Powers of a Corporation

Question 1

Enumerate the powers and capacity of a corporation.

Answer 1

(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 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, and to amend or repeal the same in accordance with the Code.

(f) In case of stock corporation, 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 non-stock 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 the Constitution

(h) To enter into a partnership, joint venture, merger, consolidation, or any other 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.

(k) To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.

Question 2

With regards to the power to sue and be sued, who has such power?

Answer 2

The power to sue is lodged with the board of directors or board of trustees. The president may sign the certificate of non-forum shopping if authorized through a board resolution.

Except when a stockholder is suing on a derivative action.

Question 3

What are the three kinds of powers of the corporation?

Answer 3

Express powers, which are powers expressly provided under its articles of incorporation and bylaws.

Incidental powers, which are powers that are reasonably necessary to accomplish the express powers.

Incidental powers, which are powers inherently necessary to carry out the purpose of the corporation.

Question 4

How may a corporation extend or shorten its corporate term?

Answer 4

A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees, and ratified by at least 2/3 of the stockholders representing the outstanding capital stock or of its members.

Question 5

In extending or shortening its corporate term, with regards to the written notice, what is the rule?

Answer 5

Written notice of the proposed action and the time and place of the meeting shall be sent to stockholders or members either served personally, or electronically when allowed by the bylaws or done with the consent of the stockholders.

Question 6

When should the extension of the lifetime of a corporation be done?

Answer 6

Extension must be done during the lifetime of a corporation but not earlier than 3 years prior to the original or subsequent expiry dates unless there are justifiable reasons for an earlier extension.

Question 7

What is the effect if a corporation failed to extend its corporate term?

Answer 7

Automatic dissolution is no longer applicable given the option available to revive the corporate term. The period for revival is not indicated in the Revised Corporation Code, so the period must be deemed reasonable.

Question 8

How can a stock corporation increase or decrease its capital stock or incur, create, or increase any bonded indebtedness?

Answer 8

A corporation may increase or decrease its capital stock or incur, create, or increase any bonded indebtedness through approval by the majority of the board of directors and by 2/3 of the stockholders of the outstanding capital stock.

Question 9

In relation to increasing or decreasing capital stock or incurring, creating, or increasing bonded indebtedness, who will be the signatories of the Director’s Certificate? What are its contents?

Answer 9

The director’s certificate must be signed by the majority of the board of directors and countersigned by the president and the secretary of the stockholders’ meeting.

Its contents are:
(a) Requirements of Section 37 has been complied
(b) The amount of the increase or decrease of the capital stock
(c) Specified requirements in case of increase of capital stock
(d) Any bonded indebtedness to be incurred, created, or increased
(e) Amount of stock represented at the meeting
(f) Votes

Question 10

In applying for the increase in capital stock before the Securities and Exchange Commission, the application must be accompanied with?

Answer 10

Sworn statement of the treasurer of the corporation lawfully holding office at that time which shows:
(a) At least 25% of the increase in capital stock has been subscribed
(b) At least 25% of the subscribed amount must be paid in cash to the corporation
(c) The valuation of the 25% of the subscribed amount has been transferred to the corporation

Question 11

What is the rule regarding preemptive rights?

Answer 11

All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation.

Question 12

What is a preemptive right?

Answer 12

Preemptive right is the preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings.

Shares of stock should first be offered proportionately to the stockholder before they can be issued or sold to non-stockholders.

Question 13

What are the instances when preemptive right is available?

Answer 13

(a) All issues of stock of any class such as issuance of unissued shares forming part of the authorized capital stocks, or issuance of new shares resulting from the increase of capital stocks
(b) All dispositions of stocks of any class
(c) Preemptive right of stockholders in close corporations

Question 14

What are the instances when preemptive right is not available?

Answer 14

(a) Payment of previously contracted debts
(b) The right is denied in the articles of corporation
(c) Waiver of the right by the stockholder

Question 15

What is the remedy for a stockholder not in favor of an amendment of the articles of incorporation?

Answer 15

The stockholder may exercise his appraisal right since the amendment of the articles of incorporation has the effect of changing or restricting the rights of a shareholder or any shares.

Question 16

What is the vote requirement with regards to the power of the corporation to sell, lease, exchange, mortgage, pledge, or otherwise dispose its property and assets?

Answer 16

A corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, or otherwise dispose its properties and assets.

Question 17

What is the vote requirement with regards to the power of the corporation to sell, lease, exchange, mortgage, pledge, or otherwise dispose all or substantially all of its properties and assets?

Answer 17

A corporation may sell, lease, exchange, mortgage, or otherwise dispose all or substantially all of its properties and assets if authorized by the vote of stockholders representing at least 2/3 of its outstanding capital stocks or at least 2/3 of the members in a stockholders’ or members’ meeting.

Question 18

How does the sale, lease, exchange, mortgage, or disposition determined to be “all or substantially all of the corporation’s properties or assets”?

Answer 18

If the sale or other disposition would render the corporation incapable of continuing the business or accomplishing its purpose, it is considered to be “all or substantially all” of the corporation’s properties or assets.

Question 19

Can the board of directors or trustees abandon the sale or other disposition of the corporation’s properties and assets?

Answer 19

After such authorization or approval by the stockholders or members, the board of directors may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto.

Question 20

Is the authorization of the stockholders or members needed if the sale, lease, exchange, mortgage, or disposition of the property is necessary for the usual and regular course of business of the corporation?

Answer 20

The corporation may, without authorization from the stockholders or members, sell, lease, exchange, mortgage, pledge, or otherwise dispose its properties or assets if the same is necessary for the usual and regular course of business of the corporation, or the proceeds of the sale or other disposition of such property and assets shall be appropriated for the conduct of its remaining business.

This will only require the vote of the majority of the quorum of the board.

Question 21

When does de facto merger happen?

Answer 21

There is a de facto merger when a corporation (transferring corporation) exchanges all or substantially all of its assets for the shares of another (transferee corporation).

The transferring corporation may later on be dissolved, where the shares of the transferee corporation will be distributed by way of liquidating dividends to the shareholders of the transferring corporation.

Question 22

What is the Nell Doctrine?

Answer 22

Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor.

Exceptions:
(a) Where the purchaser expressly or impliedly agrees to assume such debts
(b) Where the transaction amounts to a consolidation or merger of corporations
(c) Where the purchasing corporation is merely a continuation of the selling corporation
(d) Where the transaction is entered into fraudulently in order to escape liability for such debts

Question 23

What is the rule with regards to the power of the corporation to acquire own shares?

Answer 23

Provided that the corporation has unrestricted retained earnings to cover the shares to be purchased or acquired, a stock corporation shall have the power to purchase or acquire its own shares for legitimate corporate purposes. Such as:
(a) To eliminate fractional shares arising out of stock dividends
(b) To collect or compromise an indebtedness to the corporation
(c) To pay dissenting or withdrawing stockholders

This pertains to redeemable shares.

Question 24

What is the rule with regards to the power of the corporation to invest corporate funds in another corporation or business?

Answer 24

A corporation may invest its fund to another corporation, business, or other purpose, provided that such investment is necessary to carry out its purpose.

If the investment will be made in a business other than the primary or secondary purpose of the corporation, there should be an amendment to the articles of incorporation. Otherwise, the business activity is ultra vires.

Question 25

What are the voting requirements for the corporation to invest its fund to another corporation or business?

Answer 25

For a corporation to invest its funds to another corporation or business, it needs the approval of the majority of its directors or trustees, and the ratification of at least 2/3 of the stockholders of the outstanding capital stock or the members.

Question 26

What is the rule with regards to the power of the corporation to declare dividends?

Answer 26

Declaring dividends out of unrestrained stock earnings is lodged with the board of directors of a stock corporation, as long as:
(a) Any cash dividends due to a delinquent stock shall be first applied on the unpaid balance of the subscription
(b) While stock dividends shall be withheld from delinquent stockholders until it was fully paid.

Question 27

What is the rule regarding the ultra vires acts of a corporation?

Answer 27

Generally, a corporation cannot possess or exercise corporate powers not conferred by the Revised Corporation Code or by the corporation’s articles of incorporation.

Exception:
(a) Necessary powers to carry out its purpose
(b) Incidental powers by reason of it being a corporation.

Question 28

What are the three types of ultra vires acts of a corporation?

Answer 28

(a) Outside the powers of the corporation
(b) Done by officers not authorized by the corporation (this may be ratified)
(c) Acts contrary to law (void and cannot be ratified)