Revised Corporation Code (RCC) PDF

REVISED CORPORATION CODE (“RCC”) Title IV – POWERS OF THE CORPORATION Title V – BYLAWS TITLE IV – POWERS OF THE CORPORATION  What are the corporate powers and capacity? Every corporation incorporated under the RCC has the power and capacity: (a) To s...

REVISED CORPORATION CODE (“RCC”) Title IV – POWERS OF THE CORPORATION Title V – BYLAWS TITLE IV – POWERS OF THE CORPORATION  What are the corporate powers and capacity? Every corporation incorporated under the RCC 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 the RCC; (e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with the RCC; (f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of the RCC; and to admit members to the corporation if it be a nonstock corporation;  What are the corporate powers and capacity? Every corporation incorporated under the RCC has the power and capacity: (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  How may the corporation extend or shorten its term? A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by (1) a majority vote of the board of directors or trustees, and (2) 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 in case of non- stock corporation.  How may the corporation extend or shorten its term? Written notice of the proposed action and the time and place of the meeting shall be sent to the stockholders or members at their respective place of residence as shown in the books of the corporation, and must 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.  What right does a dissenting stockholder have in case of extension of corporate term? In case of extension of corporate term, a dissenting stockholder may exercise the right of appraisal under the conditions provided in the RCC.  May a corporation extend its life by amendment of its AoI after the expiration of its term and during the three-year period of liquidation? No. A corporation cannot extend its life during the period of liquidation when its original term had already expired. The steps necessary to effect the extension must be taken during the life of the corporation and before the expiration of its term of existence as originally fixed in the charter. This is because, as a rule, the corporation is ipso facto dissolved as soon as that time expires.  When may a stock corporation increase or decrease its capital stock, or incur, create or increase any bonded indebtedness? A corporation may increase or decrease its capital stock or incur, create or increase any bonded indebtedness when (1) approved by a majority vote of the board of directors and (2) by two-thirds (2/3) of the outstanding capital stock at a stockholders' meeting duly called for the purpose. What must be signed by the BOD with regard to the change in capital stock or bonded indebtedness? A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and secretary of the stockholders' meeting, setting forth: (a) That the requirements of this section have been complied with; (b) The amount of the increase or decrease of the capital stock; (c) In case of an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-par stock subscribed, the names, nationalities and addresses of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on the subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stockholder if such increase is for the purpose of making effective stock dividend therefor authorized; (d) Any bonded indebtedness to be incurred, created or increased; (e) The amount of stock represented at the meeting; and (f) The vote authorizing the increase or decrease of capital stock, or incurring, creating or increasing of bonded indebtedness  Whose approval is necessary for the change in capital stock or bonded indebtedness? Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the SEC and where appropriate, of the Philippine Competition Commission (PCC). The application with the Commission shall be made within six (6) months from the date of approval of the board of directors and stockholders, which period may be extended for justifiable reasons. What must accompany the certificate of increase of capital stock? The certificate of increase of capital stock must be accompanied by a sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty- five percent (25%) of the increase in capital stock has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of which is equal to twenty-five percent (25%) of the subscription, has been transferred to the corporation.  ILLUSTRATION Q: A corporation has an authorized capital stock of P20,000,000.00 which is fully subscribed and fully paid. Said corporation is increasing its capital stock by P30,000,000 so that its increased authorized capital stock would become P50,000,000.00. How much must be subscribed and paid?  ILLUSTRATION A: At least 25% of the additional authorized capital stock of P30,000,000.00 or equivalent to P7,500,000.00 must be newly subscribed in addition to the existing subscription of P20,000,000.00. At least 25% of the amount subscribed (e.g. P7,500,000.00) or P1,875,000.00 must be paid in cash or in property. When may a non-stock corporation incur or create bonded indebtedness or increase the same? Nonstock corporations may incur, create or increase bonded indebtedness when approved by a majority of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose What does the RCC require as regards bonds issued by corporations? Bonds issued by a corporation shall be registered with the SEC, which shall have the authority to determine the sufficiency of the terms thereof  Explain corporate notes, bonds and bonded indebtedness When a corporation borrows money, its indebtedness may be evidenced by notes or bonds. Both are promises to pay money. If the amount is small and if it is borrowed in a single sum, or from a few persons, or for a short period of time, notes are usually issued. If however, the amount is large and obtained from a large number of people and extends over a period of years, the corporate obligation is usually evidenced by bonds. Whenever the corporation issues bonds, the resulting obligation is a bonded indebtedness. Do stockholders of a stock corporation have pre-emptive rights? 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, except: (1) such right is denied by the articles of incorporation or an amendment thereto; (2) as to shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; (3) as to shares issued in good faith with the approval of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock in exchange for property needed for corporate purposes or in payment of previously contracted debt  What is the purpose of the stockholders’ pre-emptive right? The purpose of the stockholders’ pre- emptive right is the preservation, unimpaired and undiluted, of the stockholders’ relative and proportionate voting strength and control, that is, the existing ratio of his proprietary interest and voting power in the corporation. Thus, if a stockholder has 20% shareholding in a corporation, that percentage of shareholding should not be diminished by the issuance of new shares. Is there a pre-emptive right on the re- issuance of treasury shares? Yes. When a corporation reacquires its own shares which thereby become treasury shares, all shareholders are entitled to pre-emptive right when the corporation reissues or sells these treasury shares.  When is there a sale of all or substantially all of the assets of the corporation? 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.  What are the requirements so that a corporation may sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill? 1. It should comply with the requirements of Republic Act No. 10667, otherwise known as the "Philippine Competition Act", and other related laws; 2. It must be: (a) by a majority vote of its board of directors or trustees, and (b) must be authorized by the vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members, meeting duly called for the purpose. Note that appraisal right is available here for dissenting stockholders; 3. In case of sale, transfer, mortgage or assignment, the same should comply with the requirements of the Bulk Sales Law.  When will the Bulk Sales Law apply? This applies to sale, transfer, mortgage or assignment of the corporation’s stocks of goods, wares, provisions or materials: (1) other than in the ordinary course of trade and the regular prosecution of its business (2) of all or substantially all of the business or trade, or (3) of all or substantially all of the fixtures and equipment used in and about the business, except when the vendor’s or mortgagor’s creditors execute written waivers of the provisions of said law. What are the requirements of the Bulk Sales Law? The vendor must: (1) execute and deliver to the creditors a written statement of the names and addresses of all creditors, together with the amount of indebtedness due or owing said vendor or mortgagor and that the proceeds of the sale or mortgage be applied to the pro rata payment of the bona fide claims of the creditors; (2) make an inventory of the goods to be transferred and send notices thereof to the creditors at least 10 days before the sale or mortgage; and (3) register the sworn statement with the Bureau of Domestic Trade What are the instances when the sale in bulk is not covered by the Bulk Sales Law? The following sales in bulk are not covered by the Bulk Sales Law: 1. If the vendor or mortgagor produces and delivers a written waiver of the provision of the Bulk Sales Law from his creditors 2. If the vendor or mortgagor is an executor, administrator, receiver, assignee in insolvency, or public officer, acting under judicial process 3. If the sale is in the ordinary course of trade and regular execution of business In non-stock corporation where there are no members with voting rights, whose authority must be obtained prior to the transactions mentioned in Section 39 of the RCC? 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 Section 39.  May a corporation acquire its own shares? Yes. 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. What is the limitation of the power of a corporation to acquire its own shares? The corporation must have unrestricted retained earnings in its books to cover the shares to be purchased or acquired, for a stock corporation to have the power to purchase or acquire its own shares. Also, a corporation may not acquire its own shares if it will violate the trust fund doctrine which means that the subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims. Thus, redemption of shares should not be made if it will cause insolvency or inability of the corporation to pay its creditors.  May a corporation invest its funds in another corporation or business or for any purpose other than the primary purpose for which it was organized? Yes. 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, (1) when approved by a majority of the board of directors or trustees and (2) 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. (Appraisal right is available)  What are dividends? Dividend is that portion of the profits and surplus funds of the corporation which has been actually set apart, by a valid act of the corporation, for distribution among the stockholders according to their respective interest. As distinguished from profits, dividends are declared only from profit after they are earned. Profits of a corporation do not become a dividend until they have been set apart or at least declared as a dividend.  What are the kinds of dividends? Cash dividends – which is paid in cash. Property dividends – paid in specific property instead of cash. Thus, the proposal of a corporation to distribute to its stockholders its investment in the form of stocks in another corporation was treated as property dividends Stock dividend - payable in shares of stock of the corporation declaring the stock dividend. Stock dividends are payable out of the unissued or increased capital stock of the corporation, as the case may be.  Who may declare dividends? Cash and property dividends may be declared by majority vote of the board of directors. In case of stock dividends, the same may be declared by the board of directors with the approval of the stockholders representing at least 2/3 of the outstanding capital stock at a regular or special meeting duly called for that purpose.  Who are entitled to dividends? Dividends may be declared only in favor of all stockholders on the basis of the outstanding stock held by them. The stockholders at the time of declaration and not the stockholders at the time of payment are entitled to dividends, regardless of the time the retained earnings were earned.  Are stockholders who have not fully paid their subscriptions entitled to dividends? Yes. Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder and therefore, entitled to receive dividends. Any cash dividends due on delinquent stock shall be first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld until their unpaid subscription is fully paid. May dividends declared be withdrawn or revoked later? For cash and property dividends, NO. For stock dividends, YES. The reason for the difference in the said rule is that in the case of cash dividend, the amount to be distributed is severed from the general fund and become the property of the stockholders pro rata as soon as the dividend is voted, while in the case of stock dividends, all the formalities to a valid increase of stock must be complied with before the stockholders are entitled to anything, and the mere declaration of dividend does not give them vested right.  May Board of Directors be compelled to declare dividends? As a general rule, NO. The power of management of the corporation of the BOD includes the discretion to determine when and to what extent dividends may be declared. However, stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock and in such instance, must declare dividends, except: (a) when justified by the 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  What are the requirements for the validity of a management contract? 1. The majority of the members of the board of directors/trustees of both the managing and managed corporation approved the management contract. 2. The stockholders owning at least the majority of the outstanding capital stock or majority of the members in case of a non-stock corporation of both the managing and managed corporation likewise approved the said contract. 3. The management contract is not longer than 5 years for any term, except service contracts or operating agreements which relate to the exploration, development exploitation or utilization of natural resources which may be entered into for such periods as may be provided by the pertinent laws or regulations.  When is a greater vote of the stockholders or members of the managed corporation necessary to approve a management contract? The management contract must be approved by the stockholder 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, in the following cases: (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  What are ultra vires acts? An ultra vires act is one not within the express or implied powers of the corporation as fixed by its charter or the statutes. The term includes not only contracts (1) entirely without the scope and purpose of the charter and not pertaining to the objects for which the corporation was chartered, but also (2) contract beyond the limitations of the powers conferred by the charter, although within the purposes contemplated by the articles of incorporation. The term ultra vires act may also refer to the acts done by the directors or officers of a corporation in excess of the powers conferred upon them. But in such case, said act may not necessarily be an ultra vires act of the corporation although an ultra vires act of the directors or officers.  Distinguish ultra vires act from an illegal act. An ultra vires act is not necessarily illegal, immoral or injurious to the others. This simply means an act which is beyond the scope of powers conferred upon the corporation by its charter. An illegal act is one expressly prohibited by the charter or a general statute, or which is immortal or against public policy. An ultra vires act is voidable while an illegal act is void.  May an ultra vires act be ratified? It depends. If the ultra vires act is also contrary to law, morals or public policy, it becomes void and therefore cannot be ratified. But if the ultra vires act is not illegal and therefore merely voidable, the act may be ratified expressly or impliedly. Thus, performance or acceptance of benefits may be considered as an implied ratification of an ultra vires act, or may give rise to estoppel to prevent the repudiation of the transaction. TITLE V – BY-LAWS  How and when may the bylaws of the corporation be adopted? If the code of by-laws is adopted by the corporation after incorporation, the following must be followed:  It must be approved by the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members in case on nonstock corporations;  The bylaws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours;  A copy thereof, duly certified by a majority of the directors or trustees and countersigned by the secretary of the corporation, shall be filed with the SEC and attached to the original articles of incorporation How and when may the bylaws of the corporation be adopted? If the code of by-laws is adopted by the corporation before incorporation, the following must be followed:  It must be approved and signed by all incorporators and submitted to the SEC, together with the articles of incorporation  When will the bylaws be effective? Bylaws shall be effective only upon the issuance by the SEC of a certification that the bylaws are in accordance with the RCC.  Whose bylaws shall not be accepted by the SEC unless accompanied by a certification of the appropriate government agency that such bylaws or amendments are in accordance with law? The SEC shall not accept for filing the bylaws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution, or any other corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by laws or amendments are in accordance with law.  What are the requisites of valid bylaws? The following are the requisites of valid bylaws: 1. It must not be contrary to law, morals, public order or public policy. 2. It must not impair the obligations of contracts or rights. 3. It must be general and uniform in their operation and effect 4. It must be reasonable and not arbitrary or oppressive. 5. It must be consistent with the charter or AoI.  What are the contents of the bylaws? A private corporation may provide the following in its bylaws: (a) The time, place and manner of calling and conducting regular or special meetings of the directors or trustees; (b) The time and manner of calling and conducting regular or special meetings and mode of notifying the stockholders or members thereof; (c) The required quorum in meetings of stockholders or members and the manner of voting therein; (d) The modes by which a stockholder, member, director or trustees may attend meetings and cast their votes; (e) The form for proxies of stockholders and members and the manner of voting them; (f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the compensation of directors or trustees and officers, and the maximum number of other board representations that an independent director or trustee may have which shall, in no case, be more than the number prescribed by the SEC  What are the contents of the bylaws? A private corporation may provide the following in its bylaws: (g) The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof; (h)The manner of election or appointment and the term of officers other than directors or trustees; (i) The penalties for violation of the bylaws; (j) In the case of stock corporations, the manner of issuing stock certificates; and (k) Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion of good governance and anti-graft and corruption measures. An arbitration agreement maybe provided in the bylaws pursuant to Section 181 of the RCC  Are the by-laws of a corporation binding on third persons?  Bylaws merely operate as internal rules among the stockholders and therefore, they cannot affect or prejudice third persons who deal with the corporation unless they have knowledge of the same.  How may the bylaws be amended or repealed or new bylaws be adopted? The bylaws may be amended or repealed or new bylaws may be adopted by: (1) majority of the board of directors or trustees and (2) the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of a nonstock corporation, at a regular or special meeting duly called for the purpose.  How may the power to amend or repeal the bylaws be delegated to the BOD or BOT? How may this delegated power be revoked? The power to amend or repeal the bylaws or adopt new bylaws may be delegated to the BOD or BOT by the owners of at least two-thirds (2/3) of the outstanding capital stock or two-third (2/3) of the members in a nonstock corporation may delegate to the board of directors or trustees. The delegated power to amend or repeal the bylaws or adopt new bylaws shall be considered as revoke whenever stockholders owning or representing a majority of the outstanding capital stock or majority of the members shall so vote at a regular or special meeting.  What are the other requirements when the bylaws are amended or new bylaws are adopted? Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file with the SEC such amended or new bylaws and, if applicable, the stockholders' or members' resolution authorizing the delegation of the power to amend and/or adopt new bylaws, duly certified under oath by the corporate secretary and majority of the directors or trustees When will the amended bylaws or new bylaws take effect? The amended or new bylaws shall only be effective upon the issuance by the SEC of certification that the bylaws is in accordance with the RCC and other relevant laws.  What are the distinctions between the AoI and the Bylaws? Articles of Incorporation Bylaws Fundamental laws of the Internal rules corporation Executed before incorporation May be executed at the time of incorporation or after Filing of the AoI is a condition Filing is NOT a condition precedent to corporate existence precedent to corporate existence May be amended by at least a May be amended by at least a majority vote of the BOD or BOT majority vote of the BOD or BOT plus at least 2/3 of the OCS or plus at least majority of the OCS members or members Power to amend the AoI may not Power to amend may be be delegated by the stockholders delegated by the stockholder or or members to the BOD or BOT members by at least 2/3 of OCS or members Amendment may give rise to Amendment may not give rise to appraisal right appraisal right Changes to this are considered fundamental matters for which even Thanks!