TITLE IV

POWERS OF CORPORATIONS

SEC. 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 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.

SEC. 36. Power to Extend or Shorten Corporate Term. – A private corporation may extend or
shorten its term as stated in the articles of incorporation when approved by a majority vote of the
board of directors or trustees, and 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. Written notice of the
proposed action and the time and place of the meeting shall be sent to stockholders or members at
their respective place of residence as shown in the books of the corporation, and must either 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. In case
of extension of corporate term, a dissenting stockholder may exercise the right of appraisal under
the conditions provided in this Code.

SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonded
Indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless approved by a majority vote of the board of directors and
by two-thirds (2/3) of the outstanding capital stock at a stockholders’ meeting duly called for the
purpose. Written notice of the time and place of the stockholders’ meeting and the purpose for said
meeting must be sent to the stockholders at their places of residence as shown in the books of the
corporation and served on the stockholders personally, or through electronic means recognized in
the corporation’s bylaws and/or the Commission’s rules as a valid mode for service of notices.

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 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 the capital stock, or the incurring, creating
or increasing of any 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 Commission, and where appropriate, of the
Philippine Competition Commission. 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.

Copies of the certificate shall be kept on file in the office of the corporation and filed with the
Commission and attached to the original articles of incorporation. After approval by the
Commission and the issuance by the Commission of its certificate of filing, the capital stock shall
be deemed increased or decreased and the incurring, creating or increasing of any bonded
indebtedness authorized, as the certificate of filing may declare: Provided, That the Commission
shall not accept for filing any certificate of increase of capital stock unless 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: Provided, further, That
no decrease in capital stock shall be approved by the Commission if its effect shall prejudice the
rights of corporate creditors.

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.
Bonds issued by a corporation shall be registered with the Commission, which shall have the
authority to determine the sufficiency of the terms thereof.

SEC. 38. Power to Deny Preemptive Right. – 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, unless such right is denied by the articles of incorporation or an
amendment thereto: Provided, That such preemptive right shall not extend to shares issued in
compliance with laws requiring stock offerings or minimum stock ownership by the public; or to
shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of
the outstanding capital stock, in exchange for property needed for corporate purposes or in
payment of a previously contracted debt.

SEC. 39. Sale or Other Disposition of Assets. – Subject to the provisions of Republic Act No.
10667, otherwise known as “Philippine Competition Act”, and other related laws, a corporation
may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge,
or otherwise dispose of its property and assets, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds, or other instruments for the payment of money
or other property or consideration, as its board of directors or trustees may deem expedient.

A sale of all or substantially all of the corporation’s properties and assets, including its goodwill,
must be authorized by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or at least two-thirds (2/3) of the members, in a stockholders’ or
members’ meeting duly called for the purpose.

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 this section.

The determination of whether or not the sale involves all or substantially all of the corporation’s
properties and assets must be computed based on its net asset value, as shown in its latest financial
statements. 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.

Written notice of the proposed action and of the time and place for the meeting shall be addressed
to stockholders or members at their places of residence as shown in the books of the corporation
and deposited to the addressee in the post office with postage prepaid, served personally, or when
allowed by the bylaws or done with the consent of the stockholder, sent electronically: Provided,
That any dissenting stockholder may exercise the right of appraisal under the conditions provided
in this Code.

After such authorization or approval by the stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge,
or other disposition of property and assets, subject to the rights of third parties under any contract
relating thereto, without further action or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation, without the
authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or
otherwise dispose of any of its property and assets if the same is necessary in the usual and regular
course of business of the corporation or if the proceeds of the sale or other disposition of such
property and assets shall be appropriated for the conduct of its remaining business.

SEC. 40. Power to Acquire Own Shares. – Provided that the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or acquired, 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.

SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or for Any Other
Purpose. – Subject to the provisions of this Code, 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, when approved by a majority of the board of directors or trustees and 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. Notice of the proposed investment and the time and place of the meeting shall be
addressed to each stockholder or member at the place of residence as shown in the books of the
corporation and deposited to the addressee in the post office with postage prepaid, served
personally, or sent electronically in accordance with the rules and regulations of the Commission
on the use of electronic data message, when allowed by the bylaws or done with the consent of the
stockholders: Provided, That any dissenting stockholder shall have appraisal right as provided in
this Code: Provided, however, That where the investment by the corporation is reasonably
necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval
of the stockholders or members shall not be necessary.

SEC. 42. Power to Declare Dividends. – The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in
stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription
plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholders
until their unpaid subscription is fully paid: Provided, further, That no stock dividend shall be
issued without the approval of stockholders representing at least two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose.

Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent
(100%) of their paid-in capital stock, except: (a) when justified by 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.

SEC. 43. Power to Enter into Management Contract. – No corporation shall conclude a
management contract with another corporation unless such contract is approved by the board of
directors and by stockholders owning at least the majority of the outstanding capital stock, or by
at least a majority of the members in the case of a nonstock corporation, of both the managing and
the managed corporation, at a meeting duly called for the purpose: Provided, That (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, then the management contract must be approved by the
stockholders 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.

These shall apply to any contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such contracts are called service
contracts, operating agreements or otherwise: Provided, however, That such service contracts or
operating agreements which relate to the exploration, development, exploitation or utilization of
natural resources may be entered into for such periods as may be provided by the pertinent laws
or regulations.

No management contract shall be entered into for a period longer than five (5) years for any one
(1) term.

SEC. 44. Ultra Vires Acts of Corporations. – No corporation shall possess or exercise corporate
powers other than those conferred by this Code or by its articles of incorporation and except as
necessary or incidental to the exercise of the powers conferred.
 TITLE V BYLAWS

SEC. 45. Adoption of Bylaws. – For the adoption of bylaws by the corporation, 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 of nonstock corporations, shall be necessary. 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 Commission and attached to the original
articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, bylaws may be adopted and filed prior
to incorporation; in such case, such bylaws shall be approved and signed by all the incorporators
and submitted to the Commission, together with the articles of incorporation.

In all cases, bylaws shall be effective only upon the issuance by the Commission of a certification
that the bylaws are in accordance with this Code.

The Commission 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 other special corporations governed by special laws, unless
accompanied by a certificate of the appropriate government agency to the effect that such bylaws
or amendments are in accordance with law.

SEC. 46. Contents of 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 trustee 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 Commission;
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 office of all 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 may be provided in the bylaws pursuant to Section 181 of this Code.

SEC. 47. Amendment to Bylaws. – A majority of the board of directors or trustees, and 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, may amend or
repeal the bylaws or adopt new bylaws. The owners of two-thirds (2/3) of the outstanding capital
stock or two-thirds (2/3) of the members in a nonstock corporation may delegate to the board of
directors or trustees the power to amend or repeal the bylaws or adopt new bylaws: Provided, That
any power delegated to the board of directors or trustees to amend or repeal the bylaws or adopt
new bylaws shall be considered as revoked 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.

Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file with the
Commission 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 a majority of the directors or trustees.

The amended or new bylaws shall only be effective upon the issuance by the Commission of a
certification that the same is in accordance with this Code and other relevant laws.