WHAT ARE THE KINDS OF POWERS OF A CORPORATION?

Image Source

Published — June 20, 2022

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law.” (Leonardo Umale v. ASB Realty Corporation, G.R. No. 181126, June 15, 2011)

 

After reading “What are the kinds of powers of a corporation?”, read also “Is Payment for Overtime Work Absolute?”

• A corporation may exercise express, implied, and incidental powers.

• Express powers of a corporation refer to those that are expressly provided for under the Revised Corporation Code of the Philippines (RCCP), applicable laws, administrative rules and regulations, and the Articles of Incorporation of the corporation.

• Implied powers of a corporation refer to those powers that are recognized under paragraph (k) of Section 35 of the RCCP.

• Incidental powers of a corporation refer to those that are deemed conferred on the corporation by virtue of its existence.

A corporation may exercise express, implied, and incidental powers.

 

Express powers of a corporation refer to those that are expressly provided for under the Revised Corporation Code of the Philippines (RCCP), applicable laws, administrative rules and regulations, and the Articles of Incorporation of the corporation.

 

Implied powers of a corporation refer to those powers that are recognized under paragraph (k) of Section 35 of the RCCP, which provides that every corporation incorporated under the RCCP has the power and capacity:

(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.

 

Incidental powers of a corporation refer to those that are deemed conferred on the corporation by virtue of its existence. Corporations have incidental powers as a consequence of the fact that they exist as juridical persons. Incidental powers may include the right to succession, the right to have a corporate name, right to make bylaws, and the right to hold properties for the purposes that are allowed by its charter.

 

The law says:

Section 35 of the RCCP provides for the general powers of a corporation, to wit:

Section 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 purpose s 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.

 

Below are the specific powers of a corporation:

A corporation has the power to sell, retire, or distribute treasury shares as property dividends by virtue of the its absolute ownership over such treasury shares.

Section 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.

A corporation has the power to amend its Articles of Incorporation. However, it cannot provide for a different procedure for such amendment than that set out under Section 15 of the RCCP, which states that:

Section 15. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. The articles of incorporation of a nonstock corporation may be amended by the vote or written assent of majority of the trustees and at least two-thirds (2/3) of the members.

The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Amendments to the articles shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees, with a statement that the amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Commission.

The amendments shall take effect upon their approval by the Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

 

The Revised Corporation Code of the Philippines also provides for the following powers of a corporation:

1. Power to extend or shorten the corporate term (Section 36, RCCP);
2. Power to increase and decrease capital stock, or to incur, create or increase bonded indebtedness (Section 37, RCCP);
3. Power to deny preemptive right (Section 38, RCCP);
4. Power to sell and dispose assets of the corporation; (Section 39, RCCP);
5. Power to acquire own shares (Section 40, RCCP);
6. Power to invest corporate funds in another corporation or business or for any other purpose (Section 41, RCCP);
7. Power to declare dividends (Section 42, RCCP); and
8. Power to enter into management contracts (Section 43, RCCP).

 

What is “Stretching the Purpose Clause”?

SEC Opinion No. 08-24 dated October 22, 2008, states that:

“It is settled that it is only in the business/es, for which it was lawfully organized and which is stated in the articles of incorporation, that a corporations should engage in. But if the business is necessary for the accomplishment of the purpose of the corporation or incident to it, the corporation may also engage in such business. As a matter of fact, it is even legal to “stretch” the meaning of the purpose clause to cover new and unexpected situations.

There will always be instances when doubts may arise as to whether an act may be reasonable implied from the purposes of the corporation. These doubts will sometime be due to poor draftsmanship or lack of foresight on the part of the original incorporators or their legal counsel or, as is oftentimes the case, situations or circumstances may come up which could not have been foreseen at the time of incorporation. Many times the purpose clause can be reasonably ‘stretched’ as to impliedly cover these new and unexpected situations. But in those cases where it cannot, a proper amendment thereof would be necessary.”

 

Jurisprudence says:

In the case of Leonardo Umale v. ASB Realty Corporation (G.R. No. 181126, June 15, 2011), the Supreme Court held that:

Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the power to sue in its own name. This power is granted to a duly-organized corporation, unless specifically revoked by another law.

In the case of Ago Realty & Development Corporation v. Angelita Ago et.al. (G.R. No. 210906, October 16, 2019), the Supreme Court ruled that:

One of the powers expressly granted by law to corporations is the power to sue.66 As with other corporate powers, the power to sue is lodged in the board of directors, acting as a collegial body. Thus, in the absence of any clear authority from the board, charter, or by-laws, no suit may be maintained on behalf of the corporation. A case instituted by a corporation without authority from its board of directors is subject to dismissal on the ground of failure to state a cause of action.

 

Who exercise corporate powers?

A corporation, being a juridical entity, may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.

 

What is the test to be applied to determine if a power of a corporation is implied?

In the case of Alfredo Montelibano, et. al. v. Bacolod Murcia Milling Co., Inc. (G.R. No. L-15092, May 18, 1962), the Supreme Court set out a test to determine if a corporate power is implied, to wit:

It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation’s business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not.”

---

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

[email-subscribers-form id=”4″]