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QUICK REFERENCE ON THE POWERS OF THE CORPORATION

POWER STATUTORY PROCEDURE WITH OR WITHOUT


REQUIREMENT APPRAISAL RIGHT

Power to shorten or  Approved by a  Written notice to ▪ Extension à Yes,


extend corporate term majority vote of the each stockholder such constitutes a
(Sec. 37) Board of Directors novation of the
(majority of the contract.
quorum) Shortening à No, but
 Ratified by at least not because such is
2/3 of the OCS or inherent, because
2/3 of members in
such is not inherent
a non-stock
corporation. as it constitutes an
alteration of the
powers granted it by
the State.

Power to increase  Approved by a  Written notice to ▪ Increase à None,


capital stock and also majority vote of the each stockholders dilutes the worth
the power to decrease Board of Directors  Special of the stock,
capital stock (Sec. 38) (majority of documentary defeats the
quorum) requirements purpose of the
 Ratified by at least  Prior approval of increase.
2/3 of the OCS the SEC; SEC shall Decrease à None,
not accept for filing because in effect
unless with a sworn there is a return of
statement by part of investments
treasurer that 25-
of the stockholders
25 rule complied
with
 SEC approval
triggers effectivity
Power to incur, create  Approved by a  Written notice None – drains the
or increase majority vote of the  Prior approval of corporation of financial
indebtedness (Sec. 38) Board of Directors the SEC resources contrary to
(majority of the purpose for which
 Supporting
quorum) the power is exercised.
documents
▪Ratified by at least required:
2/3 of the OCS 1) trust indenture
SEC INTERIM with a trustee
GUIDELINES à bank
Corporation must have: 2) underwriting
▪ Minimum net worth agreement
of P25 M at the ▪ Bonds registered
time of the filing of with the SEC
the application
▪ Have been in
operation for at
least 3 years
▪ Must fulfill financial
ratio mandated by
SEC in interim
guidelines
Power to sell, dispose, 1) Of all or (1) Must Yes, such a sale does
lease, encumber (Sec. substantially all of comply with the not necessarily leas to
40) its property Bulk Sales Law a dissolution of the
▪ Majority vote of ▪ Listing the corporation and return
ALL à Quantitative Board of Directors corporate creditors
of the residual value of
Test (majority of and the amount
quorum) and nature of their the corporation. Such
SUBSTANTIALLY ALL à
Qualitative Test ▪ Ratified or claims is afforded as a matter
(purpose for which it approved by 2/3 of ▪ Failure renders of equity and fairness.
was incorporated) the OCS or 2/3 of transaction void
the members (2) If no ratificatory
▪ Relates to the vote of stockholders, it
primary purpose. is an utra vires act of
2) Exception to Sec. the third kind
40 – if the sale is
necessary in the
usual and regular
course of business
or if proceeds of
the sale or other
disposition of such
property and assets
be appropriated for
the conduct of its
remaining
businesses
▪ Majority vote of
Board of Directors
(business judgment
rule
▪ Does not relate to
primary or
secondary purpose
Power to purchase own ▪ Must be for a legitimate purpose – example: None
shares (Sec. 41) (1) eliminate fractional shares arising out
of stock dividends
Buy back of shares (i) (2) collect or compromise an
decrease the cost of indebtedness to the corporation
doing business (ii) arising out of unpaid subscription in a
perpetuate control of delinquency sale, and to purchase
the enterprise. delinquent shares during said sale and
(3) to pay dissenting or withdrawing
stockholders exercising their 3
appraisal right
▪ Taken from URE only except redeemable
shares
Power to invest ▪ Approved by a ▪ Written notice of Yes, because minus
corporate funds in majority vote of the proposed the ratificatory vote
another corporation or the Board of investment and the contract or
business or for any Directors (majority the time and place transaction falls under
other purpose (Sec. of quorum) of meeting shall
the realm of ultra
42) ▪ Ratified by at least be addressed to
2/3 of the OCS each stockholder vires transactions of
or member at his the third type.
▪ As a general rule, place of residence
section 42 applies as shown in the
if the investment books of the
is for secondary or corporation and
other than the deposited to the
primary purpose. addressee in the
▪ Except if the Post Office with
investment is postage prepaid or
reasonably served personally.
necessary to
accomplish its
primary purpose
as stated in the
Articles of
Incorporation,
approval of the
stockholders is not
necessary as it is
included in the
Business
Judgment of
Board of
Power to declare ▪ Directors
Cash dividends ▪ Sec. 43 prohibits Yes.
dividends (Sec. 43) (1) stock corporation
Absolute from retaining
majority of surplus profits in
Board of excess of 100% of
Directors à in their paid-up
accordance capital stock,
with the EXCEPT:
Business (1) When
Judgment justified by
Rule definite
(2) Only declared out corporate
of the URE which shall expansion
be payable in cash, in projects or
property or in stock programs as
(3) However, cash approved by
dividends due on the Board of
delinquent shares Directors
shall be first applied (2) When corporation
to the unpaid balance is prohibited under
while stock dividends any loan agreement
shall be withheld until from declaring
fully paid dividends without its
▪ Stock dividends à consent and such
approval of 2/3 of
the OCS at a consent has not yet
regular or special been secured or
meeting called for (3) When it can be
that purpose. clearly shown that such
retention is necessary
under special
circumstances
obtaining in the
corporation such as
when there is need for
special reserve for
profitable
contingencies.
Power to enter into ▪ Approved by absolute majority of the Board
management contracts of Directors
(Sec. 44) ▪ Approved by stockholders owning majority of
the OCS

HOWEVER where:
(1) Stockholders representing the same interest
of both managing and the managed corporation
own or control more than 1/3 of the total OCS
entitled to vote of the managing corporation OR
(2) Where a majority of the members of the
Board of Directors of the managing corporation
also constitute a majority of the members of the
Board of Directors of the managed corporation.
Then it must be approved by the stockholders of
the managed corporation owning at least 2/3 of
the OCS

EXCEPT if the corporation is organized primarily


as management company.

▪ Not for a period longer than five years for


any one term.

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