What is a corporation?

• A corporation is defined as an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to
its existence (Sec 2., Corporation Code).

Who classifies shares?

1. Incorporators - by indicating the classification of the shares in the AOI

2. BOD and stockholders - Amending AOI Majority of the Board _2/3 of stockholders

Holders of Non-Voting Shares shall nevertheless be entitled to vote on the following:

(a) Amendment of the articles of incorporation;

(b) Adoption and amendment of bylaws;

(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property;

(d) Incurring, creating, or increasing bonded indebtedness;

(e) Increase or decrease of authorized capital stock;

(f) Merger or consolidation of the corporation with another corporation or other corporations;

(g) Investment of corporate funds in another corporation or business in accordance with this Code; and

(h) Dissolution of the corporation.

Amendment of the Articles of incorporation

1. Approval by the majority of the board of directors or board of trustees AND

2. Vote or written assent of the 2/3 stockholders representing the outstanding capital stock or 2/3 of the
members.

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

Quorum in Corporate Meetings

1.Majority (50% +1) of the directors or trustees as fixed in the articles of incorporation.

2.Majority of those present in the meeting (if constituting a quorum) in order for the meeting or acts to
be valid.

3.If the bylaws provide for a greater majority, then that will be followed.

Removal of Directors or Trustees

The power to remove directors belongs to the stockholders or members EXCLUSIVELY.

GR: Removal may be with or without cause.

XPN: Removal without cause may not be used to deprive minority stockholders of the right of
representation.

Requisites:

1.Removal shall take place in a regular or special meeting duly called for that purpose
2.Vote of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the
members entitled to vote in case of non stock corporations.

3.Previous notice to stock holders or members of the corporation of the intention to propose such
removal at the meeting

Must be called by the secretary on order of the president on the written demand of the stockholders
representing or holding at least a majority of the outstanding capital stock or a majority of members
entitled to vote.

Self-Dealing Directors

A contract of the corporation with one or more of its directors trustees , officers or their spouses and
relatives within the 4th civil degree of consanguinity or affinity.

GR: A contract of the corporation with one or more of its directors trustees , officers or their spouses
and relatives within the 4th civil degree of consanguinity or affinity is VOIDABLE at the option of the
corporation.

XPN: (when valid) ALL MUST BE PRESENT

a. That the presence of such director, or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting.

b. That the vote of such director or trustee was not necessary for the approval of the contract

c. That the contract is fair and reasonable under the circumstances;

d. NEW: In case of corporations vested with public interest, material contracts are approved by at least
2/3 of the entire membership of the board , with at least a majority of the independent directors voting
to approve the material contract; and

e. That in case of an officer, the contract has been previously authorized by the board.

Interlocking Directors

These are members of the board of directors in a certain corporation who are also directors of another
corporation.

A contract between two or more corporations having interlocking directors shall not be invalidated on
that ground alone. It is merely VOIDABLE Provided the following requisites concur:

1. The contract is not fraudulent

2. The contract is fair and reasonable

XPN: If the interest of the interlocking director in one corporation is substantial (Stock holdings more
than 20% of the OCS) and his interest in the other corporation or corporations is merely nominal (20%
or less) in another corporation, the contract is valid provided:

1. The presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. The vote of such director or trustee was not necessary for the approval of the contract;
3. The contract is fair and reasonable;

Ratification by Stock holders on self-dealing and Interlocking directors, or trustees, or

officers
May be ratified by the vote of the stockholders representing at least 2/3 of the SH or members in a
meeting called for that purpose.

Requisites

1. Any of the first 3, (a-c) conditions set forth in the preceding paragraph is absent

2. Full disclosure of the adverse interest of the directors or trustees

3. That the contract is fair and reasonable under the circumstances.

DOCTRINE OF CORPORATE OPPORTUNITY

• When a director, by virtue of his office, acquires for himself a business opportunity which should
belong to the corporation, thereby obtaining profits to the prejudice of the corporation, he shall
have the duty to account to the latter for all profits by refunding the same even though he
risked his own funds in the venture.

RATIFICATION

The director need not account to the corporation if his act was ratified by 2/3 of the OCS.

Adoption of By Laws

1.Before Incorporation

a. The by laws must be signed by all incorporators and filed with the SEC together with the AOI

2.After Incorporation

Requirements:

 Vote of the MAJORITY of the Outstanding Capital Stock Holders or Members.

Amendment of By Laws

Vote Requirement:

1.Majority of the Board of Directors

2.Majority of OCS or Members

XPN:

 2/3 of the OCS or members may authorize the Board of Directors or Trustees to amend, repeal,
or adopt new by laws.
 MAJORITY of the OCS or Members may revoke such authority.

Specific Powers of a Corporation

Power Vote Requirement/Exceptions

1.Power to Extend or Shorten Corporate 1. Approval of the majority of the board of
Term directors (50% +1)
2. Ratification by the 2/3 of the
stockholders or members
3. Right of Appraisal is available
In case of extension of the corporate term, the
dissenting stockholder may exercise his
Appraisal Right. (Sec. 36, Revised Corporation
Code)

1. Approval of the majority of the board of

2.Power to Increase or Decrease Capital directors
Stock; Incur, Create or Increase Bonded 2. Ratification of the 2/3 of the outstanding
Indebtedness. capital stock
3. Certificate signed by the majority of the
directors, countersigned by the
chairperson and the secretary of the
stockholder’s meeting.
4. Approval by the SEC
5. Treasurer’s affidavit stating that 25% of
the increased capital stock has been
subscribed and that at least 25% of the
amount has been paid.
(Sec. 37, Revised Corporation Code)

3.Power to Deny Pre-Emptive Right There are certain instances where the
corporation will increase the capital stock
however the stockholders shall not have pre-
emptive right.
• When the additional shares are issued in
compliance with laws requiring stock
offering or minimum stock ownership by
the public;
• Shares to be issued in good faith with
the approval of the stockholders
representing 2/3 of the outstanding
capital stock;
• in exchange of property needed for
corporate purposes or
• In payment of a previously contracted
debt. (Sec. 38, Revised Corporation
Code)

4.Power to Sell, dispose, lease, encumber However, if the corporation is disposing “All or
all or substantially all of corporate assets. Substantially All of its assets then it needs to
comply with the following requirements:
Vote requirements
1. Majority vote of the Board of Directors or
Trustees
2. Ratification by 2/3 of the OCS or
members. (Sec. 39, Revised Corporation
Code)

6.Power to Invest corporate funds in (Investing in another Business or Purpose)

another Corporation or Business or for Vote requirements:
any Other Purpose. • Approval of the majority of directors.
• Ratification by 2/3 of the OCS or
members. (Sec 41. Revised corporation
Code)

(Investing in the same Business or

Purpose)
Vote requirements:
Approval of the majority of the directors only
(Sec 41. Revised corporation Code)

7.Power to Declare Dividends Requirements for declaration of Dividends

1. Existence of unrestricted retained
earnings;
2. Approval by majority of the Board of
Directors;(Sec. 42, Revised Corporation
Code)
In case of Stock dividends;
1. Approval by 2/3 of the OCS
2. Sufficient number of authorized unissued
 shares for distribution to stockholders.
(Sec. 42, Revised Corporation Code)

8.Power to enter into Management 1. Approval by the majority of the board of

Contract directors
2. Ratification of MAJORITY of the OCS or
members
3. Approval of 2/3 of the OCS or members
of the MANAGED corporation in case
there are interlocking stockholders or
directors. (Sec. 43, Revised Corporation
Code)

Ultra Vires Acts Ratification of an ULTRA VIRES ACT:

An Ultra Vires act can be ratified, however it
requires
• Consent of ALL stockholders
• Rights of the State are not involved
• Creditors are not prejudiced
• The act or contract must be wholly
executed.