TITLE IV

Powers of a Corporation

GENERAL POWERS

Every corporation incorporated under the code has the power to:
(a) to sue and be sued in its corporate name

(b) To have perpetual existence;

(c) to adopt and use a corporate seal.

(d) to amend its articles in accordance with the provisions of the code. With appropriate provision is Section 14
As far as the amendments pertaining to the name, place of principal business, term, an authorized capital stock
of the Corporation

(e) to adopt bylaws not contrary to law, morals and public policy and to amend or repeal the same;

(f) in cases of stock corporations, the issue or sell stocks to subscribers and to sell treasury stocks in accordance
with the provisions of the code. If it is a nonstock Corporation, to admit members and obtain capital by increasing
the number of persons sharing the same purpose or mission.

(g) to purchase, receive, take or grant, hold, convey, lease, pledge, mortgage or otherwise dealing with real and
personal property, including securities and bonds of other corporations as the transaction of the lawful business
of the Corporation the reasonably and necessarily require, subject to the limitations prescribed by law in the
Constitution. NOTE that investments as long as stated in the articles, like involving the purchase of shares or
securities are valid, if not stated that stockholders approved is required.

(h) to enter into partnerships, joint venture, mergers and consolidations, or any other commercial agreement with
natural and juridical persons.

(i) to make reasonable donations, including those for public welfare or for hospitals, charitable, cultural, scientific,
civic or similar purposes. PROVIDED: That no foreign corporation shall give donations in aid of any political
candidate or for purposes of partisan political activities;

(j) to establish pension, retirement other than plans for the benefit of directors, trustees, officers and employees.

The purpose is to create or foster better relations between the Corporation and its employees, which ideally
should result in greater productivity

(k) to exercise such power as may be essential or in a society to carry out the purposes stated in the articles.

SPECIFIC POWERS

1. Power to Extend or Shorten Corporate Term

a. Vote Requirements
i. Approval of the majority of the board of directors
ii. Ratification by the 2/3 of the stockholders or members
b. Right of Appraisal
i. In case of extension of the corporate term, the dissenting stockholder may exercise his
Appraisal Right.

2. Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness.
a. Vote Requirements
i. Approval of the majority of the board of directors
ii. Ratification of the 2/3 of the outstanding capital stock
iii. Certificate signed by the majority of the directors, countersigned by the chairperson and
the secretary of the stockholder’s meeting.
iv. Approval by the SEC
v. Treasurer’s affidavit stating that 25% of the increased capital stock has been subscribed
and that at least 25% of the amount has been paid.

3. Power to Deny Pre-Emptive Right

a. Pre Emptive Right
i. Definition: The preferential right of all stockholders of a corporation to subscribe to all (New
shares) issues or dispositions of shares of any class, in proportion to their respective
shareholdings. Pre-emptive right is recognized only with respect to NEW issues of shares
 and NOT to Additional issues of the ORIGINAL AUTHORIZED SHARES. For example,
the corporation amends its AOI to increase the capital stock. The stockholders shall have
the power to exercise their Pre-emptive right with respect to the new issued shares.

ii. Purpose: To enable the shareholders to retain his proportionate control in the corporation.

iii. Exception: When Pre-emptive right is not available.

1. When the additional shares are issued in compliance with laws requiring stock
offering or minimum stock ownership by the public;
2. Shares to be issued in good faith with the approval of the stockholders
representing 2/3 of the outstanding capital stock;
a. in exchange of property needed for corporate purposes or
b. in payment of a previously contracted debt.

4. Power to Sell , dispose, lease, encumber all or substantially all of corporate assets.
a. Vote requirements
i. Majority vote of the Board of Directors or Trustees
ii. Ratification by 2/3 of the OCS or members.
b. Meaning of “Sale of Substantially all..”
i. A sale or other disposition shall be deemed to cover substantially all of 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.
c. Notes
i. If the sale or disposition is in the ordinary course of business then only the approval of the
board of directors or trustees is needed.
d. Right of Appraisal
i. the dissenting stockholder may exercise his Appraisal Right.

5. Power to Acquire Own Shares

a. General Rule
i. Corporations may acquire its own shares of stocks only if it has Unrestricted Retained
Earnings
ii. Unrestricted retained earnings are the surplus profits of a corporation from the ordinary
conduct of its business.
b. Instances where the Corporation can Acquire its own shares
i. To eliminate fractional shares. A fractional share is a share less than 1 share.
ii. To collect or compromise a debt arising from an unpaid subscription.
iii. To pay a dissenting or withdrawing stockholder.

6. Power to Invest corporate funds in another Corporation or Business or for any Other Purpose.
a. Vote requirements (Investing in another Business or Purpose)
i. Approval of the majority of directors.
ii. Ratification by 2/3 of the OCS or members.
b. Vote requirements (Investing in the same Business or Purpose)
i. Approval of the majority of the directors only
c. Right of Appraisal
i. Any dissenting stockholder shall have appraisal right.

7. Power to Declare Dividends

a. Requirements for declaration of Dividends
i. Existence of unrestricted retained earnings;
ii. Approval by majority of the Board of Directors;
iii. Incase of Stock dividends;
1. Approval by 2/3 of the OCS
2. Sufficient number of authorized unissued shares for distribution to stockholders.
b. Prohibition
i. Stock corporations are prohibited from retaining surplus profits in excess of their paid-in
capital stock.
ii. Exception (When they are allowed to retain more than 100% of their paid in capital)
1. Excess is for the purpose of corporate expansion or programs approved by the
board of directors
2. Corporation is prohibited under any loan agreement with any financial institution or
creditor, whether local or foreign
3. Special circumstances such as when the excess will be used for probable
contingencies.
c. Notes:
i. Dividends are usually declared at the end of a fiscal year as earlier profits may be offset
by losses.
 ii. Only stockholders are entitled to a dividend as it is an incidence or stock ownership.
iii. Dividend declaration is generally discretionary
iv. No action can be brought against a corporation because it is not a matter of right but of
consensus.
d. Kinds of Dividends
i. (a) cash dividend (b) stock dividend (c) Property dividend (d) option a dividend as the
stockholder is given the option to receive cash / stock / property (e) composite which is
payable partly in stock / cash / property (f) preferred when payable to one class of stock
in priority over another.

8. Power to enter into Management Contract

a. Vote Requirements
i. Approval by the majority of the board of directors
ii. Ratification of MAJORITY of the OCS or members
iii. Approval of 2/3 of the OCS or members of the MANAGED corporation incase
1. Interlocking stockholders:
a. Where a stockholder or stockholders representing the same interest of both
the managed and managing corporations own or control more than 1/3 of
the total outstanding capital stock entitled to vote of the managing
corporation.
2. Interlocking directors
a. Where majority of the members of the board of directors of the managing
corporation also constitute a majority of the board of directors of the
managed corporation.
iv. Term shall be for a maximum period of 5 years only.
1. EXCEPTION: Service contracts or operating agreements which relate to
exploration, development, exploitation or utilization of natural resources may be
entered into for such periods as may be provided by the pertinent laws or
regulations.

9. Ultra Vires Acts

a. Definition
i. An Ultra Vires act is an act committed outside the purpose for which a corporation is
created as defined by the law and its organization, and therefore beyond the powers
conferred upon it.
ii. Acts which are clearly beyond the scope of the corporation’s authority are null and void
and cannot be given any effect.
b. Ratification
i. An Ultra Vires act can be ratified, however it requires
1. Consent of ALL stockholders
2. Rights of the State are not involved
3. Creditors are not prejudiced
4. The act or contract must be wholly executed.

10. TRUST FUND DOCTRINE

a. The capital stock , property, and other assets of the corporation are regarded as equity in trust for
the payment of the corporate creditors. The subscribed capital stock of the corporation is a trust
fund in payment of the debts of the corporation which the creditors have the right to look into to
satisfy their credits, and which the corporation may not dissipate.
i. Examples of acts violating the trust fund doctrine:
1. Declaring dividends without unrestricted retained earnings
2. Releasing a subscriber from the obligation of paying his shares
3. Paying a dissenting stockholder the fair value of his shares even without URE.
4. Acquiring its own shares without any URE.
b. EXCEPTION: Instances where the capital stock may be distributed even without URE
i. Amendment of the AOI to reduce the authorized capital stock
ii. Purchase of redeemable shares
iii. Dissolution and eventual liquidation of the corporation, provided they have already settled
obligations to creditors.