Overview
This lecture covers Title 4 of the Revised Corporation Code of the Philippines, focusing on the powers of a corporation, changes from the old code, classifications of corporate powers, and key procedures for corporate acts.
Corporate Powers and Capacity (Section 35)
- Corporations have powers expressly stated in the code, articles of incorporation, and those necessary or incidental to their existence.
- New code allows perpetual corporate existence, unless stated otherwise.
- Corporations can now enter partnerships and joint ventures, which was previously prohibited.
- Domestic corporations can now make reasonable donations to political parties; foreign corporations are still prohibited.
- Distinction between primary franchise (right to exist) and secondary franchise (additional activities needing regulatory approval).
Classification and Sources of Powers
- Corporate powers classified as: express (explicitly granted), implied (necessary to carry out express powers), and incidental/inherent (arising from corporate existence).
- Corporations may only act within powers granted by law and articles of incorporation.
- Steps to determine corporate authority: check articles/charter, relevant statutes, and general law.
Procedures for Key Corporate Acts
- Amendment to extend or shorten term requires majority board approval and 2/3 stockholder/member ratification (Section 36).
- Increase/decrease of capital stock or bond indebtedness also needs board approval and 2/3 stockholder/member consent plus SEC and PCC (Philippine Competition Commission) approval (Section 37).
- Preemptive rights require offering new shares first to existing stockholders, unless denied in the articles (Section 38).
- Disposition of all/substantially all assets needs board approval and 2/3 stockholder/member ratification (Section 39).
Stockholder Rights and Corporate Acts
- Dissenting stockholders have appraisal rights in cases like extension of term or sale of substantially all assets.
- Treasury shares: corporation may acquire its own shares for valid purposes if it has unrestricted retained earnings.
- Investment in other corporations allowed with proper approvals (Section 41).
Declaration of Dividends
- Board may declare dividends from unrestricted retained earnings as cash, property, or stock (Section 42).
- No dividends if surplus profits exceed 100% of paid-in capital, except for specific exceptions.
- Stock dividends require 2/3 stockholder approval; cash/property dividends can be declared by board alone.
Management Contracts and Ultra Vires Acts
- Management contracts require majority approval of both boards and stockholders, with stricter rules for interlocking stockholders/directors (Section 43).
- Ultra vires acts are actions outside corporate powers; these are generally void, except under certain equitable circumstances (Section 44).
Key Terms & Definitions
- Express Powers — Powers explicitly granted by law or corporate charter.
- Implied Powers — Powers necessary to execute express corporate powers.
- Incidental/Inherent Powers — Powers arising from the mere existence of the corporation.
- Primary Franchise — The privilege to exist as a corporation.
- Secondary Franchise — Additional regulatory approval needed for certain activities.
- Appraisal Right — Right of dissenting stockholder to demand payment for shares.
- Preemptive Right — Priority right of existing stockholders to subscribe to new shares.
- Ultra Vires Act — Acts beyond a corporation’s legal powers.
Action Items / Next Steps
- Review Sections 35–44 of the Revised Corporation Code.
- Study the procedural requirements for amendments, capital changes, and asset disposition.
- Prepare for a long quiz covering Titles 1–5 on January 4.
- Read up on related topics: special laws, board exam essentials, and corporate accountancy concepts.