Midterm

• Theory of Specific Capacity


  NO corporation shall possess or exercise corporate powers other than those conferred by this Code or by its AOI except as necessary or incidental to the exercise of the powers conferred
• Specific powers of a corporation (Theory of Specific Capacity)

  • Power to extend or shorten corporate term
  • Power to increase or decrease corporate stock
  • Power to incur, create, or increase bonded indebtedness
  • Power to deny pre-emptive right
  • Power to sell, dispose, lease, encumber all or substantially all of corporate assets
  • Power to purchase or acquire shares
  • Power to invest corporate funds in another corporation or business for other purpose other than primary purpose
  • Power to declare dividends out of unrestricted retained earnings
  • Power to enter into management contract with another corporation for up to 5 years
  • Power to amend AOI
• Theory of General Capacity


  A Corporation can perform such acts as long as it is not prohibited by general law and not contrary to morals and public policy, and is empowered to exercise any act which is in direct and immediate furtherance of its business, fairly incidental to the express powers, and reasonably necessary to their exercise, even if said power is not expressly granted in the Code
• Doctrine of Limited Capacity

  A corporation can only exercise powers that are express, implied, or incidental to its existence. Express powers are those conferred by law and stated in a company's AOI, particularly in the "purpose clause"
• Doctrine of Centralized Management

  Unless otherwise provided in this Code, the BOARD OF DIRECTORS OR TRUSTEES shall exercise the corporate powers, conduct all business, and control all properties of the corporation
• Business Judgment Rule


  Questions of policy or management are left solely to the honest decision of officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation and so long as it acts in good faith, its orders are not reviewable by the courts or the SEC
• Ultra Vires


  Acts that go beyond a corporation's powers, which depending on the nature of the act, are either void (if illegal) or voidable unless ratified by the stockholders
• Types of Ultra Vires Acts


  • Acts done beyond the powers of the corporation as provided in the law or its AOI
  • Ultra Vires acts of officers and not of the corporation
  • Acts or contracts which are per se illegal as being contrary to law
• Stretching the Purpose Clause


  It is legal to "stretch" the purpose clause to cover new and unexpected situations, especially those that arise from doubts created by poor craftsmanship, lack of foresight, or occurrence of events that were unforeseeable at the time when the purpose clause was drafted
• Articles of Incorporation (AOI)

  The basic contract document, defining the charter of the corporation, and serves as the basis by which to judge whether it exists for legal purposes
• Three-Fold Nature of AOI

  An AOI is a contract between: The State and the corporation; The corporation and the stockholders; and The stockholders inter se
• The AOI and its amendments can be filed electronically
• Contents of AOI


  • Corporate Name
  • Purpose Clause
  • Principal Office
  • Corporate Term (if not perpetual)
  • Incorporators
  • Trustees/Directors
  • For stock corporations: Authorized capital stock, No. of shares, Par value, Original subscribers, Amount subscribed and paid
  • For non-stock: Amount of capital, Names and addresses of contributors, Amount contributed
• A non-stock corporation may not include a purpose which would contradict or change its nature as such
• Non-amendable items in the AOI

  • Name of incorporators
  • Name of original subscribers to the capital stock and their subscribed and paid-up capital
  • Name of the original directors
  • Treasurer elected by the original subscribers
  • Members who contributed to the initial capital of the non‐stock corporation
  • Witnesses to the execution of the AOI
  • Notarial Certificate
• When the stock and transfer book is inaccurate and deficient, the AOI may be used as a basis in determining the shareholdings for purposes of quorum
• No law disqualifies a person from purchasing shares in a landholding corporation even if the foreign shareholdings exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land
• By-laws


  Regulations, ordinances, rules or laws adopted by an association or corporation for its internal governance, including rules for routine matters such as calling meetings
• By-laws must be approved and signed by all incorporators if filed pre-incorporation, or approved by the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock or majority of members if after incorporation
• By-laws must be kept in the principal office of the corporation, subject to inspection by any director, trustee, stockholder or member
• In close corporations, restrictions on the right to transfer shares must appear in both the AOI and in the by-laws as well as in the certificate of stock; otherwise, the restriction shall not be binding on any purchasers of good faith
• Mere internal rules among stockholders cannot affect or prejudice 3rd persons who deal with the corporation unless they have knowledge of the same
• Corporate Term


  The RCC provides that a corporation shall have perpetual existence, except for corporations created under the effectivity of this Code that provide for a specific period
• Extension (or Shortening) of Corporate Term

  1. Approved by a majority vote of the BOD/BOT

  2. Ratified at a meeting by the stockholders/members representing at least 2/3 of the outstanding capital stock or of its members
• Revival of Corporate Existence

  Corporations with an expired term upon the effectivity of the RCC may apply with the SEC for revival of its corporate existence, but this benefit does not extend to corporations whose dissolution was decreed by the SEC or the courts
• Effects of Non-Use of Corporate Charter

  1. If a corporation does not formally organize and commence its business within 5 years, its COI shall be deemed revoked

  2. If a corporation becomes inoperative for at least 5 consecutive years, the SEC may place it under delinquent status, and failure to resume operations within 2 years shall cause the revocation of the COI
• Corporate Name


  The corporate name is essential for a corporation's existence as a juridical person, and it cannot be changed except as provided by law
• The corporate name shall contain the word "Corporation" or "Incorporated," or the abbreviations "Corp." or "Inc." In case of a One Person Corporation, the corporate name shall contain the word "OPC" either below or at the end of its corporate name
• The corporate name of a foundation shall use the word "Foundation", and the corporate name of all non-stock, non-profit corporations, including NGOs and foundations, engaging in micro finance activities shall use the word "Microfinance" or "Microfinancing"
• A corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion
• Priority of Adoption


  Determines the right to the exclusive use of a corporate name
• Corporate name


  The name of a corporation
• Corporate name of a foundation

  • Must use the word "Foundation"
• Corporate name of non-stock, non-profit corporations, including NGOs and foundations, engaging in micro finance activities

  • Must use the word "Microfinance" or "Microfinancing"
• Identical or deceptively or confusingly similar


  The old criteria under the Sec. 18 of the OLD Corporation Code to determine whether or not a corporate name should be allowed
• Corporate name


  • A corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion
• Priority of adoption


  Determines the right to the exclusive use of a corporate name with freedom from infringement
• Determining whether a given corporate name is "deceptively" or "confusingly similar" with another entity's corporate name


  The corporate names must be evaluated in their entirety
• Requisites to fall within the prohibition on corporate names


  • The complainant corporation acquired a prior right over the use of such corporate name

  1. The proposed name is either identical, or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or patently deceptive, confusing or contrary to existing law
• Prohibition on corporate names

  The policy underlying it is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations