THE

CORPORATION CODE
OF THE
PHILIPPINES
[Batas Pambansa Blg. 68]

A corporation can only do acts that are with in its express powers. These are power that
are granted by the revised corporation code, by the articles of incorporation and by
corporate by laws.

3 Powers
1. Express Power
2. Implied Power
3. Inherent Power
Any act outside of those 3 is considered as ultra vires act.
Ultra vires act - are any acts that lie beyond the authority of a corporation to perform.
Ultra vires acts fall outside the powers that are specifically listed in a corporate
charter or law. This can also refer to any action that is specifically prohibited by the
corporate charter.

POWERS OF CORPORATIONS
Section 35 enumerate the corporate powers – the corporation can only do or act based
on the powers granted through express, implied and inherent.
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. The power of succession – the corporation can remain or exist despite the death or
removal of its shareholder or members, or transfer of ownership of shares from one
shareholder to another.
c. To adopt and use a corporate seal;
d. To power to amend its articles of incorporation.
e. The power to adopt by laws – provided they are not contrary to law, morals, or public
policy, and observing the procedures under Revised Corporation Code.
f. Power to issue or sell stocks to subscribers and to sell treasury stocks if a stock
corporation.
g. Power to admit members, if it be a non-stock corporation. As an organization it has
the power to establish qualifications, in admitting members.
h. Power to own or dispose of real and personal property – this power includes, the
purchase, receipt, take, or grant, hold otherwise deal with such real and personal
property; including securities and bonds of the other corporations, as the transaction of
the lawful business of the corporation may require.
i. The power to enter into merger, joint venture, partnership or consolidation with two or
more corporations may agree to merge under one corporation, or may consolidate into
a single corporation.
j. The power to make reasonable donations – no foreign corporation is allowed to
donate with any candidate or political party.
j. before a corporation cannot make any donation whether it is a foreign or domestic
corporation but now, they are allowed to donate to any candidate or political party. A
domestic corporation – when it is organized under the Philippine law or under the
Revised Corporation code.
k. Power to establish pension, retirement, and other provident funds.
l. Power to exercise such other powers as may be essential or necessary to carry out its
purposes.
Section 36. Power to extend or shorten corporate term. – Upon approval of the
majority of the vote of the board of directors or trustees, and ratified by stockholder
or members representing 2/3 of the outstanding capital stock or membership.
Before a corporation can only exist up to maximum of 50 years, pag malapit na ma
expire yung corporation it must renew its corporate term but under the revised code the
corporation now can have an infinite corporate term, however by the majority vote of the
board of directors and upon ratification of the 2/3 of the outstanding capital stock or
membership if it is a non-stock corporation it can reduce or shorter its corporate term or
dissolve the corporation.
Pag majority vote means kung ano ang Majority sa mga present na umattend pero
kung majority of the board of directors ang nakalagay sa batas kailangan if 15 ang
umattend sa meeting 8 ang mag approved pero kung 10 lang ang umattend out of 15 8
parin ang majority.
When the law says the majority of the board of directors kung ilan lang ang majority sa
umattend sa meeting pero pag sinabi ng batas na approval majority of the board of
directors, kahit di umattend ang majority parin ng lahat ng members ng BoD

Section 37. Power to increase or decrease capital stock; incur, create or increase
bonded indebtedness. It requires majority vote of the board of directors or 2/3 of the
outstanding capital stock. Bonded indebtedness means secured by a specific corporate
property. Bonded indebtedness - Nakasangla yung specific property. If walang specic
property na isasangla or hindi siya bonden indebtedness it does not reuire majority vote
or not requires the requirement of section 37.
Capital stock – is nag increase ng capita ung corporation, to determine capital stock
through its outstanding capital stock. Kung ilan ang share na naka issue sa public o sa
shareholders. If theres allowable 1000 shares to be issued pero 500 share lang issued
and held by public, but public wants to increase 1200 shares it requires the approval of
the majority votes of the board of directors or 2/3 of shareholders.
The increase or decrease of bonded indebtedness requires approval of Securities and
Exchange Commission or Philippine competition commission. After ma approved ng
SEC ng issuance ng bonded indebtedness, it will issue a certificate of filing.
Philippine competition commission is the agency which ensures that there are a
level plainfield in the market – kumbaga walang kumpanya na monopoly yung siya yung
dominant market player, siya lang may control. Gusto ng Philippine competition
commission there is competition in the market.
Pag hawak ng shareholder yung stock that is what we called as outstanding share.
--
Example ABC cor allowed tthe issue 1000 shares worth 100 pesos per share, however
500 shares are only issued yung 500 share are treasury shares after 1-month ABC
company issued the remaining 500 shares so nakalabas na lahat yung 1000 shares that
is authorized capital stock, so 1000 na yung outstanding share. Tapos nag increase ang
ABC corporation ng stock and approved ng majority and 2/3 ng shareholder increase
additional 500 shares so 1500 na yung authorized issue. Yung 500 na additional should
be subscribe or bilhin and then yung 25% of that 500 and 25% of that shares must be
paid in cash or property. 25% ng 500 which is 125 Must be bought by public para
maaproved ng SEC ung increase ng capital stock and 25% ng 125 which is 31.25 must
be paid immediately by cash or property para maapproved ng SEC yung increased ng
authoriezed capital stock. Sa 125 pwedeng hindi lahat magbayad muna basta yung
31.25 e mayroong nagbayad ng cash or property,
Any increase or decrease of capital stock, requires the ff.
A certificate in duplicate must be signed by a majority of the directors of the corporation
and countersigned by the chairman and the secretary of the stockholders' meeting,
setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) 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 residences 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 his subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to each stock-
holder if such increase is for the purpose of making effective stock dividend therefor
authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of
any bonded indebtedness shall require prior approval of the Securities and Exchange
Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and
the other shall be filed with the Securities and Exchange Commission and attached to
the original articles of incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its certificate of filing,
the capital stock shall stand increased or decreased and the incurring, creating or
increasing of any bonded indebtedness authorized, as the certificate of filing may
declare: Provided, That the Securities and Exchange Commission shall not accept for
filing any certificate of increase of capital stock unless accompanied by the 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 (25%) percent of such increased
capital stock has been subscribed and that at least twenty-five (25%) percent of the
amount subscribed has been paid either in actual cash to the corporation or that there
has been transferred to the corporation property the valuation of which is equal to
twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the
capital stock shall be approved by the Commission if its effect shall prejudice the rights
of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the
same, with the approval by a majority vote 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 Securities and Exchange
Commission, which shall have the authority to determine the sufficiency of the terms
thereof. (17a)

Section 38. Power to deny pre-emptive right.

pre-emptive right - are a contractual clause giving a shareholder the right to buy
additional shares in any future issue of the company's common stock before the shares
are available to the general public.
Reason behind section 38 is to protect the interest of the shareholder. Pag nag iisue
kasi ng new shares yung company, bab
Example: Juan has 100 shares sa ABC corporation, from 1000 shares ABC increase its
capital stock to 1500, under section 38 Juan has preemptive right kung may 100 siya or
10% in ABC corporation before the increase, he is allowed to subscribe or buy the
shares equivalent to 10% of the newly issued shares which is 50. In proportion to his
10% share in the company, however sec 38 also can deny that right, if it is specified or
stated in the articles of incorporation or corporate by laws that shareholders can be
denied the pre emptied right.
Before a share may be issue, it must be offered first to the current shareholders. The
purpose of the preemptive right is to maintain the interest of the shareholders in the
corporation. This includes re issuance of treasury shares.
Exception:
1. If it denied in the Articles of Incorporation
2. The new issuance is in compliance of the law; and
Minsan may I comply yung corporation na reuirement ng batas, o ibenta isyon sa
mga specific na tao.
3. Issuance of new share in good faith and with the approval of 2/3 of the
outstanding capital stock.

Section 39. Sale or other disposition of assets. (disposition - gustong bitawan na

asset ng company)
substantially all – when the corporation cannot continue its business then I dispose or
sell na lahat ng asset. representing more than 75% of the Company’s total assets or
revenues
In case of sale or disposition of substantially all property and assets of a corporation
shall require the ff.
a. Approval of the majority vote of the board of directors;
b. Ratification of the 2/3 of the outstanding capital stock or 2/3 of the membership;
c. Notice to shareholders
In case the disposition or sale is not substantial, only approval of the majority is
required.
In case of dissenting shareholder, he/she may exercise right of appraisal. In case of
non-stock corporations, where the members have no voting rights, the vote at least
majority of the trustees is sufficient for the transaction in this provision.
Right of appraisal – if the shareholders do not want the corporate act, pwedeng ung
corporation bilhin niya yung shares nang against sa act na gagawin ng corporation.
Example si pedro against sa pag benta ng aasset ng corporation pwede niyang I
exercise yung right of appraisal niya, yung corporation bibilhin yung shares niya.
A sale or disposition shall be deemed to cover substantially all the corporate property
and assets if the corporation would be incapable of continuing the business or
accomplishing the purpose for which it was incorporated.

Section 40. Power to acquire own shares.

In acquiring shares, the corporation must have unrestricted retained earnings. The
requirement of unrestricted retained earnings is based on trust fund doctrine.
The corporation wants to buy the shares that held by public. Requirements is that
corporation should have
unrestricted retained earnings – corporation must have surplus profit. meron siyang
pundo na hindi nakalaan sa expansion or suweldo ng kumpanya. Sobra lang surplus
lang. that is based on;
trust fund doctrine - that the capital stock and property and other asset of the
corporation are held for the benefit of the creditors.
1. To eliminate fractional shares arising out of stock dividends;
Dividend – distribute ng kita or profit
however the corporation instead cash pang bayad ayaw niyang mag issue ng
cash, stock dividend nalang or share nalang pambayad.
Example si Juan meron siyang 100 shares sa ABC corporation, ABC corporation
has 1000 authorize capital stock kumita siya for the year 2020, kaya mag
didistribute siya ng dividend kaya lang ayaw niya mag distribute ng cash
dividend, increase nalang ng stock ng 500 so naging 1500 yung authorize capital
stock na. Magkano ang shares na matatanggap ni Juan? 50 additional in
proportional to his shares. Pano kung nabigay sa kanya e 72.5 ang halaga ng
bawat shares is 100 pesos to eliminate .5 pwede bilhin un ng corporation how
much. Divide by half sa give 50 pesos to juan, para yung alanganin na .5 mawala
na.
2. 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
Example si Juan bumili siya ng 100 shares sa corporation, 100 pesos per share.
So 10,000 worth of subscription niya, pero yung bayad lang niya ay 5,000 sabi ni
ABC corporation babayaran kanalang naming ng 5,000 pesos yung 50 na
subscription ibalik mo nalang samin.
3. To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code. (n)
Example: Yung ayaw magbenta ng corporate asset or properties. (example like
sa section 39)

Section 41. Power to invest corporate funds in another corporation or business.

Only when the corporation will invest in another business or corporation other that its
primary purpose will Apply on section 41. In that case, majority of the board of
Directors and ratification of the 2/3 of the outstanding capital stock or
membership is required.
Stock holder who dissents (ayaw mag invest sa ibang business) can exercise the right
of appraisal.
Section 42. Power to declare dividends.
The corporation CAN declare dividends. Pag kumita yung corporation, yung portion ng
kita niya pwede niyang ibigay sa shareholder para may makuhang benefit yung
shareholder para sa investment nila.
General rule: a corporation cannot be compelled to declare dividends. Only the boards
of Directors can declare dividends, an in appropriate case, ratified by shareholders.
Baka kasi gusting I laan ng corporation yung kita nila for other staff like pag expand ng
company, or pag invest sa other company
What is dividend? It is a portion of profit, that is set aside, declared and ordered by the
board of directors to be distributed to the shareholders.
Different kinds of dividends
A. Cash – in proportion to your shares – board approval
Equation: Cash dividends times your share
In case, there is unpaid subscription, the dividend shall be applied first on the
balance of subscription. (babayaran muna yung kulang)
B. Stock – board approval and ratification of 2/3 of the shareholders
Stock dividend will Increase shareholders share
Equation: (shareholder share divided by outstanding shares) times (additional
share)
In case there is unpaid subscription, the dividends shall withhold (or not issued)
until full payment.
C. Property – the board of approval can suffice for its issuance
General rule: a corporation cannot be compelled to declare dividends
Exception: in case corporation exceeded 100% of its paid-in capital.
Example: If ayala corporation has 1000 shares, ayala has 1M capitalization does not
issue dividends for 10 years, its capital umabot nan ang 2M. that is not allowed by law,
so any increase more than 2M pesos must be distributed as a dividend to share holders
Exception to the exception:
a. Justified by corporate expansion as approved by the BOD.
b. If the corporation is under law agreement preventing it to declare dividend.
c. To meet contingencies. Para ma meet yung emergency ng company.
(Contingencies - a provision for an unforeseen event or circumstance. an
incidental expense.)

Section 43. Power to enter into management contract.

Management contracts refers to an agreement whereby one (1) corporation called the
managing corporation, shall manage, control, administer the corporate affairs and
operation of another corporation, called the managed corporation. To be valid, the
following must be complied with;
a. The period which shall not exceed 5 years;
b. Approval of the majority of the board and shareholders representing the majority
of the outstanding capital stock;
c. 2/3 of the outstanding capital stock is required if the board of directors constitute
a majority of the managed ang managing corporations respective board, or if 1
shareholder control at least 1/3 of the capital stock.
Management contracts – yung isang corporation will be managed by the another
corporation

Section 44. Ultra vires acts of corporations

Ultra vires acts are beyond the scope of the corporation’s authority and, therefore, null
and void and cannot be given any effect. Any act outside the express, implied and
necessary powers is ultra vires.

The corporation is not allowed to benefit from any of its ultra vires acts, and then later
on raise the issuances of its illegality to shield itself from any liability, or from performing
its obligation under contract.
- May be held liable.
- Any shareholder can suit

What is derivative suit?

It is an action brought by a stock holder on behalf of the corporation to enforce
corporate rights against corporations’ directors, officers and insiders.
By Laws -
Section 45- Adoption of By-laws
What are by – laws?
These are set of rules for the internal government of the corporation. It defines the
relationship between the corporation and the board of directors, the relationship of
corporation and the shareholders, the relationship of corporation and the corporate
officers, the relationship of the shareholders among themselves, and the shareholders
with the board, the relationship of the board among themselves and the relationship of
the board and the corporate officers.

In essence, the corporate by laws is the document which governs the internal rules and
regulations of the corporation. Mas detalyado sa articles of incorporation.

By law can be adopted before incorporation or and after magkaroon ng issuance ng

certificate of incorporation by the SEC.
The by-laws can be adopted by the corporation prior the incorporation, or after the
incorporation. However, if they are submitted before incorporation the effectivity will only
commence upon issuance by SEC of the certificate of incorporation.

Example: ABC corporation before being incorporated and granted the issuance of
certificate of incorporation by SEC adopted already a by laws on June 1 2020, however
the certificate of incorporation is only issued on August 1 2020. The effectivity of by-
laws only take effect on August 1 2020 not on the day of adoption which was on June 1
2020.
However, if the corporation was incorporated on august 1 2020, but the by-laws is
adopted on October 1 2020. The effectivity of by-laws only take effect on October 1
2020.

The by laws shall be adopted upon approval of the shareholders representing the
majority of the outstanding capital stock, or members of the non-stock corporation.

Section 46- Contents of Bylaws.

 By-laws ang naglalagay ng details kung paano patatakbuhin ang corporation.
Yung relationship ng mga tao, inside the corporation
A. provisions on the calling of regular or special meeting of the board of directors
and shareholders;
kailan ang regular at special meeting at kung paano nagpapatawag ng meeting,
is it through regular mail, pwede bang through email. Kalian ba ang meeting is it
every quarter, monthly, every year? Ilang days ba required magbigay ng notice.
Dapat nakalagay sa by laws.
B. provision on quorum and manner of voting;
ang required quorum ba for the BOD meeting is dapat out of 15 BOD does it
require 15 members to be present for the effectivity of quorum, pwede ilagay ng
by-laws. And it is valid as a requirement.
C. provision on proxy voting; is it through proxy vote by executing a spe or only
required vote by being actually present on meeting. Pwede yan ilagay ng by laws

D. provision on the qualification and powers of members of the board of directors.

Pwedeng maglagay ng bylaws dapat ang director mai elect has no business with
competitor. That’s a valid requirement.
E. provision on the date of the annual shareholders meeting;
F. provision on the corporate officer other than a member of the board; can specify
the position in the corporation, if nakalagay sa by-laws ang position mo you
are considered as a corporate officer but if your position is not written on
by-laws you are merely an employee of the corporation.
G. provision on penalties. Example you are not paying subscription on time, you did
not disclose your disqualification when you are elected as BOD.
H. provision on the issuance stock certificate and other matters that are connected
to the day to day operations of the corporations.
Section 47: Amendment of by-laws
Procedure for amendment
- the proposed amendment should be by a vote of majority of all the board
members or trustees and majority of the outstanding capital stock or members.
Can it be delegated to BOD kaysa naman lagging may meeting o botohan. Yes the
delegation can be made, BOD can amend the by-laws provided that there is
delegation by 2/3 of the standing capital stock or membership of the non-stock
corporation.
- The amendment can be delegated to the board of directors or trustees, subject to
2/3 of the outstanding capital stock or membership approval.
- The delegation shall be deemed revoked upon the vote of the majority of the
outstanding capital stock or membership
The amended by-laws shall be filed before the SEC, shall be effective upon issuance of
the certificate by the same agency stating it is not inconsistent with the Revised
Corporation code (RCC)
VOCABULARY WORDS
Ratification the action of signing or giving formal consent to a treaty, contract, or agreement,
making it officially valid.