POWERS OF CORPORATIONS

- Refers to the right or capacity of a corporation to

perform all acts or things, except only those forbidden by
law and its articles of incorporation in furtherance of its
purpose or purposes.
ATTRIBUTES/CHARACTERISTICS OF A
CORPORATION

4. It has the powers, attributes, and properties

expressly authorized by law or incidental to its
existence.

A corporation has no power except those expressly conferred on it

by the Revised Corporation Code and by its articles of incorporation, those
which may be incidental to such conferred powers, those that are
implied from its existence, and those reasonably necessary to
accomplish its purposes. In turn, a corporation exercises said powers
through its BOD and/or its duly authorized officers and agents.

XYZ CONSTRUCTION CORPORATION

1. Express Powers – granted by law/REVISED CORPORATION
CODE, and its Articles or Charter, and administrative
regulations (special law creating the corporation/Republic
Acts)
a. General Powers (Sec. 35)
b. Specific Powers (Sec. 36 – Sec. 43)

2. Inherent/Incidental – are deemed to be within the

capacity of corporate entities
e.g. power to acquire, hold or dispose property as its
business may reasonably require

3. Implied/Necessary – exists as necessary consequence of

the exercise of the express powers of the corporation or
the pursuit of its purposes as provided for in the
Charter/Articles.
e.g. acts that are in the usual course of business
 GENERAL POWERS
SEC. 35. Corporate Powers and Capacity. – Every
corporation incorporated under this Code has the
power and capacity:

(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

(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. (implied powers)
CHANGES IN THE REVISED CORPORATION CODE

Salient Points

1. Perpetual Existence of corporation

2. The power to enter into a PARTNERSHIP and JOINT

VENTURE was specifically enumerated in the REVISED
CORPORATION CODE as part of the corporate powers and
capacity.

3. The REVISED CORPORATION CODE removed the

prohibition of any DOMESTIC CORPORATION to make a
DONATION to a political party.
- Only FOREIGN CORPORATIONS are prohibited to give
such donations
Implied Powers:
- exists as necessary consequence of the exercise of the
express powers of the corporation or the pursuit of its
purposes as provided for in the Charter/Articles.

- Which are reasonably necessary to execute the express

powers to accomplish or carry out the purposes for which
the corporation was formed [Sec. 35 (k)]
Implied Powers CLASSIFIED:

1. Acts in the usual course of the business

- This includes such acts as borrowing money, making ordinary
contracts, executing promissory notes, checks bills of exchange,
taking notes or other securities; acquiring personal property for use
in connection with the business; acquiring lands and buildings to be
used as places of business or in connection therewith; and selling,
leasing, mortgaging or other transfers of property of the corporation
in connection with the running of the business. It is evident that all
such acts, under ordinary circumstances, are necessary in order to
run a business.

2. Acts to protect debts owing to a corporation

- If a corporation is a creditor, it may do such acts as may be necessary
to protect its right as a creditor. Thus, a corporation may purchase
property, act as a guarantor or sometimes even run a business
temporarily to collect a debt, where otherwise it would have no power
to do so;
Implied Powers CLASSIFIED:

3. Embarking in different business

- a corporation may not engage in a business different from
that for which it was reated as a regular and a permanent part
of its business. (However, it can invest in other business. E.g.
buy stocks of other business) This is especially true with respect
to those particular kinds of corporate activities which are
governed by special laws.
4. Acts in part or wholly to protect or aid employees
- while the cases are divided, the better view favors such
acts as building homes, places of amusement, hospitals, etc. for
employees, as within the corporate powers
5. Acts to increase business
- thus, a corporation may conduct contests or sponsor radio
or television programs, or promote fairs and other gatherings to
advertise and increase its business.
INCIDENTAL or INHERENT POWERS

Incidental or inherent powers are powers which a corporation can

exercise by the mere fact of its being a corporation or powers which
are necessary to corporate existence and are, therefore, impliedly
granted. As powers inherent in the corporation as a legal entity, they
exist independently of the express powers. These incidental powers
are expressly recognized by Sections 2 and 43.

Some of the powers enumerated in Section 35 are incidental powers

which can be exercised by a corporation even in the absence of an
express grant.

Examples of incidental powers are: the power of succession; to sue

and be sued; to have a corporate name; to purchase and hold real
and personal property; to adopt and use a corporate seal; to
contract; to make by-law.
 SPECIFIC POWERS
SEC. 36. Power to Extend or Shorten Corporate Term.

SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create or Increase
Bonded Indebtedness

SEC. 38. Power to Deny Preemptive Right.

SEC. 39. Sale or Other Disposition of Assets.

SEC. 40. Power to Acquire Own Shares.

SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or

for Any Other Purpose.

SEC. 42. Power to Declare Dividends.

SEC. 43. Power to Enter into Management Contract.

SEC. 36. Power to Extend or Shorten Corporate Term.
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 at a
meeting by the stockholders or members representing at least
two-thirds (2/3) of the outstanding capital stock or of its
members. Written notice of the proposed action and the time
and place of the meeting shall be sent to stockholders or
members at their respective place of residence as shown in the
books of the corporation, and must either be deposited to the
addressee in the post office with postage prepaid, served
personally, or when allowed in the bylaws or done with the
consent of the stockholder, sent electronically in accordance
with the rules and regulations of the Commission on the use of
electronic data messages. In case of extension of corporate
term, a dissenting stockholder may exercise the right of
appraisal under the conditions provided in this Code.
SEC. 36. Power to Extend or Shorten Corporate Term.

APPROVED BY BOARD OF DIRECTORS/ BOARD OF TRUSTEES

(MAJORITY VOTE)

RATIFIED BY STOCKHOLDERS/MEMBERS
(Representing two-thirds (2/3) of the
outstanding capital stock or two-thirds
(2/3) of the members in nonstock)
SEC. 36. Power to Extend or Shorten Corporate Term.

Salient Points:

The Revised Corporation Code provides that

extension of corporate term may be sent electronically
in accordance with the rules and regulations of the
commission on the use of electronic data messages.
SEC. 36. Power to Extend or Shorten Corporate Term.

Appraisal Right of DISSENTING stockholders.

- the right of a stockholder in the cases provided for
by law to DEMAND payment of the fair value of his
shares.

- applies only to a stockholder and not to a member

(Because you do not want to extend the corporate term

or shorten the corporate term, the stockholder will sell
his shares of stocks and no longer be a stockholder of
the corporation)
SEC. 11. Corporate Term. – A corporation shall have perpetual
existence unless its articles of incorporation provides otherwise.

Xxx

A corporate term for a specific period may be extended or

shortened by amending the articles of incorporation: Provided,
That no extension may be made earlier than three (3) years
prior to the original or subsequent expiry date(s) unless there
are justifiable reasons for an earlier extension as may be
determined by the Commission: Provided, further, That such
extension of the corporate term shall take effect only on the day
following the original or subsequent expiry date(s).
SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create
or Increase Bonded Indebtedness

No corporation shall increase or decrease its capital stock or

incur, create or increase any bonded indebtedness unless
approved by a majority vote of the board of directors and by
two-thirds (2/3) of the outstanding capital stock at a
stockholders’ meeting duly called for the purpose. Written notice
of the time and place of the stockholders’ meeting and the
purpose for said meeting must be sent to the stockholders at
their places of residence as shown in the books of the
corporation and served on the stockholders personally, or
through electronic means recognized in the corporation’s bylaws
and/or the Commission’s rules as a valid mode for service of
notices.
SEC. 37. Power to Increase or Decrease Capital Stock

APPROVED BY BOARD OF DIRECTORS

(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS
(Representing two-thirds (2/3) of the outstanding capital stock)

SEC. 37. Create or Increase Bonded Indebtedness

APPROVED BY BOARD OF DIRECTORS/ BOARD OF TRUSTEES

(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS/MEMBERS
(Representing two-thirds (2/3) of the outstanding
capital stock or two-thirds (2/3) of the members in
nonstock)
SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create or
Increase Bonded Indebtedness

Note:

- The application for the increase or decrease of capital stock or increase

of bonded indebtedness shall be filed with the SEC within SIX (6) months
from the date of approval of the board of directors and stockholders,
which period may be extended for justifiable reasons.

- Bonds issued by a corporation shall be registered with the Commission,

which shall have the authority to determine the sufficiency of the
terms thereof.

- No decrease in capital stock shall be approved by the Commission if its

effect shall prejudice the rights of corporate creditors. (Reason: Trust
Fund Doctrine)
Necessity for increasing capital stock

1. Increase of corporate assets

- An increase of the amount of the capital stock may be for
the purpose of effecting an increase in the corporate assets
by authorizing:
- a. the creation of new shares to be offered and issued
at a fixed valuation; or
- B. the increase of the par value shares authorized to be
issued

2. Issuance of stock dividends

- The capital stock may also be increased without any

corresponding increase in the corporate assets by the
issuance of stock dividends.
Ways of increasing (decreasing) Authorized Capital Stock

There are at least three (3) ways by which the AUTHORIZED CAPITAL STOCK may be
increased (decreased):

1. By increasing (decreasing) the number of shares authorized to be issued without

increasing (decreasing) the par value thereof:
Number of shares 1,000,000.00  2,000,000
Par Value P1.00  P1.00
P 1,000,000.00  P2,000,000.00

2. By increasing (decreasing) the par value of each share without increasing

(decreasing) the number thereof; and
Number of shares 1,000,000.00  1,000,000
Par Value P1.00  P 2.00
P 1,000,000.00  P2,000,000.00

3. By increasing (decreasing) both the number of shares authorized to be issued

and the par value thereof.
Number of shares 1,000,000.00  2,000,000
Par Value P1.00  P 2.00
P 1,000,000.00  P4,000,000.00
SEC. 38. Power to Deny Preemptive Right.

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 or an amendment
thereto: Provided, That such preemptive right shall not extend to
shares issued in compliance with laws requiring stock offerings
or minimum stock ownership by the public; or to shares issued in
good faith with the approval of the stockholders representing
two-thirds (2/3) of the outstanding capital stock, in exchange for
property needed for corporate purposes or in payment of a
previously contracted debt.
Pre-emptive Right of Stockholders/Right of Pre-emption

Whenever the capital stock of a corporation is increased and

new shares of stock are issued, the new issue must be offered
first to the stockholders who are such at the time the increase
was made in proportion to their existing shareholdings and on
equal terms with other holders of the original stocks before
subscriptions are received from the general public.

Example:

X owns 200,000 shares out of 1,000,000 outstanding shares of

XYZ corporation. X has a pre-emptive right equal to 20%. X
may subscribe up to 20% on any increase and/or new shares
that will be issued by XYZ corporation before such shares be
offered to the public.
Pre-emptive Right of Stockholders/Right of Pre-emption

Reason for the grant of right

The rule aims to safeguard the right of a stockholder to

preserved unaltered and unimpaired proportionate influence
and interest in the corporation and the relative value of his
holdings.

In other words, the purpose of the right is to protect from

impairment and dilution and the basic rights of the existing
stockholders in the corporation, i.e., to voting control, to
dividend payments, and to the net assets of the corporation.
SEC. 39. Sale or Other Disposition of Assets.

Subject to the provisions of Republic Act No. 10667, otherwise known as

“Philippine Competition Act”, and other related laws, 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, upon such
terms and conditions and for such consideration, which may be money,
stocks, bonds, or other instruments for the payment of money or other
property or consideration, as its board of directors or trustees may deem
expedient.

A sale of all or substantially all of the corporation’s properties and assets,

including its goodwill, must be authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or at
least two-thirds (2/3) of the members, in a stockholders’ or members’
meeting duly called for the purpose.
In nonstock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in
office will be sufficient authorization for the corporation to
enter into any transaction authorized by this section.

The determination of whether or not the sale involves all or

substantially all of the corporation’s properties and assets
must be computed based on its net asset value, as shown in
its latest financial statements. A sale or other disposition shall
be deemed to cover substantially all the corporate property
and assets if thereby the corporation would be rendered
incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
Written notice of the proposed action and of the time and place
for the meeting shall be addressed to stockholders or members
at their places of residence as shown in the books of the
corporation and deposited to the addressee in the post office
with postage prepaid, served personally, or when allowed by the
bylaws or done with the consent of the stockholder, sent
electronically: Provided, That any dissenting stockholder may
exercise the right of appraisal under the conditions provided in
this Code.

After such authorization or approval by the stockholders or

members, the board of directors or trustees 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,
without further action or approval by the stockholders or
members.
Nothing in this section is intended to restrict the
power of any corporation, without the authorization
by the stockholders or members, to sell, lease,
exchange, mortgage, pledge, or otherwise dispose of
any of its property and assets if the same is
necessary in the usual and regular course of business
of the corporation or if the proceeds of the sale or
other disposition of such property and assets shall be
appropriated for the conduct of its remaining
business.
SEC. 39. Sale or Other Disposition of Assets.

Power to sell, lease, etc. ALL OR SUBSTANTIALLY ALL CORPORATE

ASSETS.

1. Requisites:
a. The sale, lease, etc., must be approved by the board of directors
or trustees;
b. The action of the board of directors or trustees must be
authorized by the vote of stockholders representing 2/3 of the
outstanding capital stock including holders of non voting shares |
2/3 of the members in non-stock corp.
c. The authorization must be done at a stockholders’ or members’
meeting duly called for that purpose after written notice.

Note: Sale, Lease, etc., shall be subject to the provisions of existing laws
on illegal combinations and monopolies (Philippine Competition Act)
ex. Globe Telecommunications and PLDT Telecommuncations
SEC. 39. Sale or Other Disposition of Assets.

Power to sell, lease, etc. ALL OR SUBSTANTIALLY ALL CORPORATE ASSETS.

APPROVED BY BOARD OF DIRECTORS/ BOARD OF TRUSTEES

(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS/MEMBERS
(Representing two-thirds (2/3) of the outstanding
capital stock or two-thirds (2/3) of the members in
nonstock)
SEC. 40. Power to Acquire Own Shares.

Provided that the corporation has unrestricted retained

earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase
or acquire its own shares for a legitimate corporate purpose or
purposes, including the following cases:

(a) To eliminate fractional shares arising out of stock

dividends;
(b) To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold
during said sale; and
(c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
SEC. 9. Treasury shares. – Treasury
shares are shares of stock which have
been issued and fully paid for, but
subsequently reacquired by the issuing
corporation through purchase,
redemption, donation, or some other
lawful means. Such shares may again be
disposed of for a reasonable price fixed
by the board of directors.
Treasury Shares
- only surplus earnings (UNRESTRICTED RETAINED
EARNINGS) may be used for the purchase of treasury shares.
- Shares may be reacquired without impairing the
corporate trust fund. Reacquisition of shares is allowed,
provided the corporation will use assets up to the extent of its
unrestricted retained earnings.

- Treasury shares are not retired shares. They do not revert

to the unissued shares of the corporation but are regarded as
property acquired by the corporation which may be reissued or
resold by the corporation at a price to be fixed by the board of
directors.
SEC. 8. Redeemable Shares. – Redeemable shares may be
issued by the corporation when expressly provided in the
articles of incorporation. They are shares which may be
purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless of
the existence of unrestricted retained earnings
in the books of the corporation, and upon such other
terms and conditions stated in the articles of
incorporation and the certificate of stock representing the
shares, subject to rules and regulations issued by the
Commission.
1. Redemption Date
2. Redemption Price
SEC. 40. Power to Acquire Own Shares.
Provided that the corporation has unrestricted retained earnings in its
books to cover the shares to be purchased or acquired, a stock corporation
shall have the power to purchase or acquire its own shares for a legitimate
corporate purpose or purposes:

Trust Fund Doctrine

This doctrine, holds that the assets of the corporation as

represented by its CAPITAL STOCK are “trust funds” to be
maintained unimpaired and to be used to pay corporate
creditors in the sense that there can be no distribution of such
assets among the stockholders without provision being first
made for the payment of corporate debts and that any such
disposition of it is a fraud on the creditors of the corporation
who extend credit to the corporation on the faith of its
outstanding capital stock and, therefore, void.
SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or
for Any Other Purpose.
Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation, business, or for any purpose other than the primary
purpose for which it was organized, when approved by a majority of the board of
directors or trustees and ratified by the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the
members in the case of nonstock corporations, at a meeting duly called for the
purpose. Notice of the proposed investment and the time and place of the
meeting shall be addressed to each stockholder or member at the place of
residence as shown in the books of the corporation and deposited to the
addressee in the post office with postage prepaid, served personally, or sent
electronically in accordance with the rules and regulations of the Commission on
the use of electronic data message, when allowed by the bylaws or done with the
consent of the stockholders: Provided, That any dissenting stockholder shall have
appraisal right as provided in this Code: Provided, however, That where the
investment by the corporation is reasonably necessary to accomplish its primary
purpose as stated in the articles of incorporation, the approval of the
stockholders or members shall not be necessary. (holding companies)
SEC. 41. Power to Invest Corporate Funds in Another Corporation
or Business or for Any Other Purpose.

APPROVED BY BOARD OF DIRECTORS/ BOARD OF TRUSTEES

(MAJORITY VOTE)

RATIFIED BY STOCKHOLDERS/MEMBERS
(Representing two-thirds (2/3) of the
outstanding capital stock or two-thirds
(2/3) of the members in nonstock)
SEC. 42. Power to Declare Dividends.
The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be
payable in cash, property, or in stock to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses, while
stock dividends shall be withheld from the delinquent
stockholders until their unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the
approval of stockholders representing at least two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly
called for the purpose.
SEC. 42. Power to Declare Dividends.

Stock corporations are prohibited from retaining surplus profits in excess of

one hundred percent (100%) of their paid-in capital stock, except:

(a) when justified by definite corporate expansion projects or programs

approved by the board of directors; or

(b) when the corporation is prohibited under any loan agreement with
financial institutions or creditors, whether local or foreign, from declaring
dividends without their consent, and such consent has not yet been
secured; or

(c) when it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there is
need for special reserve for probable contingencies.
Concept of Dividends

A stock corporation exists to make a profit and to

distribute a portion of the profits to its stockholders.

A dividend is that part or portion of the profits of a

corporation set aside, declared and ordered by the
directors to be paid ratably to the stockholders on
demand or at a fixed time. It is a payment to the
stockholders of a corporation as a return upon their
investment. It is a characteristic of a dividend that all
stockholders of the same class share in it in proportion
to the respective amounts of stock which they hold.
 DIVIDENDS VS. PROFITS

1. A dividend, as applied to corporate stock, is that portion of

the profits or net earning which the corporation has set
aside for ratable distribution among the stockholders. Thus,
dividends come from profits, while profits are the source of
dividends.

2. Profits are NOT dividends until so DECLARED or SET ASIDE

by the corporation. In the meantime, all profits are a part of
the assets of the corporation and do not belong to the
stockholders individually. They may be in cash as well as in
kind.
Declaration of Dividends
Kinds:
1. Cash Dividends/Property Dividends
- Only approval of the board of directors.
2. Stock Dividends
APPROVED BY BOARD OF DIRECTORS

APPROVED BY STOCKHOLDERS
(Representing two-thirds (2/3) of the
outstanding capital stock)
- For the declaration of stock dividends, a corporation must have also a sufficient
number of authorized unissued shares for distribution to stockholders; otherwise, it
must increase its capital stock to the extent of the corporate earnings to be
declared and distributed as stock dividends.
Declaration of Dividends

1. Conditions
a. The existence of “unrestricted retained earnings” out
of which the dividends may be declared and paid; and
(The rationale is that stockholders should only receive
dividends from their investment, and not from the
investment itself.)

b. Corporate resolution of the board of directors declaring

the payment of a portion or all of such earnings to the
stockholders
Declaration of Dividends

Discretion of the board of directors to declare dividends

The board of directors has the responsibility to declare

dividends and determine the timing as well as their amount.

Court cannot compel in the absence of bad faith or clear abuse

of discretion

To justify the declaration of dividends, there must be an actual

bona fide surplus profits or earned surplus over and above all
debts and liabilities of the corporation.
 CASH DIVIDEND VS. STOCK DIVIDEND
1. A cash dividend involves a disbursement to the stockholder of accumulated
earnings, while stock dividend does not involve any disbursement;
2. Cash dividend declared and paid becomes the absolute property of the
stockholder and cannot be reached by the creditors of the corporation in the
absence of fraud, while stock dividend, being still part of corporate property,
may be reached by corporate creditors;
3. Cash dividend is declared only by the board of directors, at its discretion while
stock dividend is declared by the board with the concurrence of the
stockholders representing at least 2/3 of the outstanding capital stock at a
regular or special meeting called for the purpose;
4. Cash dividend does not increase the corporate capital, while it is increased by a
stock dividend; and
5. The declaration of cash dividend creates a debt from the corporation to each of
its stockholders who then hold such stock, while no debt from the corporation
to the stockholders is created by the declaration of stock dividend, except in
the sense that capital stock constitutes a liability;
6. Cash dividend is taxable as income to the stockholder, while stock dividend is
generally not subject to income tax.
SEC. 43. Power to Enter into Management Contract.

No corporation shall conclude a management contract with another

corporation unless such contract is approved by the board of directors and by
stockholders owning at least the majority of the outstanding capital stock, or
by at least a majority of the members in the case of a nonstock corporation,
of both the managing and the managed corporation, at a meeting duly called
for the purpose: Provided, That (a) where a stockholder or stockholders
representing the same interest of both the managing and the managed
corporations own or control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the managing corporation; or (b)
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 the management contract must
be approved by the stockholders of the managed corporation owning at least
two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by
at least two-thirds (2/3) of the members in the case of a nonstock
corporation
SEC. 43. Power to Enter into Management Contract.

MANAGEMENT AGREEMENT/CONTRACT will involve a

business giving operational control of a specific
department or the entire enterprise to a management
company. The company will then take full responsibility
for that particular operation, making all of the operational
decisions necessary to keep that function in your business
running smoothly.
(https://smallbusiness.chron.com/examples-management-
contracts-67105.html)
SEC. 43. Power to Enter into Management Contract.
1st Scenario

Managed Corporation Managing Corporation

APPROVED BY BOARD OF DIRECTORS

(MAJORITY VOTE)
both the managing and the
managed corporation

APPROVED BY STOCKHOLDERS/MEMBERS
(MAJORITY VOTE)
SEC. 43. Power to Enter into Management Contract.
2nd Scenario: INTERLOCKING STOCKHOLDERS

Managed Corporation Managing Corporation

where a stockholder or stockholders representing the same interest of both the

managing and the managed corporations own or control more than one-third
(1/3) of the total outstanding capital stock entitled to vote of the managing
corporation
SEC. 43. Power to Enter into Management Contract.
2nd Scenario: INTERLOCKING STOCKHOLDERS

Managed Corporation Managing Corporation

APPROVED BY BOARD OF DIRECTORS

(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS/MEMBERS
(2/3 of the total outstanding capital stock of the
Managed Corporation)
SEC. 43. Power to Enter into Management Contract.
3rd Scenario: INTERLOCKING DIRECTORS

Managed Corporation Managing Corporation

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
SEC. 43. Power to Enter into Management Contract.
3rd Scenario: INTERLOCKING DIRECTORS

Managed Corporation Managing Corporation

APPROVED BY BOARD OF DIRECTORS

(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS/MEMBERS
(2/3 of the total outstanding capital stock of the
Managed Corporation)
SEC. 43. Power to Enter into Management Contract.

These shall apply to any contract whereby a corporation undertakes to

manage or operate all or substantially all of the business of another
corporation, whether such contracts are called service contracts,
operating agreements or otherwise: Provided, however, That such
service contracts or operating agreements which relate to the
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.

No management contract shall be entered into for a period longer than

five (5) years for any one (1) term.
SEC. 44. Ultra Vires Acts of Corporations.
– No corporation shall possess or
exercise corporate powers other than
those conferred by this Code or by its
articles of incorporation and except as
necessary or incidental to the exercise of
the powers conferred.
Ultra Vires Acts

Those acts which a corporation is not

empowered to do or perform because they are
outside or beyond the express and implied
powers conferred by its Articles of Incorporation
or by the Revised Corporation Code, or not
necessary or incidental to the exercise of the
powers so conferred. [Sec. 44]
Types of Ultra Vires Acts
a. Acts done beyond the powers of the corporation as
provided in the law or its articles of incorporation;

b. Ultra Vires acts of officers and not of the corporation

c. Acts or contracts, which are per se illegal as being

contrary to law. [Villanueva]

Kinds of Ultra Vires acts by reason

a. By reason of Lack of Authority (ultra vires acts)

b. By reason of Illegality (illegal acts)
Basis Ultra Vires Acts Illegal Acts
Lawfulness Lack of authority; Not Illegality; Unlawful;
necessarily unlawful, against law, morals,
but outside the public policy, and
powers of the public order
Corporation
Ratification Can be ratified Cannot be ratified
Binding Power Can bind the parties if Cannot bind the
wholly or partly parties
Executed
Enforceability Voidable, and may be Void and cannot be
enforced by validated
performance,
ratification or
Estoppel