CORPORATION LAW
MODULE 4
COMPREHENSIVE DISCUSSION OF CORPORATION LAW
LEARNING OUTCOMES
At the end of this module, you are expected to:
A. Discuss the powers of corporation;
B. Distinguish by-laws from articles of incorporation;
C. Determine the procedures of meetings by a stockholder or member;
D. Elaborate the concept of merger and consolidation;
E. Identify the other kinds of corporation; and
F. Explain the concept of dissolution and liquidation
CORPORATION LAW
POWERS OF CORPORATIONS
The powers of a corporation are categorized into three:
1. General powers;
2. Specific powers; and
3. implied powers.
General Powers
The general powers of a corporation are the following:
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 a 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 policy, and to amend or repeal
the same in accordance with this Code;
F. In case of stock corporations, 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 nonstock 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; and (in the articles of incorporation; and
K. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated.
CORPORATION LAW
Specific Powers
The general powers of a corporation are the following:
A. Power to extend or shorten corporate term;
The corporate term of stock corporation is that which is stated in its Articles of
incorporation. It may be extended or shortened by an amendment of the Articles
when approved by majority of its Board of Directors
B. Power to increase or decrease capital stock;
C. Power to incur, create or increase bonded indebtedness;
D. Power to deny pre-emptive right;
This refers to the right of existing stockholders to purchase or subscribe to all
issuances or disposition of shares of any class, in proportion to their respective
stockholdings, before such shares are offered to the public. This will enable the
stockholders to maintain their proportionate control of the corporation.
Existing stockholders are given certain period within which to exercise the right.
Failure to exercise the right within the said period shall be deemed a waiver
thereof.
E. Power to sell, lease, exchange, mortgage, pledge or otherwise dispose all or
substantially all of its property;
A corporation may, by a majority vote of its board of directors or trustees, sell,
lease, exchange, mortgage, pledge, or otherwise dispose of its property and
assets, including its goodwill, which may be money, stocks, bonds, or other
instruments for the payment of money or other property or consideration.
F. Power to acquire its own shares;
G. Power to invest corporate funds in another corporation or business or for any other
purpose;
H. Power to declare dividends;
The term “dividend” both in the technical sense and its ordinary acceptation, is
that part or portion of the profits of the enterprise which the corporation, by its
governing agents, sets apart for ratable division among the holders of the capital
stock.
CORPORATION LAW
It means the fund actually set aside, and declared by the directors of the
corporation as a dividends, and duly ordered by the director, or by the
stockholders at a corporate meeting, to be divided or distributed among
the stockholders according to their respective interest.
I. Power to enter into management contract.
It is a contract whereby a corporation delegates the management or operation of
its business to another corporation.
Implied Powers
These are the powers which are necessary to carry into effect powers which are
expressly granted, and which must therefore be presumed to have been the intention in
the grant of the franchise.
The following are some of the implied powers of a corporation:
1. Acts in the usual course of business;
2. Acts to protect debts due to the corporation;
3. Acts which involve embarking on a different line of business;
4. Acts designed to protect or aid employees; and
5. Acts to increase the business of the corporation.
Ultra Vires Acts
An ultra-vires act is an act or contract which is beyond the powers that a
corporation can lawfully exercise. In other words, an ultra-vires act is an act performed
outside the express, implied and incidental powers of a corporation. Thus, a banking
corporation cannot deal in real property in the same manner that a real estate
corporation conducts its business since such act is outside its scope of authority as a
bank. An ultra-vires act may be committed by the corporation itself, by the board of
directors, or by the corporate officers.
CORPORATION LAW
Activity 1
1. under the law, there are 3 different kinds of powers of a corporation. Give at least one (1)
example of each kind of powers with an illustration.
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C. ___________________________________________________________________________________________
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CORPORATION LAW
BY-LAWS
By-laws are the rules of action adopted by a corporation for its own government and for
the government of its stockholders or members and those having the direction, management
and control of its affairs.
Distinctions between articles of incorporation and by-laws
1. Articles of incorporation constitute the character of the corporation, while by-laws are the
rules of action adopted by a corporation.
2. Articles of incorporation are executed before incorporation, while by-laws are adopted
before or after incorporation.
3. Articles of incorporation are adopted by the incorporators, while by-laws if adopted
before incorporation, are adopted by the incorporators, and if after, by the stockholders or
members.
4. The filing of the articles of incorporation is a condition precedent for the acquisition by
the corporation of a juridical personality, while the filing of the by-laws is a condition
subsequent thereto.
MEETINGS OF DIRECTORS OR TRUSTEES, STOCKHOLDERS OR MEMBERS
Meetings, whether those of the board of directors or trustees, or of the stockholders or
members, are necessary in order that any corporate act may be decided upon only after
deliberation and consultation among themselves. Meetings will give them the opportunity to
deliberate and vote on matters affecting the corporation.
In a nutshell, the difference between the meeting of the stockholders/members and the
board are as follows:
Stockholder/Member Board
Time of regular Annually on a date fixed in the by-laws Monthly, unless the by-laws
meeting or if not so fixed, on any date after provide otherwise
April 15 of every year as determined by
the board.
Notice of regular Written notice of regular meetings At least two (2) days prior to the
meeting shall be sent to all stockholders or scheduled meeting, unless a longer
members of record at least twenty-one time is provided in the by-laws.
CORPORATION LAW
Stockholder/Member Board
Time of special Any time deemed necessary or as pro- Anytime upon the call of the presi-
meeting vided in the by-laws. dent or as provided in the by-laws
Notice of special At least 1 week written notice shall At least 2 days prior to the sched-
meeting be sent to all stockholders or mem- uled meeting, unless a longer time
bers, unless a different period is pro- is provided in the by-laws.
vided in the by-law, law or regulation
Manner of voting In person, proxy or when so authorized In person or through remote com-
in the by-laws, through remote com- munication such as video confer-
munication or in absentia encing, teleconferencing or other
alternative modes of communica-
tion; vote by proxy is not allowed.
Place of meetings Principal office of the corporation as Anywhere in or outside of the Phil-
set forth in the articles of incorpora- ippines, unless the bylaws provide
tion, or, if not practicable, in the city or otherwise.
municipality where the principal office
of the corporation is located.
Quorum Consist of the stockholders represent- Unless the articles of incorporation
ing a majority of the outstanding capi- or the by laws provides for a great-
tal stock or a majority of the members er majority, a majority of the direc-
in the case of non stock corporations. tors or trustees as stated in the ar-
ticles of incorporation shall consti-
tute a quorum to transact business,
and every decision reached by at
least a majority of the directors or
trustees constituting a quorum,
except for the election of officers
which shall require the vote of a
majority of all the members of the
CORPORATION LAW
STOCKS AND STOCKHOLDERS
How one becomes a stockholder
1. by subscription of unissued shares
A subscription contract is any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed, notwithstanding the fact that the
parties refer to it as a purchase or some other contract. A subscription contract is a
contract by which the subscriber agrees to take a certain number of shares of the capital
stock of a corporation, paying for the same or expressly or impliedly promising to pay
for the same.
2. by purchase of treasury shares - this covers issued shares
3. by transfer from a stockholder - some modes of transfer are:
A. Sale
B. Barter or exchange
C. Dation in payment
D. Donation
E. Succession
Subscription distinguished from purchase of stock
1. subscription may be made before or after incorporation, while purchase may be made
only after incorporation.
2. the subscriber becomes a stockholder even if he has not paid subscription , while the
purchaser does not become a stockholder until he has paid the purchase price in full.
3. the subscriber can vote on the shares even if he has not paid his subscription in full as
long as the shares are not delinquent. The purchaser of stock can vote only on the shares
he has paid.
Certificate of Stock
It is the written acknowledgement by the corporation of the stockholder’s interest
in the management, profits and assets of the corporation.
CORPORATION LAW
MERGER AND CONSOLIDATION
Concept of Merger
It is the union of two or more corporations whereby one or more but not all of the
constituent corporations are absorbed by one which continues in existence and retains its name
and corporate identity, called the surviving corporation. The rights, privileges, franchises, and
property of the constituent corporation are merged into the surviving corporation.
Concept of consolidation
It is the union of two or more corporations whereby the existence of the constituent
corporations is terminated and a new one, called the consolidated corporation, is created. The
rights, privileges, franchises, and property of the constituent corporations are united, and
become the rights, privileges, franchises and property, of the consolidated corporation.
Effects of merger and consolidation
1. the constituent corporations shall become a single corporation; the surviving
corporation in case of merger, and the consolidated corporation in case of consolidation.
2. the separate existence of the constituent corporations shall cease, except that of the
surviving corporation or the consolidated corporation.
3. the surviving or consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and responsibilities of a
corporation organized under the corporation code.
4. the surviving or consolidated corporation shall possess all the rights, privileges,
franchises, property and all interest of each the constituent corporations.
5. the surviving or consolidated corporation shall be liable for all the liabilities of each
the constituent corporations. The surviving or consolidated assumes automatically the
liabilities of the dissolved corporations, regardless of whether the creditors have
consented or not to such merger or consolidation.
CORPORATION LAW
NON-STOCK CORPORATION
Concept of non-stock corporation
A non-stock corporation is one where no part of its income is distributable as
dividends to its members, trustees, or officers. Any profit which a non-stock corporation
may obtain incidental to its operations shall, whenever necessary or proper, be used for
the furtherance of the purpose or purposes for which the corporation was organized.
Non-stock corporations may be formed or organized for charitable, religious,
education, professional, cultural, fraternal, literary, scientific, social, civic service, or similar
purposes, like trade, industry, agricultural and like chambers, or any combination thereof.
Membership in a non-stock corporation and all rights arising therefrom are
personal and non-transferrable , unless the articles of incorporation or the by-laws
otherwise provide.
Does it mean that a non-stock corporation cannot have any income or profit? No.
it only means that the income or profit generated must be ploughed back for the
furtherance of the purpose or purposes for which the corporation was organized.
EDUCATIONAL CORPORATIONS
Incorporation
Educational corporations shall be governed by special laws and the general
provisions of the Revised Corporation Code.
Board of trustees
Trustees of educational institutions organized as non-stock corporations shall not
be less than five (5) nor more than fifteen (15): provided, that the number of trustees
shall be in multiples of 5. (Meaning the board of trustees shall be either 5, 10, or 15)
CORPORATION LAW
DISSOLUTION
Dissolution means that the corporation ceases to be a juridical person and consequently
can no longer continue transacting its business. However, for the purpose only of winding up its
affairs and liquidating its assets, its corporate existence continues for a period of three years
from such dissolution.
Liquidation
Liquidation is a necessary consequence of the dissolution of a corporation.
Following the voluntary or involuntary dissolution of a corporation, liquidation is the
process of settling the affairs of said corporation, which consist of adjusting the debts
and claims, that is, of collecting all that is due the corporation, the settlement and
adjustment of claims against it and the payment of its just debts.
Except for banks, every corporation whose charter expires pursuant to its articles
of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in
any other manner, shall nevertheless remain as a body corporate for three (3) years after
the elective date of dissolution, for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, dispose of and convey its
property, and distribute its assets, but not for the purpose of continuing the business for
which it was established.
This continuance of its legal existence for the purpose of enabling it to close up
its business is necessary to enable the corporation to collect the demands due it as well
as to allow its creditor assert the demands due it as well as to allow its creditors to assert
demand against it. If this were not so, then a corporation that became involved in
liabilities might escape the payment of its just obligations by merely surrendering its
charter, and thus defeat its creditors or greatly hinder and delay them in the collection of
their demand. The person who has a valid claim against a corporation, whether it arises
in contract or tort should not be deprived of the right to prosecute an action for the
enforcement of his demands by the action of the stockholders of the corporation in
agreeing to its dissolution. The dissolution of a corporation does not extinguish
obligations or liabilities due by or to it.
This extended authority necessarily excludes the purpose of continuing the
business for which it was established. The reason for this is simple: the dissolution of the
corporation carries with it the termination of the corporation’s juridical personality. A
new business in which the dissolved corporation would engage in, will be a void
transaction because of the non-existence of the corporate party.
CORPORATION LAW
Activity 2
Write the letter of your answer on the space provided.
_______1. the following statements pertain to the express powers of a corporation.
I. a corporation may establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees.
II. A corporation may make donations for the benefit of a political party or candidate or
for purposes of a partisan political activity provided the donations are reasonable.
A. both statements are true
B. both statements are false
C. statement I is true; statement II is false
D. statement I is false; statement II is true
_______2. which of the following by laws is valid?
A. a by-law provides that one need be the owner of a share of stock to become a
director of the corporation.
B. a by-law which provides that one must be the owner of more than one share of stock
of the corporation to become a director.
C. a by-law which provides that one can continue to be a director throughout his term
although he has disposed all his shares in the corporation.
D. a by-law which provides a greater number of directors than that stated in the articles
of incorporation.
_______3. which of the following subscription does not comply with the subscription and paid-up
capital requirements at the time of incorporation?
Authorized Subscribed Paid-up
A. P1,000,000.00 P250,000.00 P 62,500.00
B. P300,000.00 P 75,000.00 P 50,000.00
C. P100,000.00 P100,000.00 P 100,000.00
D. P50,000.00 P12,500.00 P 3,125.00
CORPORATION LAW
Items 4, 5, 6 are based on the following information:
The articles of incorporation of ABC Corporation provide, among other matters, for an
authorized capital stock of P1,000,000.00 divided into 10,000 shares at P100.00 par value
per share. 5000 shares have been subscribed at P100.00 per share of which 3,000 shares
have been paid in full while 2,000 shares have been paid at 80% of the subscription
price. Of the 3,000 shares paid in full, 100 shares were reacquired at par value.
_______4. the issued capital stock of the corporation is:
A. P360,000.00
B. P500,000.00
C. P300,000.00
D. P290,000.00
_______5. the outstanding capital stock of the corporation is:
A. P 1,000,000.00
B. P500,000.00
C. P490,000.00
D. P290,000.00
________6. the subscribed capital stock of the corporation is:
A. P500,000.00
B. P490,000.00
C. P190,000.00
D. P200,000.00
________7. how many shares are needed to elect 3 directors and assure each of them a seat in
the board of directors assuming that the articles of incorporation provide for 11 directors
and the corporation has 5,000 shares outstanding and entitle to vote?
A. 1251 shares
B. 5,000 shares
C. 1667 shares
D. 1364 shares
CORPORATION LAW
_______8. which of the following is not a qualification of incorporators of a stock corporation?
A. they must be natural person.
B. they must be of legal age.
C. majority of them must be citizens of the Philippines.
D. they must be subscribers to at least 1 share of stock of the corporation.
________9. which of the following statements pertaining to the purpose or purposes of a stock
corporation is incorrect?
A. a stock corporation may have more than one purpose.
B. the purposes, if there are several, must be susceptible of being lawfully combined.
C. the primary purpose and the secondary purposes may be stated together as one
purpose in the articles of incorporation.
D. the purposes must be lawful.
_______10. these equations are presented to you:
I. A + B = A
II. A + B = X
What do the above equations represent?
A. I, merger; II, consolidation
B. I, consolidation; II, merger
C. both equations represent merger
D. both equations represent consolidation.
_______11. Green Livelihood Projects, Inc. is a non stock, non profit corporation whose articles of
incorporation provide for 9 trustees with staggered terms. The trustees first elected and
their respective terms of office are: Afable, Bernabe and Calimag, 3 years; Dayag. Estacio
and Formeloza, 2 years; and Gesmundo, Hilacan and Ibero, 1 year. After 1 year, Jalmasco,
Kintanar and Lopez were elected to replace, Gesmundo, Hilacan and Iberp whose terms
expired. What is the term of office of Jalmasco, Kintanar and Lopez?
A. one year B. two years
C. Three years D. five years
CORPORATION LAW
______12. refer to the preceding number. Assume that Afable resigned after one year and three
months in office and Modena was elected to replace him. What is the term of office of
Modena?
A. one year
B. one year and nine months
C. one year and three months
D. three years
_______13. these statements concerning the number of trustees of a non-stock corporation at
the time of its incorporation are presented to you:
I. the number of trustees may be more than 15.
II. The number of trustees may be less than 5.
In your evaluation of the foregoing statements:
A. both I and II are correct
B. both I and II are incorrect
C. I is correct. II is incorrect
D. I is incorrect. II is correct.
________14. immediately after their election, the directors must formally organize by the election
of the following officers, except:
A. President
B. Vice President
C. Treasurer
D. Corporate Secretary
________15. the president of a corporation may at the same time be the:
A. Treasurer
B. Corporate Secretary
C. Chairman of the Board of Directors
D. None of the foregoing
CORPORATION LAW
Activity 3
True or False. Write the word “True” if the statements is true, and the word “False” if the
statement is false.
________1. a corporation is dissolved upon the expiration of the period for which it was formed
unless the said period is extended.
________2. the number of trustees in a non-stock corporation may be more than 15.
________3. the by-laws of a non-stock corporation may validly provide that meetings of
members may be held outside the city or municipality where the principal office of the corpora-
tion is located provided that such other place must be within the Philippines.
________4. the meetings of directors may be held in or outside the Philippines, unless the by-
laws provide otherwise.
________5. a provision in the by-laws requiring that one must be the owner of more than one
share of stock to be eligible as director is valid.
________6. the shortening of the corporate existence of a corporation will result in the dissolu-
tion of the corporation upon the expiration of the shortened term.
________7. a corporation may validly donate funds to a political party or candidate provided the
amount is reasonable.
________8. an increase in capital stock requires at least 25% of the increase in capital stock must
be subscribed and at least 25% of such subscription must be paid.
________9. after dissolution, a corporation shall nevertheless continue to exist as a body corpo-
rate for 3 years not for continuing the business but for liquidating its affairs.
_______10. Consolidation is the union of two or more corporations whereby the existence of the
constituent corporations is created and a new one is terminated.
CORPORATION LAW
Activity 4
Essay
1. In 2019, LinBank proposed to sell to Landbank its banking business for P10 billion consisting
of specified assets and liabilities. The parties reached an eventual agreement, which they
termed as “Purchase and Assumption (P & A) agreement.” in which Landbank would acquire
LinBank;s specified assets and liablities, excluding contingent claims, with the further stipulation
that it should approve by the Bangko Sentral ng Pilipinas (BSP). BSP imposed the condition that
LinBank should place in escrow P1 Billion to cover for contingent claims against signed the
agreement. BSP thereafter issued a circular advising all banks and non-bank intermediaries that
effective January 1, 2020 “the banking activities of LinBank and Landbank have been
consolidated and the latter has carried out their operations since then.” Was there a merger and
consolidation of the two banks in point of the Corporation Code? Explain.
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2. Ibana Halawi is a Filipina residing in Sacramento, California. Heylen Adarna is a Filipina
residing in Cebu City. Jane de Lion is a resident alien (alien means foreigner) residing in
Malaybalay City. JJJ Corporation is a domestic corporation– 40% owned by foreigners and 60%
owned by Filipinos, with Injil Lowkseen as authorized representative. CCC Corporation is a
foreign corporation registered with the Philippine Securities and Exchange Commission. KKK
Corporation is a domestic corporation (100%) Filipino owned. Elias is a Filipino, 16 years of age,
and the son of Heylen Adarna.
A. who can be incorporators? Who can be subscriber?
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CORPORATION LAW
B. What are the differences between an incorporator and a subscriber?
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C. Who are qualified to become members of the board of directors of the corporation?
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D. Who are qualified to act as Treasurer of the company?
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E. Who can be appointed as Corporate Secretary?
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