Powers of Corporation

Question 1

Refers to the right or capacity of a corporation to perform all acts or things, except those forbidden by law and its articles of incorporation in furtherance of its purpose or purposes.

Answer 1

POWERS OF A CORPORATION

Question 2

A corporation exercises its powers through its?

Answer 2

Board of directors or trustees and/or its duly authorized officers and agents, except in instances where the RCCP requires stockholders’ or members’ approval for certain specific acts.

Question 3

Doctrine where 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.

Answer 3

DOCTRINE OF LIMITED CAPACITY

Question 4

What are the classification of corporate powers

Answer 4

A. Those expressly granted or authorized by law, i.e., those conferred by the RCCP and its articles of incorporation.

B. Those that are necessary to the exercise of the express or incidental powers.

C. Those incidental to its existence.

Question 5

The powers expressly conferred upon the corporation by its charter - its articles of incorporation, the RCCP or from the special law creating such corporation and other applicable laws.

Answer 5

EXPRESS POWERS

Question 6

This powers may be exercised by the corporation whether or not any such powers are stated in the articles of incorporation or by-laws, for they are deemed vested in any corporation organized under the RCCP.

Answer 6

EXPRESS POWERS

Question 7

Those powers which are reasonably necessary to execute the express powers and to accomplish or carry out the purposes for which the corporation was formed.

Answer 7

IMPLIED POWERS

Question 8

What are the implied powers?

Answer 8

A. Acts in the usual course of business.

B. Acts to protect debts owing to a corporation.

C. Embarking in different business.

D. Acts in part or wholly to protect or aid employees.

E. Acts to increase business.

Question 9

Are powers which a corporation can exercise by the mere fact of its being a corporation or powers which are necessary to corporate existence and are, therefore, impliedly granted. As powers inherent in the corporation as a legal entity, they exist independently of the express powers.

Answer 9

INCIDENTAL or INHERENT POWERS

Question 10

This power is an incident to corporate existence. As a rule, suits are brought by or against the corporation in its own name.

Answer 10

POWER TO SUE AND BE SUED

Question 11

WHAT ARE THE APPLICATION OF POWER TO SUE AND LIABILITY TO BE SUED?

Answer 11

A. DE FACTO CORPORATIONS
- Corporations de facto may sue or be sued.
- Considered as Corporation except in the eyes of the state
- Bona Fide intention to corporate

B. DISSOLVED CORPORATIONS
A corporation which has been dissolved after the expiration of the three-year winding-up period ceases to exist de jure or de facto and therefore it cannot sue or be sued.

C. UNREGISTERED CORPORATIONS
A corporation not duly registered in accordance with law has no legal capacity to sue as such.

D. FOREIGN CORPORATIONS
Neither can a foreign corporation which transacts business in the Philippines without the necessary license from the SEC sue in the Philippine courts except in some cases.

E. RIGHT TO CLAIM MORAL DAMAGES
As a general rule, a corporation is not entitled to moral damages because, n being a natural person, it cannot experience physical suffering, mental anguish, besmirched reputation, or such sentiments as wounded feelings, serious anxiety, moral shock, social humiliation and similar injury. Such can only be experienced by one having a nervous system. Nevertheless, a corporation may have a good reputation or business standing which, if besmirched or debased resulting in social humiliation, may be a ground for the award of moral damages and attorney’s fees. The basis of recovery would be Articles 19, 20, and 21 of the Civil Code of the Philippines, Republic Act No. 386, as amended, June 18, 1949

Question 12

A seal is not required for the validity of any corporate act. Under Section 62, certificates of stock issued by corporations are required to be sealed with the seal of the corporation. Nevertheless, 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.

True or False?

Answer 12

True, under POWER TO ADOPT AND USE A CORPORATE SEAL

Note: Although it may not be necessary, 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.

Question 13

This power which is also expressly conferred under the law has always been regarded as an incident to every corporation. A corporation needs properties or assets to carry on its business.

Answer 13

POWER TO ACQUIRE AND CONVEY PROPERTY

Question 14

This power is qualified by the phrase “as the transaction of the lawful business of the corporation may reasonably and necessarily require.”

Property obtained by a corporation which is foreign to the purposes for which it was organized is an unlawful acquisition.

Answer 14

POWER TO ACQUIRE AND CONVEY PROPERTY

Question 15

The right or power of private corporations to deal in real as well as personal property is also subject to limitations or restrictions prescribed by special laws and the Constitution.

True or False?

Answer 15

True, under

POWER TO ACQUIRE AND CONVEY PROPERTY

C. AS SUBJECT TO LIMITATIONS OR RESTRICTIONS

Question 16

Section 35 authorizes a private corporation to acquire shares or securities of other corporations. Such an act 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 41 is necessary.

True or False?

Answer 16

True under

POWER TO ACQUIRE SHARES OR SECURITIES

Question 17

Under power to acquire shares or securities

The RCCP expressly authorizes a corporation subject to limitations stated therein to acquire its own stocks (Sections 39, 40, 41, 67, 76, 80, and 104). A corporation may purchase its own stock, however, only when it has “unrestricted retained earnings” to cover the shares to be purchased or acquired.

True or False?

Answer 17

True

Question 18

Before the enactment of the RCCP, corporations cannot enter into a contract of partnership except in cases of a joint venture or a limited partnership. The limitation was based on public policy since in a partnership’s concept of mutual agency, the corporation would be bound by the acts of persons who are not members of the board. However, the RCCP now expressly gave corporations the power to enter into a partnership.

True or False?

Answer 18

True, under POWER TO ENTER INTO PARTNERSHIP

Question 19

Business corporations has the authority to contribute to purely charitable purposes. It gives recognition to the growing tendency to regard charitable gifts as within the scope of corporate authority. It is based on the modern view that business corporations are not organized solely as profit-making enterprises but also as economic and social institutions with corresponding public responsibility to aid in the betterment of economic and social conditions in the community in which such corporations are doing business.

True or False?

Answer 19

True under POWER TO CONTRIBUTE TO CHARITY

Question 20

What are the limitations of POWER TO CONTRIBUTE TO CHARITY?

Answer 20

Under the RCCP, the only limitations imposed on the authority of a corporation to make donations are:

1) the amount thereof must be reasonable; and

2) no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity.

Question 21

The authority granted to every corporation by Section 35 to establish pension, retirement, and other plans for the benefit of its officers and employees is a statutory recognition that disbursement of corporate funds in pursuance of such plans likewise promotes the purpose or purposes for which the corporation was formed.

True or False?

Answer 21

True under POWER TO ESTABLISH PENSION, RETIREMENT, AND OTHER PLANS

Question 22

What are the General Powers “theory of general capacity’ of Corporations?

Answer 22

A. POWER TO SUE AND BE SUED

B. POWER TO ADOPT AND USE A CORPORATE SEAL

C. POWER TO ACQUIRE AND CONVEY PROPERTY

D. POWER TO ACQUIRE SHARES OR SECURITIES

E. POWER TO ENTER INTO PARTNERSHIP

F. POWER TO CONTRIBUTE TO CHARITY

G. POWER TO ESTABLISH PENSION, RETIREMENT, AND OTHER PLANS

Question 23

The corporate term of a private corporation may be extended or shortened by amendment of the articles of incorporation approved by the majority vote of the board of directors or trustees and ratified at a meeting of the stockholders representing at least 2/3 of the outstanding capital stock or by at least 2/3 of the members in case of non-stock corporations.

True or False?

Answer 23

True under POWER TO EXTEND OR SHORTEN CORPORATE TERM

Question 24

What are the requisites to extend or shorten corporate term?

Answer 24

A. Majority vote of the board of directors or trustees.

B. Vote of 2/3 of the outstanding capital stock or 2/3 votes of the members in case of a non-stock corporation.

C. A meeting called for such purpose.

Question 25

Is there appraisal right available to dissenting stockholders under powers to extend or shorten corporate term?

Answer 25

Yes

Section 36 grants appraisal right to a dissenting (not approved by the change in existence) stockholder in case of extension of corporate term. Such right should also be available to a dissenting stockholder if the corporate term is shortened. Note that the appraisal right applies only to a stockholder of a stock corporation.

Question 26

NECESSITY FOR INCREASING CAPITAL STOCK

Answer 26

A. INCREASE OF CORPORATE ASSETS
An increase of the amount of the stated capital may be for the purpose of effecting an increase in the corporate assets. It may be effected by:

1. Authorizing the creation of new shares to be offered and issued at a fixed valuation; or
2. The increase of the par value shares authorized to be issued.

B. ISSUANCE OF STOCK DIVIDENDS
The capital stock may also be increased without any corresponding increase in the corporate assets by the issuance of stock dividends.

Question 27

What are the ways of increasing or decreasing authorized capital stock?

Answer 27

A. By increasing or decreasing the number of shares authorized to be issued without increasing or decreasing the par value thereof.

B. By increasing or decreasing the par value of each share without increasing or decreasing the number thereof.

C. By increasing or decreasing both the number of shares authorized to be issued and the par value thereof.

NOTE: 25% of the increase capital stock has been subscribed

Question 28

What are the requisite to increase or decrease capital stock?

Answer 28

A. Majority vote of the board of directors.

B. Ratification by the stockholders holding at least 2/3 of the outstanding capital stock.

C. A meeting called for such purpose.

D. A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and the secretary of the stockholders’ meeting, setting forth:

That the requirements of this section have been complied with.

2. The amount of the increase or diminution of the capital stock.

If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on the subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if such increase is for the purpose of making effective stock dividend therefor authorized.

The amount of stock represented at the meeting.

The vote authorizing the increase or diminution of the capital stock
E. Sworn statement of the treasurer of the corporation lawfully holding office time of the filing of the certificate, showing that at least 25% of such increased capital stock has been subscribed and that at least 25% of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of which is equal to 25% of the subscription, has been transferred to the corporation. The certificate of filing shall not be accepted if the sworn statement is not filed with the certificate

Question 29

The power of a corporation to incur, create, or increase bonded indebtedness or indebtedness secured by its notes or bonds is likewise expressly conferred by Section 37. But it is also a power implied from the express powers. A business corporation, in the absence of restriction, may borrow money whenever the necessity of its business so requires and issue security or customary evidence of debt such as notes, bonds or mortgages. Under Section 37, non-stock corporations are now expressly authorized to incur, create, or increase bonded indebtedness.

T or F?

Answer 29

True under POWER TO INCUR, CREATE, OR INCREASE BONDED INDEBTEDNESS

Question 30

POWER TO INCUR, CREATE, OR INCREASE BONDED INDEBTEDNESS

B. SHARES AND MEMBERS ENTITLED TO VOTE

Answer 30

Even holders of non-voting shares or non-voting members, as the case may be, are entitled to vote on the matter.

Question 31

POWER TO INCUR, CREATE, OR INCREASE BONDED INDEBTEDNESS

C. PRIOR APPROVAL OF, AND REGISTRATION OF BONDS WITH, SEC

Answer 31

Any incurring, creating, or increasing by the corporation of any bonds indebtedness is subject to prior approval of the SEC. The bonds issued by the corporation have to be registered with the SEC which is given the authority to determine the sufficiency of the terms thereof.

Question 32

REQUISITES TO INCUR, CREATE, OR INCREASE BONDED INDEBTEDNESS

Answer 32

A. Majority vote of the board of directors or trustees.

B. Vote of 2/3 of the outstanding capital stock or 2/3 vote of the members in case of non-stock corporations as applicable.

C. A meeting called for such purpose.

D. A certificate must be signed by a majority of the directors or trustees of the corporation and countersigned by the chairperson and the secretary of the stockholders’ or members’ meeting, setting forth:

That the requirements of this section have been complied with.

Any bonded indebtedness to be incurred, created or increased.

The amount of stock represented at the meeting.

The vote authorizing the incurring, creating or increasing of any bonded indebtedness.

Question 33

EFFECTIVITY OF INCURRING, CREATING OR INCREASING OF BONDED INDEBTEDNESS

Answer 33

Any incurring, creating or increasing of any bonded indebtedness shall require prior approval of the SEC, and where appropriate, of the Philippine Competition Commission. The application with the SEC shall be made within six months from the date of approval of the board of directors or trustees and stockholders or members, which period may be extended for justifiable reasons.

Copies of the certificate shall be kept on file in the office of the corporation and filed with the SEC and attached to the original articles of incorporation. After approval by the SEC and the issuance by the SEC of its certificate of filing, the incurring, creating or increasing of any bonded indebtedness is authorized, as the certificate of filing may declare.