered not through the board is not binding on the
corporation.
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TYPES OF ULTRA VIRES ACTS from the board, either expressly or impliedly by habit, custom,
or acquiescence in the general course of business.
(a) Those entered into or done beyond the powers of the
corporation as provided for in the law or its articles of DOCTRINE OF APPARENT AUTHORITY
incorporation;
Soler v Court of Appeals, 358 SCRA 57 (2001)
(b) Those entered into or done behalf of the corporation by
persons who have no corporate authority; and If a corporation knowingly permits one of its officers, or any
other agent, to act within the scope of apparent authority, it
(c) Acts or contracts which are per se illegal as being contrary holds him out of the public as possessing the power to do
to law. those acts; and thus, the corporation will, as against anyone
has in good faith dealt with it through such agent, be estopped
Atrium Management Corp. v. Court of Appeals from denying the agent’s authority.
G.R. No. 109491, February 28, 2001

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. Ultra vires act should be 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.

Pirovano v. De la Rama Steamship Co.

G.R. no. -5377, December 29, 1954

Illegal acts of a corporation contemplate the doing of an act

which is contrary to law, morals, or public order, or
contravenes some rules of public policy or public duty, and are
like similar transactions between individuals, void.

Ultra vires acts are those which are not illegal and void ab initio
but are within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable
when ratified by stockholders.

DOCTRINE OF RATIFICATION

Yasuma v. Heirs of Cecilio S. De Vila 499 SCRA 466 (2006)

The corporation may ratify the unauthorized acts of its

corporate officer. Ratification means that the principal
voluntarily adopts, confirms and gives sanction to some
unauthorized act of its agent on its behalf. It is the voluntary
choice, knowingly made, which amount to a ratification of what
was theretofore unauthorized and becomes the authorized act
of the party so making the ratification. The substance of the
doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ratification may be made either
expressly or impliedly. Implied ratification may take various
forms-like silence or acquiescence, acts showing approval or
adoption of the act, or acceptance and retention of benefits
flowing therefrom.

DOCTRINE OF ESTOPPEL

Lipat v. Pacific Banking Corp. 402 SCRA 339 (2003)

The principle of estoppel precludes a corporation and its board

of directors from denying the validity of the transaction entered
into by its officer with a third party who in good faith, relied on
the officer’s authority to on behalf of the corporation. While the
power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is
lodged in its board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law, yet as a
natural person may authorize another to do certain acts for and
on his behalf, the board of directors may validly delegate some
of its functions and powers to officers, committees, or agent.
The authority of such individuals to bind the corporation is
generally derived from law, corporate by-laws, or authorization

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