05 Powers of Corporations Flashcards
What are the general powers of a corporation?
SESAB-IPEDPO - sue, existence, seal, AOI, bylaws, issue, purchase, enter, donations, pension, other
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 nonstock 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.
What are the rules for extension or shortening of corporate term?
APPROVAL REQUIREMENTS = Majority BOD/T + 2/3 vote SH representing OCS / all members
NOTICE REQUIREMET = Written notice; served personally, thru postage, or, if bylaws allow, electronically
RIGHT OF APPRAISAL = available
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 either 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.
What are the requirements for exercise of the corporation’s power to increase or decrease capital stock or power to incur, create, or increase bonded indebtedness?
INTERNAL APPROVAL REQUIREMENTS = majority BOD + 2/3 SH representing OCS
REGULATORY APPROVAL REQUIREMENTS = certificate of increase/decrease of capital stock + SEC approval + PCC approval(where applicable)
In case of NSC [only for incurring bonded inebtedness]: internal = majority BOD+2/3 M; regualtory = registration with SEC
FORMAL REQUIREMENT = Special meeting duly called for that purpose
NOTICE REQUIREMENTS = Written notice; personal service, service recognized as valid by SEC; or electronic means recognized by the bylaws
**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 saidmeeting 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.
A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and secretary of the stockholders’ meeting[.]
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Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Commission, and where appropriate, of the Philippine Competition Commission. The application with the Commission shall be made within six (6) months from the date of approval of the board of directors and stockholders, which period may be extended for justifiable reasons.
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[T]he Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by a sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five percent (25%) of the increase in capital stock has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of which is equal to twenty-five percent (25%) of the subscription, has been transferred to the corporation: Provided, further, That no decrease in capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.
Nonstock corporations may incur, create or increase bonded indebtedness when approved by a majority of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Commission, which shall have the authority to determine the sufficiency of the terms thereof.
What is a preemptive right? When may corporation deny this right?
Preemptive right - right of stockholder to be given priority to subscribe to all issues or dispostion of shares of any class, in proportion to their respective shareholdings
Denial of right - right may be denied when it is denied by the articles of incorporation or any amendment thereto
GEN RULE: All issues or dispostion of shares shall be subjet to pre-emptive right of stockholders
XPN:
(1) AOI denies this right to stockholders
(2) shares are issued in compliance with laws requiring stock offerings or minimum stock ownership by public;
(3) shares are issued in good faith with the approval of stockholders representing 2/3 of OCS in exchange of property needed for corporate purposes or for payment of previously contracted debt.
SEC. 38. Power to Deny Preemptive Right. – All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto: Provided, That such preemptive right shall not extend to shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt.
What are the approval requirements for the alienation of assets or property of a corporation?
GR: Corporation may alienate property through majority vote of its BOD/T. There must be consideration for this
XPN: Sale of all or substantially all of the corporation’s properties/assets requires approval of 2/3 SH-OCS or 2/3 M.
**Note: **
- This is subject to Phil. Competition Act and other related laws;
- Consideration must be money, stock, bonds, or other instruments for payment of money
- Special meeting called for such purpose is also required
- NSC where members have no voting rights = majority vote of trustees is sufficient
- Dissenting stockholder has appraisal right
- Notice requirement
- May abandoned by BOD/T
SEC. 39. Sale or Other Disposition of Assets. – Subject to the provisions of Republic Act No. 10667, otherwise known as “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 nonstock 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.
When is a sale all or substantially all of the corporation’s assets?
Sec. 39. […] 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.
What is the notice requirement for sale or other alienation of property or assets of a corporation?
Sec. 39. […] 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 of appraisal under the conditions provided in this Code.
In case an alienation of corporate property or asset was approved by the BOD/T and SH/M, is the board duty-bound to push through with it?
No.
Sec. 39. […] After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge, or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members.
Should all kinds of sale/lease/other alienation of properties of a corporation be subject to approval?
No.
Sec. 39. […] Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of the corporation or if the proceeds of the sale or other disposition of such property and assets shall be appropriated for the conduct of its remaining business.
May a corporation reacquire its own shares?
Yes, they will be treasury stock. NOTE: there must be unrestricted retained earnings to exercise this power.
SEC. 40. Power to Acquire Own Shares. – Provided that the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired, a stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including the following cases:
(a) To eliminate fractional shares arising out of stock dividends;
(b) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and
(c) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.
May a corporation invest its funds in another corporation?
GENERAL RULE: Corporation can only invest its funds in another corporation IF THAT IS ITS PRIMARY PURPOSE.
XPN: Investment is not primary purpose = [majority BOD/T + ratification 2/3 SH-OCS or 2/3 M + special meeting called for that purpose + notice requirement] / (appraisal right of dissenting SH)
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 nonstock 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.
What are the rules regarding dividend declaration?
- Dividends are from unrestricted retained earnings. There must be URE.
- Dividends are payable in cash, property, or stocks to all SH
- If SH is delinquent: (a) cash dividends first applied to unpaid balance; (b) no stock dividends until unpaid subscriptin is fully paid
- Cash dividends only require board approval; stock dividends need approval of 2/3 SH-OCS at a reg. or spcl. mtg.
- GR: SCs cannot retain UREs exceeding 100% of their paid-in capital.
XPNS: (1) corporate expansion projects/programs approved by BOD; (2) stipulation in loan prohibiting dividends without consent of creditor; (3) retention is necessary under special circumstances–> e.g. there is need to retain as special reserve for contingencies.
SEC. 42. Power to Declare Dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them:
Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued without the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.
Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent (100%) of their paid-in capital stock, except:
(a) when justified by definite corporate expansion projects or programs approved by the board of directors; or
(b) when the corporation is prohibited under any loan agreement with financial institutions or creditors, whether local or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or
(c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies.
What are the rules relating to a corporation’s power to enter into a management contract?
GR: Power to Enter into Management Contrat = [approved by BOD/T + majority of SH-OCS/M] * (managing corp + managed corp)
XPN: 2/3 votes of SH-OCS(voting) or 2/3 M:
(1) SH or SHs representing same interest of both mgt. and mgd corp. own or control more than 1/3 of OCS (voting shares) of the mgt. corp.
(2) majority of BOD/T of mgt corp is also majority of BOD/T mgd corp
NOTE: management contracts term limit: 5 yrs for any 1 term
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 nonstock 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 nonstock corporation.
These shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating agreements which relate to the 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.
No management contract shall be entered into for a period longer than five (5) years for any one (1) term.
