University of the Cordilleras

College of Accountancy

Powers of a Corporation
The powers of a corporation refers to the capacity or right of a
corporation to do certain things under its charter or under the law. (De leon,
2013)

A corporation shall exercise powers which are expressly granted to it by

the law (Corporation Code) and those which are implied and incidental to its
existence. (Domingo, 2019)

A corporation exercises its powers through its board of directors and/or its
duly authorized officers and agents, except in instances where the Corporation
Code requires stockholders’ approval for certain specific acts. (Nectarina S.
Raniel and Ma. Victoria R. Pag-ong vs. Paul Jochico, et. Al., GR. No. 153413,
March 1, 2007)

General Powers of a Corporation

Every corporation incorporated under the code has the power to:

(a) to sue and be sued in its corporate name

(b) To have perpetual existence;

(c) to adopt and use a corporate seal.

(d) to amend its articles in accordance with the provisions of the code. With
appropriate provision is Section 14 As far as the amendments pertaining to the
name, place of principal business, term, an authorized capital stock of the
Corporation

(e) to adopt bylaws not contrary to law, morals and public policy and to amend
or repeal the same;

(f) in cases of stock corporations, the issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of the code. If it is a nonstock
Corporation, to admit members and obtain capital by increasing the number of
persons sharing the same purpose or mission.

(g) to purchase, receive, take or grant, hold, convey, lease, pledge, mortgage
or otherwise dealing with real and personal property, including securities and
bonds of other corporations as the transaction of the lawful business of the
Corporation the reasonably and necessarily require, subject to the limitations
prescribed by law in the Constitution. NOTE that investments as long as stated in
the articles, like involving the purchase of shares or securities are valid, if not
stated that stockholders approved is required.

(h) to enter into partnerships, joint venture, mergers and consolidations, or any
other commercial agreement with natural and juridical persons.

(i) to make reasonable donations, including those for public welfare or for
hospitals, charitable, cultural, scientific, civic or similar purposes. PROVIDED: That
no foreign corporation shall give donations in aid of any political candidate or
for purposes of partisan political activities;
(j) to establish pension, retirement other than plans for the benefit of directors,
trustees, officers and employees.

The purpose is to create or foster better relations between the Corporation and
its employees, which ideally should result in greater productivity

(k) to exercise such power as may be essential or in a society to carry out the
purposes stated in the articles.
(Sec. 35, Revised Corporation Code)

Specific Powers of a Corporation

1. Power to Extend or Shorten Corporate Term

Vote Requirements:
 Approval of the majority of the board of directors (50% +1)
 Ratification by the 2/3 of the stockholders or members
 Right of Appraisal is available

In case of extension of the corporate term, the dissenting stockholder may

exercise his Appraisal Right. (Sec. 36, Revised Corporation Code)

Appraisal right
Appraisal right is the right given to a stockholder who dissented or voted
against a specific corporate action. This right gives the stockholder the right to
get out of the corporation by demanding payment of the fair market value of his
shares. (Domingo, 2019)

2. Power to Increase or Decrease Capital Stock; Incur, Create or Increase

Bonded Indebtedness.

Vote Requirements:
 Approval of the majority of the board of directors
 Ratification of the 2/3 of the outstanding capital stock
 Certificate signed by the majority of the directors, countersigned by the
chairperson and the secretary of the stockholder’s meeting.
 Approval by the SEC
 Treasurer’s affidavit stating that 25% of the increased capital stock has been
subscribed and that at least 25% of the amount has been paid.
(Sec. 37, Revised Corporation Code)

Bonded Indebtedness
These are long term debts which are secured by real property. (Domingo ,
2019)

3. Power to Deny Pre-Emptive Right

Pre Emptive Right

The preferential right of all stockholders of a corporation to subscribe to
all (New shares) issues or dispositions of shares of any class, in proportion to their
respective shareholdings. The purpose of this is to enable the shareholders to
retain his proportionate control in the corporation. (Domingo, 2019)
 Pre-emptive right is recognized only with respect to NEW issues of shares
and NOT to Additional issues of the ORIGINAL AUTHORIZED SHARES. For example,
the corporation amends its Articles Of Incorporation to increase the capital
stock. The stockholders shall have the power to exercise their Pre-emptive right
with respect to the new issued shares. (Pedro Lopez Dee vs. SEC, et al. GR No. L-
60502)

Exception: (When Pre-emptive right is not available.)

There are certain instances where the corporation will increase the capital
stock however the stockholders shall not have pre-emptive right.

 When the additional shares are issued in compliance with laws requiring
stock offering or minimum stock ownership by the public;
 Shares to be issued in good faith with the approval of the stockholders
representing 2/3 of the outstanding capital stock;
 in exchange of property needed for corporate purposes or
 in payment of a previously contracted debt. (Sec. 38, Revised
Corporation Code)

4. Power to Sell , dispose, lease, encumber all or substantially all of corporate

assets.
Vote requirements
 Majority vote of the Board of Directors or Trustees
 Ratification by 2/3 of the OCS or members. (Sec. 39, Revised Corporation
Code)

Meaning of “Sale of Substantially all..”

A sale or other disposition shall be deemed to cover substantially all
of corporate property and assets if the corporation would be rendered
incapable of continuing the business or accomplishing the purpose for
which it was incorporated. (Domingo, 2019)

Notes:
If the sale or disposition is in the ordinary course of business then only the
approval of the board of directors or trustees is needed.

Right of Appraisal
The dissenting stockholder may exercise his Appraisal Right.

5. Power to Acquire Own Shares

General Rule
Corporations may acquire its own shares of stocks only if it has Unrestricted
Retained Earnings. (Domingo, 2019)
Unrestricted retained earnings are the surplus profits of a corporation from
the ordinary conduct of its business.

Instances where the Corporation can Acquire its own shares

 To eliminate fractional shares. A fractional share is a share less than 1 share.
 To collect or compromise a debt arising from an unpaid subscription.
 To pay a dissenting or withdrawing stockholder. (Sec. 40, Revised
Corporation Code)
6. Power to Invest corporate funds in another Corporation or Business or for any
Other Purpose.
(Investing in another Business or Purpose)
Vote requirements :
 Approval of the majority of directors.
 Ratification by 2/3 of the OCS or members. (Sec 41. Revised corporation
Code)

(Investing in the same Business or Purpose)

Vote requirements :
 Approval of the majority of the directors only (Sec 41. Revised corporation
Code)

Right of Appraisal
 Any dissenting stockholder shall have appraisal right. (Sec 41. Revised
corporation Code)

7. Power to Declare Dividends

Corporations have the power to distribute among stockholders corporate
profits that have been set aside, declared, and ordered to be paid by the
directors. These corporate profits that have been set aside are call
dividends.(Domingo, 2019)

Dividends may be declared by the board of directors only out of

unrestricted retained earnings. (Sec. 42, Revised Corporation Code). These
unrestricted retained earnings are “earnings which have not been reserved or
set aside by the board of directors for some corporate purpose”. (Domingo,
2019)
Since these corporate profits are not reserved by the board for some corporate
purpose, then it may be given to the stockholders.

Dividends are usually declared at the end of a fiscal year as earlier profits
may be offset by losses. Only stockholders are entitled to a dividend as it is an
incidence or stock ownership. Dividend declaration is generally discretionary
No action can be brought against a corporation because it is not a matter of
right but of consensus.

Kinds of Dividends
cash dividend (b) stock dividend (c) Property dividend (d) option a
dividend as the stockholder is given the option to receive cash / stock / property
(e) composite which is payable partly in stock / cash / property (f) preferred
when payable to one class of stock in priority over another.

Requirements for declaration of Dividends

 Existence of unrestricted retained earnings;
 Approval by majority of the Board of Directors;(Sec. 42, Revised
Corporation Code)

Incase of Stock dividends;

 Approval by 2/3 of the OCS
 Sufficient number of authorized unissued shares for distribution to
stockholders.(Sec. 42, Revised Corporation Code)

As a rule stock corporations are prohibited from retaining surplus profits in

excess of their paid-in capital stock.
Exception (When they are allowed to retain more than 100% of their paid in
capital)
 Excess is for the purpose of corporate expansion or programs approved by
the board of directors
 Corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign
 Special circumstances such as when the excess will be used for probable
contingencies. (Sec. 42, Revised Corporation Code)

8. Power to enter into Management Contract

A corporation may enter into agreements where it will delegate its
management to another corporation, this is called a management contract.
Management contracts shall not be for a period of more than five years.
(Domingo, 2019)

Vote Requirements
 Approval by the majority of the board of directors
 Ratification of MAJORITY of the OCS or members
 Approval of 2/3 of the OCS or members of the MANAGED corporation
incase there are interlocking stockholders or directors. (Sec. 43, Revised
Corporation Code)

Interlocking stockholders:
Where a stockholder or stockholders representing the same interest of
both the managed and managing corporations own or control more than 1/3 of
the total outstanding capital stock entitled to vote of the managing corporation.
(Sec. 43, Revised Corporation Code)

Interlocking directors
Where majority of the members of the board of directors of the managing
corporation also constitute a majority of the board of directors of the managed
corporation. (Sec. 43, Revised Corporation Code)

Term shall be for a maximum period of 5 years only. (Sec. 43, Revised
Corporation Code)

EXCEPTION: Service contracts or operating agreements which relate to

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. (Sec. 43, Revised Corporation Code)

Ultra Vires Acts

An Ultra Vires act is an act committed outside the purpose for which a
corporation is created as defined by the law and its organization, and therefore
beyond the powers conferred upon it. (Sec. 44, Revised Corporation Code)
Acts which are clearly beyond the scope of the corporation’s authority
are null and void and cannot be given any effect.

Ratification
An Ultra Vires act can be ratified, however it requires
 Consent of ALL stockholders
 Rights of the State are not involved
 Creditors are not prejudiced
 The act or contract must be wholly executed.
 -End of Module-

References:

Revised Corporation Code

Domingo,A. (2019). Business Laws and Regulations: partnership, Revised

Corporation, Cooperative Law, Laws, Principles, and Jurisprudence (2019
Edition). Itogon, Benguet: Coaching for Results Publishing.

De Leon, H. (2013), The Corporation Code of the Philippines, Quezon City,

Philippines: Rex Printing Company, Inc.

Nectarina S. Raniel and Ma. Victoria R. Pag-ong vs. Paul Jochico, et. Al., GR. No.
153413, March 1, 2007

Pedro Lopez Dee vs. SEC, et al. GR No. L-60502, July 16, 1991

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