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Powers of Corporations

Sections 36 45 TCCP

Doctrine of Limited Capacity

A corporation has only such powers as are expressly granted and those that are necessarily implied from those expressly granted or those that are incident to its existence.

Express Powers under the General Incorporation law

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to 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;

Express Powers under the General Incorporation law

7. 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;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and

11. 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.

Power to sue and be sued

Incidental to corporate existence (also expressly granted)

De facto corporations may sue and be sued

Dissolved corporation after the three (3) year winding up period cannot sue or be sued

Unregistered corporation cannot sue as registered corporation

Foreign corporations transacting in the Philippines with no license from SEC cannot sue in Philippines courts

G.R. Moral damages cannot be claimed by corporation

Power to adopt and use a corporate seal

Seal Device to identify or replace the signature of an individual or organization and to authenticate written matter purportedly emanating from such individual or organization. (May be an emblem, symbol, or word)

Power to acquire and convey property

Inherent power: A corporation needs properties or assets to carry on its business.

Power is subject to constitutional and statutory limitations

a. Limitations as to area

b. Limitations as to exploration, development and utilization

Power to acquire and dispose shares or securities

Corporations may acquire shares or securities of other corporations

Corporation may acquire its own stocks

Power to contribute to charity

CSR Corporate Social Responsibility: Corporations are not only money making machines but also economic and social institutions with public responsibility

Limitations on the power to donate:

1. Amount must be reasonable

2. Donation must not be in aid of a political party or candidate

Power to establish pension, retirement and other plans

It is the corporations responsibility to provide comfort, health and well being of its employees

Granting of bonuses and incentive compensations as reward is within implied powers

Power to build schools, hospitals, churches is also implied.

Other Express Powers

Power to extend or shorten corporate term

May be effected by amending the Articles of Incorporation approved by majority vote of the board of directors/trustees and ratified at a meeting of the stockholders representing at least 2/3 of the outstanding capital stock or by at least 2/3 of the members in case of non-stock corporations. Mere written assent is not sufficient, there must be a meeting and the proposal must be put to a vote.

Appraisal right

Right of stockholder in the cases provided by law to demand payment of the fair value of his shares on case of an extension of corporate term.

Also available in case corporate term is shortened

Power to increase or decrease capital stock

Increase or decrease in capital stock is a fundamental change in the corporation

Power must be expressly conferred by law and upon prior approval by the SEC

Subscription of increase of capital stock

requirements

in

case

Illustration of subscription requirement

Ways of increasing (or decreasing) ACS

Illustration of Ways to increase (decrease) ACS

Suppose that ACS is PhP 1,000,000.00 divided into 100,000 shares therefore the par value per share is PhP 10.00

Meaning of no reduction of ACS to absolve creditors from payment of subscription

A corporation cannot release persons who subscribed (considered creditors of the corporation) from paying the subscription

Effect of reduction of ACS

Illustration of rules

Suppose that ACS is PhP 1,000,000.00 divided into 100,000 shares therefore the par value per share is P10.00

Power to incur bonded indebtedness

Bonded debt - The part of the entire indebtedness of a corporation that is represented by the bonds that it has issued. Also considered to be debt that is contracted under the obligation of a bond.

May be made only with the approval of the SEC

The of a Corporation

Board

of

Directors/Trustees/Officers

Sections 23-35 (TCCP)

Legal Fiction and Positive Action

Corporations are creations of law (Artificial Persons)

An artificial person can act through a natural person

Sec. 23 - [T]he corporate powers of all corporationsshall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees

Selection of Board

MAJORITY of Stockholders or Members elect the Board

BUT, stockholders have no authority over the board once they are elected: They have the sole authority to determine policy and conduct the ordinary business of the corporation

Contracts must be entered into by the Board not by the stockholders or members

Stockholders resolution disowning a corporate act done by the Board has no effect

Wisdom? For Practical reasons

Limitations on the powers of the Board

1. They must be legal

2. They cannot perform consitutent acts (Those that involve fundamental changes in the corporation)

3. They cannot exercise powers not possessed by the corporation

Ultra-vires Beyond ones legal power or authority

Corporate act must be through a Board Action

At a meeting at which there is a quorum

Exceptions to the rule (Board as a body)

1. Where the directors were the sole stockholders

2. When expressly authorized by the board expressly or impliedly

3. When the act was ratified (express or implied) in a subsequent board meeting

4. Through an executive committee

5. Through a management contract

6. In a close corporation

Delegation of powers

Power of the board may be delegated either expressly or impliedly to other officers or agents of the corporation

Exception: Discretionary powers may not be delegated

Term of Office

By express provision of law: One (1) year and until their successors are elected and qualified

If there is no one is elected and qualified, the director continues to function as such in a hold over capacity

Number of directors or trustees

G.R. Not less than five nor more than fifteen

Exceptions:

a. Non-stock corporations may be more than 15

b. Close corporation Directors may be dispensed with

c. Corporation sole Corporator only

Qualifications of Board (Per TCCP)

Stock:

1. Must own atleast one share of stock

2. The stock must be registered in his name on the corporate books

3. Ownership of stock is a continuing requirement

4. Majority must be residents of the Philippines

Non-stock:

- Membership and residency requirement

Requisites for Valid Election

1. There must be a meeting of stockholders or members called for that purpose

2. Owners of the majority of the outstanding capital stock or majority of the members must be present personally or by a representative authorized to act by written proxy

3. Must be by ballot IF requested by any voting stockholder or member

4. Notice must be given

Other rules

a. The AI or the BL can not limit a stockholders statutory right to use any of the methods of voting

b. Delinquent stocks are not allowed to vote

c. Plurality of votes is enough to declare winner (vs. majority)

d. Election must be conducted, if for any reason it is not held, meeting may be adjourned from day to day or from time to time but not sine die

Methods of Voting (Stock)

Straight Voting

Methods of Voting (Stock)

Cumulative for 1 candidate

Methods of Voting (Stock)

Methods of Voting (Non-Stock)

Board of Directors/ Trustees/ Officers

Officers

Per TCCP

1. President

2. Secretary

3. Treasurer

Positions may be concurrently held except President and Secretary at the same time and President and Treasurer at the same time

Other Officers

May be provided for in the by-laws

1. Vice president

2. General Manager

3. Comptroller

4. Others

Election of Administrative Officers

By the stockholders or may be entrusted to the board of directors or trustees

Term of office and compensation

Term: May be fixed in the by laws or officers may be removed at any time by the board

Compensation: Within the power of the board

Nature of authority of corporate officers

They are agents of the corporation, unlike the board who cannot bind the corporation except through board resolutions

As agents of the corporation, corporate officers have the power to bind the corporation by their acts as long as it is within their ACTUAL, APPARENT, or INHERENT authority

Authority is conferred by:

a. Statute

b. AI

c. BL

d. Resolution of the Board

What is a quorum?

Definition: Such number of the membership of a collective body as is competent to transact its business or do any other corporate act

Quorum = Majority of the directors of the corporation

Exception: If a greater majority is provided in the AI or BL

Illustration

Can directors or trustees act through a proxy?

No.

Board of Directors or trustees must attend meetings in person and personally exercise their judgment

Reportorial Requirement after election

Must be submitted to the SEC within thirty (30) days from election

What must be submitted?

a. Names, nationalities and residences of the Directors, Trustees, or Officers elected

b. Death, resignation, removal of DTO.

Disqualification of DTO

1. Must not have been convicted by final judgment of any offense punishable by imprisonment for a period not exceeding six (6) years; or,

2. Must not have been convicted by final judgment of violation of TCCP committed within five (5) years prior to the date of election or appointment

Removal of Directors or Trustees

May be removed even without sufficient cause

May not be removed by peers

Court cannot remove a director or trustee unless it acquires jurisdiction to appoint a receiver

Requisites for Removal of directors or trustees

1. Must take place either ar a regular meeting of the corporation or at a special meeting called for that purpose

2. Previous notice to the stockholders or members of the corporation and intention to propose the removal must be given

3. Removal must be by a vote of stockholders holding or representing two-thirds (2/3) of the outstanding capital stock (2/3 of members for non-stock)

Vacancies

By the stockholders or members

1. If vacancy results from the removal by the stockholders or members or the expiration of the term

2. If vacancy occurs other than be removal or by expiration of term such as death, resignation, abandonment, or disqualification IF the remaining directors or trustees do not constitute a quorum for the purpose of filling the vacany

3. If the vacancy may be filled by the remaining directors or trustees but the board refers the matter to the stockholders or members

4. If the vacancy is created by reason of an increase in the number of directors or trustees

Vacancies

By the members of the board

Provided they still have a quorum and the vacancy which occurred was other than by removal by the stockholders or member or by expiration of term

Compensation

Allowed:

1. Reasonable per diems

2. Compensation granted by stockholders vote which shall not exceed ten (10%) of the net income before income tax of the corporation during the preceding year

Dealings of DTO with Corporation

Contract between DTO and Corporation is voidable at the option of the latter unless:

1. Presence of the DT in the Board Meeting was not necessary to constitute a quorum for such meeting

2. Vote of such DT was not necessary for the approval of the contract

3. Contract is fair and reasonable under the circumstances

4. In case of an officer, the contract has been previously authorized by the board

*** If any of 1&2 is not present contract may be ratified by stockholders representing 2/3 capital stock provided that full disclosure is made and contract complies with no. 3

**** 3 ways to render contract valid

Contracts with interlocking directors

between

corporation

Interlocking directors: One, some or all of the directors in one corporation is/are also director/directors in another corporation

Valid as long as there is no fraud and the contract is fair and reasonable under the circumstances

* However: if interest of director is substantial (i.e. more than 20%) he will be subjected to the test applied for directors dealing with the corporation (preceding slide)

Corporate opportunity theory

A director who, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, is guilty of disloyalty and should, therefore, account to the latter for all such profits by refunding the same, notwithstanding that he risked his funds in the venture.

Except if his act is ratified by stockholders vote representing atleast 2/3 fo the outstanding capital stock

Executive Committee

The by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board,

except with respect to:

(1) approval of any action for which shareholders approval is also required;

(2) the filing of vacancies in the board;

(3) the amendment or repeal of by-laws or the adoption of new by-laws;

(4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and

(5) a distribution of cash dividends to the shareholders.