Powers of Corporation and Bylaws

Powers of Corporation

Corporate Power
- A corporation has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence.

General Powers of a Corporation:

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
repeat the same in accordance with thisCode;
[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
Constitute.
[h.] To enter into a partnership, joint venture, merger, consolidation, or any 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
purposes as stated in the article of incorporation

Derivative Suit
- An action brought by a stockholder on behalf of the corporation to enforce
corporate rights against the corporation's directors, officers or the other insiders.
Power to Extend or Shorten Corporate Term
1. Requires the approval by a majority vote of the board of directors of directors or
trustees;
2. and Ratification by the stockholders or by at least 2/3 of the members in case of
non-stock corporations.

Appraisal Right
- Means that a stockholder who dissented and voted against the proposed
corporate action, may choose to get out of the corporation by demanding
payment of the fair market value of his shares.

Power to Increase or Decrease of Authorized Capital Stock; Incur, Create or

Increase Bond Indebtedness
Requires:
1. Written notice of the proposed increase or diminution of the capital stock and of
the time and place of the stockholder's meeting at which the proposed increase
or diminution 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 by mail, or served 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;
2. No decrease of the capital stock shall be approved if its effect shall prejudice the
rights of corporate creditors;
3. Approval by a majority vote of the board of directors;
4. Ratification by the stockholders holding at least 2/3 of the outstanding capital
stock;
5. 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;
6. Approval thereof by the SEC; and
7. Treasurer's affidavit 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.

Three Instances of Distribution of Corporate Capital

1. amendment of the Articles of Incorporation to reduce the authorized capital
stock,
2. purchase of redeemable shares by the corporation. regardless of the existence of
unrestricted retained earnings, and
 3. dissolution and eventual liquidation of the corporation.

Power to Deny Pre Emptive Right

- It is the preferential right of all stockholders of a stock corporation to subscribe to

all issue or disposition of shares of any class in proportion to their respective
shareholdings.
- The purpose of pre-emptive right is to enable the shareholder to retain his
proportionate control in the corporation.

Sales and Other Disposition of Assets

Requires:
1. Written notice of the proposed action of 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, or when allowed by the bylaws or
done with the consent of the stockholder, sent electronically;
2. Approval by the majority vote of its board of directors or trustees;
3. Ratification by the vote of the stockholders representing at least 2/3 of the
outstanding capital stock, or in case of non-stock corporation, by the vote of at
least to 2/3 of the member ; and
4. Any dissenting stockholder may exercise his appraisal right.

Substantially all corporate asset

- If the Sale or other disposition will make the corporation incapable of continuing
the business or accomplishing the purpose for which it was incorporated.

Power to Acquire Own Shares

General Rule:
The corporation may only acquire its own stocks in the presence of unrestricted retained
earnings

Exceptions:
1. Redeemable shares may be acquired even without surplus profit for as long as it
will not results to the insolvency of the Corporations; and
2. In a close corporation.
Basis of unrestricted retained earnings
 - Based on the trust fund doctrine which means that the capital stock, property,
and other assets of a corporation are regarded as equity in trust for the payment
of corporate creditors.

Power to Invest Corporate Funds in Another Corporation or Business or for Any

Other Purpose

Requisite:
I. To accomplish its primary purpose
1. Approval of the majority of the board of directors or trustees; and
2. The approval of the stockholders or members shall not be necessary.
II. To accomplish a purpose other than the primary purpose
1. Approval of the majority of the board of directors or trustees;
2. Ratification by the stockholders representing at least 2/3 of the outstanding
capital stock, or by at least 2/3 of the members in the case of non-stock
corporations, at a stockholders or member's meeting duly called for the purpose;
3. Written notice of the proposed investment and the time and place of the meeting
shall be addressed to each stockholder or member by mail or 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;
4. Any dissenting stockholder shall have appraisal right; and 5. The ratification must
be made at a stockholder's or member's meeting duly called for the purpose text

The power to declare dividends

Requirement:
1. Existence of unrestricted retained earnings
2. Resolution of the Board of Directors: and
3. For Stock Dividends, the additional requirements are:
a. A vote representing not less than 2/3 of outstanding capital; and
b. A corporation must also have a sufficient number of authorized
unissued shares for distribution to stockholders.

Retained Earnings
- The accumulated profits realized out of normal and continuous operations of the
business after deducting therefrom distributions to stockholders and transfers to
capital and other accounts

Unrestricted Retained Earnings

 - The retained earning which have not reserve or set aside by the board of
directors for some corporate purpose

Dividends
- Corporate profits set aside, declared, and ordered to be paid by the directors for
distributions among stockholders at a fixed time

Cash vs. Stock Dividends

Cash Stock Dividends

Part of the general fund It is part of capital

It result in cash outlay It does not result in cash outlay

It is not subject to levy by corporate It can be levied by corporate creditors

creditors because they are part of corporate capital

It is declared by the majority of the It is declared by the majority of the

quorum of the board of directors quorum of the board of directors with the
concurrence of the stockholders
representing at least 2/3 of the
outstanding capital stock

It does not increase the corporate capital The corporate capital is increased

Its declaration creates a debt from the No debt is created by its declaration
corporation to each of its stockholders

Additional Information Need to Remember

● Payments of Dividend is not a matter of right but a matter of consensus

● Dividends is dependent upon the availability of unrestricted retained earnings
● Dividends valued at the amount of the declared Dividends

Capital and Stock Dividends

 Capital Dividends Stock Dividends

Refers to the value of the property or the It is the amount that the corporation
asset of the corporation. transfers from its surplus profit account to
its capital account.

The capital subscribed is the total It is the same amount that can loosely
amount of the capital that subscribers or termed as the " trust fund" of the
shareholders have agreed to take and corporation.
pay for, which need not necessarily by,
and can be more than the par value of the
shares.

It is the amount that the corporation

receives, inclusive of the premiums if any,
in consideration of the original issuance of
the shares

Limitations on Dividends

1. The right to dividend is based on duly recorded stockholdings

2. Dividends among stockholders of the same class must always be pro rata equal
and without discrimination and regardless of the time when the shares were
acquired. The right of the stockholders to be paid dividends accrues as soon as
the declaration is made.
3. The right to dividend accrues even if there is no SEC approval
4. Declaration of dividend is discretionary upon the Board of Directors
5. Dividends cannot be declared out of pain-in surplus and revaluation surplus
6. Treasury shares cannot be declared as stock or cash dividends

General Rule:
Stock Corporations are prohibited from retaining surplus profit in excess of 100% of
their paid in capital stock.

Exceptions:
1. When justified by definite corporate expansion projects approved by the Board
of Directors
2. When the corporation is prohibited under any loan agreement with any financial
financial institution or creditor, whether local or foreign, from declaring dividends
without its/his consent has not been secured; or
 3. When it can clearly shown that the retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for
special reserve for probable contingencies.

Power to Enter into Management Contract

Management Contract
- It is an agreement whereby a corporation delegates the management of its affairs
to another corporation for a certain period of time. No management contract shall
be entered into for a period longer than 5 years for any one term.
- 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.

Ultra Vires Act of Corporations

What is ultra vires act?

- The Corporation Code defines an ultra vires act as one outside the power
conferred by the Code or by the Articles of Incorporation, or beyond what is
necessary or incidental to the exercise of the powers so conferred.

BYLAWS
What are by-laws?
- Signifies the rules and regulations or private laws enacted by the corporation to
regulate, govern, and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and
among themselves in their relation to it.

The Purpose of By-Laws

- To regulate the conduct and define the duties of the members towards the
corporation and among themselves. They are self-imposed and, although
adopted pursuant to statutory authority, have no status as public law.

Are third persons bound by by-laws?

- It is the generally accepted rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions either actually or
constructively.

Adaptation of By-Laws
I. Before Incorporation (Pre-Incorporation)
The by-laws must be signed and approved by all the incorporators and filed with the
SEC together with the articles of incorporation.

II. After Incorporation (Post-Incorporation)

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 shall be necessary.
The by-laws shall be signed by the stockholders or members voting for them.

Effectivity of the by-laws

Upon the issuance by the SEC of a certification that the by-laws are in accordance with
the Revised Corporation Code.

Amendment of By-Laws

General Rule:
The rule of directors or trustees, by a majority vote thereof, and the owner 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.

Exception:
The owners of 2/3 of the outstanding capital stock of 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.

Binding Effects of the By-Laws

I. As to Directors or Trustee, Officers, and Stockholders or Members

They are bound and must comply because they are presumed to know the provision of
the by-laws

II. As to Third Persons

They are not bound unless they have knowledge of the by-laws
Additional Information Need to RememberAdditional Information Need to
Remember