A stock corporation may acquire or purchase its own shares for legitimate corporate purposes PROVIDED it has unrestricted retained earnings .
1. To eliminate fractional shares arising out of stock dividends ;
2. To collect or compromise an indebtedness to the corporation arising out of unpaid sub- scription , in a delinquency sale , and to purchase delinquent shares sold during said sale. 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.
FOUNDERS' SHARES are shares issued to organizers and promoters of a corporation in consideration of some supposed right or property. These shares, when classified as such in the articles of incorporation may be given special preference in voting rights and dividend payments. But if an exclusive right to vote and be voted for as director is granted, this privilege is subject to approval by the SEC, and cannot exceed 5 years from the date of approval.
VOTING SHARES are shares with a right to vote.
NON-VOTING SHARES are shares without right to vote.
The law only authorizes the denial of voting rights in the case of redeemable shares and preferred shares, provided that there shall always be a class or series of shares which have complete voting rights.
When such voting rights are denied, these redeemable and preferred shares shall nevertheless be entitled to vote on the following fundamental matters:
a) Amendment of Articles of Incorporation; b) Adoption and amendment of by-laws;
c) Sale or disposition of all or substantially all of corporate property; d) Incurring, creating or increasing bonded indebtedness; e) Increase or decrease of capital stock;
f) Merger or consolidation of corporation;
g) Investments of corporate funds in another corporation or another business purpose; and
h) Corporate Dissolution (Sec. 6) f. Incorporation and organization (1) Promoter
(a) Liability of promoter
(b) Liability of corporation for promoter’s contracts
(2) Subscription contract
(3) Pre-incorporation subscription agreements (4) Consideration for stocks
(5) Articles of Incorporation (a) Contents
(b) Non-amendable items Corporate name
The incorporators “constitute a body politic and corporate under the name stated in the certificate.” A corporation has the power “of succession by its corporate name.” The name of a corporation is therefore essential to its existence; it cannot change its name except in the manner provided by the statute; by that name alone is authorized to transact business; and it is by that name that a corporation can sue and be sued, and perform all other legal acts.
Change of Corporate Name
Although a corporation has the power to change its name by the following the procedure laid down by law, the change of name of a corporation does not result in its dissolution.
In Philippine First Insurance Co. v. Hartigan 34 SCRA 252, held that the changing of the name of a corporation is no more than creation of a corporation than the changing of the name of a natural person is the begetting of a natural person. The act, in both cases, would seem to be what the language which we use to designate it imports – a change of name and not a change of being.
“A change in the corporate name does not make a new corporation, whether effected by a special act or under a general law. It has no effect on the identity of the corporation or on its property, rights or liabilities. The corporation, upon such change in its name, is in no sense a new corporation, or the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed.”- P.C Javier & Sons, Inc. v. Court of Appeals 462 SCRA 36
The amendment of the corporate name in the articles of incorporation and its approval by the SEC no longer requires another amendment to the old corporate names appearing in the by-laws of the corporation.
(7) Registration and issuance of Certificate of Incorporation
Election of directors or trustees
Under Section 24 of the Corporation Code, at all elections of directors or trustees, there must be present, either in person or by representatives authorized to act by written proxy, the owners of the majority of the outstanding capital stock, a majority of the members entitled to vote.
1. Cumulative Voting – is a voting procedure wherein a stockholder is allowed to concentrate his votes and give one candidate as many votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal.
a. Classic Formula (the Cole Formula) b. Glasser Iterative Procedure
c. D’Hondt Remainders Table
2. Election of Board of Trustees – Under Section 92 of the Corporation Code, unless otherwise provided in the articles of incorporation or the by-laws, the Board of Trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized , so classify themselves that the term of the office of 1/3 of their number shall expire every year and subsequent elections of trustees shall be held annually and trustees so elected shall have a term of THREE (3) years. Trustees
thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for unexpired period.
3. Alien Membership in Board of Directors – Commonwealth Act No. 48 , otherwise known as the Anti-Dummy Law, penalizes the intervention of aliens in the management, operation, administration or control of a nationalized enterprise or activity.
*** “Election of aliens as members of the Board of Directors of governing body of corporations or associations engaging in partially nationalized activity shall be allowed in proportion t their allowable participation or share in the capital of such entities.” – PD No. 715
*** “Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the foreign participation in the equity of the said bank.” – Sec 15 of the General Banking Law of 2000
Adoption of By-Laws
Under Section 46 of the Corporation Code, every corporation must, within ONE month after receipt of official notice of the issuance of its certificate of incorporation by the SEC , adopt a code of by-laws for its government not inconsistent with the Code.
By-laws may also be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the SEC, together with the articles of incorporation. For the adoption of by-laws, the affirmative vote of stockholders representing at least a majority of the outstanding capital stock, or at least a majority of the members in the case of non-stock corporations, shall be necessary
The failures to adopt and file the by-laws do not automatically operate to dissolve a corporation, but are considered grounds for which the SEC may seek the corporation’s dissolution. Under Section 6(1) (5) of Pres. Decree 902- A, the SEC may suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation for its failure to file by laws within the period required by law.Requisites of valid by-laws
By-Law Provisions Cannot Contravene the Law By- Law Provisions Cannot Contravene the Charter By-Laws Must Be Reasonable and Non- Discriminatory
Amendments
Under Section 48 of the Corporation Code, the Board of Directors or Trustees, by a majority vote thereof, and the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of a non-stock corporation, at a regular or special meeting called for the purpose, may amend or repeal any by-laws. It is clear therefore that it is within the power of any corporation to junk entirely its existing by-laws and adopt an entirely new set.
The owner of the 2/3 of the outstanding capital stock, or 2/3 of the members in a non- stock corporation, may delegate to the Board of Directors of Trustees the power to amend or repeal any by-laws; provided, that any power delegated to the BoD or Trustees to amend or repeal any by-laws or adopt new by-laws shall be considered revoked whenever stockholders
owning or representing a majority of the members in non-stock corporation, shall so vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall be attached to the original by-laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary and a majority of directors and trustees, shall be filed with the SEC the same to be attached to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the issuance by the SEC of a certification that the same are not consistent with this Code.
Powers of the Corporation 1) Corporate powers
2) Power to extend or shorten corporate term
3) Power in increase or decrease capital stock, incur, create or increase indebtedness 4) Power to deny pre-emptive right
5) Sale or other disposition of assets 6) Power to acquire shares
7) Power to invest corporate funds in another corporation or business or for any other pur- pose
8) Power to declare dividends
9) Power to enter into management contract 10) Ultra Vires Act of the Corporation
Classification of Corporate Powers
• Expressed by law or by the Corporation Code and its articles of incorporation (AOI) • Those necessary to the exercise of the express or incidental powers
• Those incidental to its existence
Distinguishing express powers from implied powers
• Express and Implied powers can further be distinguished as follows: (a) Express powers deal with main business, object or purposes of the corporation, while Implied powers deal with the means and methods of attaining the object or purpose (b) Express powers are determined by the language of the law and its charter while implied powers may change according to time, place and circumstances.
• The Test of Express Powers is whether they are found in the words of the law / charter while the Test of Implied Powers is whether they are purely incidental to its express pow- ers and is reasonably necessary to their being carried out.
CORPORATE POWERS