SECTION 25  The company must report it to the SEC within 7 days

from knowing about it.

Section 25 is all about making sure na kapag may election sa  This ensures na updated ang records and walang
board of directors, trustees, or officers ng isang corporation, ghost officers running things.
kailangan i-report yan sa SEC within 30 days.
Why does this matter?
What needs to be reported?
 Para hindi magulo ang leadership ng company.
 Names, nationalities, shareholdings, and addresses ng  Para SEC can step in kung may delay or issues sa
newly elected directors, trustees, and officers. elections.
 This is para everything is official and properly recorded.  Para sure na lahat ng changes sa leadership are
What if walang election? properly documented.

 If for some reason hindi natuloy ang election, they need

to report why to the SEC within 30 days from the SECTION 26
supposed election date.
 They also need to set a new date na hindi lalampas ng So like, not everyone can be a director, trustee, or officer in a
60 days from the original date. corporation. There are rules that disqualify certain people from
holding these positions.
What if wala pa rin election kahit resched na?
Who is disqualified?
 Kung walang bagong date or hindi pa rin natuloy, any
stockholder, member, director, or trustee can ask the 1. If, within 5 years before their election or appointment, a
SEC to step in. person has:
 SEC can then force the company to hold the election  Been convicted (as in, final judgment, guilty
and even set the time, place, and rules for it. talaga) for:
A crime with jail time of more than 6 years 😬
Quorum Rule for Elections
 Violating the Corporation Code
 Kahit ano pang nakasulat sa bylaws, basta may  Breaking the Securities Regulation Code (RA
enough members or shares represented at that 8799)
meeting, that counts as a quorum to proceed with the 2. Been found guilty in an administrative case for
election. fraudulent acts.
3. Been disqualified by a foreign court or regulator for
What if may officer na nag-resign, natanggal, or namatay? similar violations or misconduct.
4. Other Possible Disqualifications
  The SEC, Philippine Competition Commission, or other  In a stock corporation, shareholders holding at least 2/3
regulatory agencies can add more disqualification rules of the total shares need to agree.
to promote good corporate governance or as a penalty  In a non-stock corporation, 2/3 of the members must
for violations. vote for removal.
Why does this matter? This can happen in a regular meeting or a special meeting
called just for this purpose. But before that, they need to notify
 So that untrustworthy or shady people don’t end up in
everyone properly.
leadership positions.
 To protect the company from bad management and Who Can Call the Meeting?
fraud.
 The president can order the secretary to call it.
 Basically, it’s all about good governance and
 If the secretary refuses, stockholders/members with at
accountability!
least majority shares can demand it.
 If the secretary still ignores them, the
stockholders/members can call the meeting
DISQUALIFICATION VS. REMOVAL
themselves.
Can Someone Be Removed for No Reason?
 Yes, but... you can’t remove someone just to take away
the minority stockholders' rights (so parang bawal
power grab).
SEC’s Role
 The SEC can also remove a director/trustee if they
were elected despite being disqualified or if their
disqualification was discovered later.
 If the board knew about the disqualification but did
nothing, they might face penalties too.
SECTION 27
Curious Question & Answer
So like, a director or trustee can actually be removed from
Can shareholders remove a director just because they don’t
their position if enough people vote for it.
like them?
ANSWER: Yes, but with limits.
LEGAL BASIS: Section 27 allows removal with or without Example:
cause, except when it violates minority stockholder rights.
General Rule: “We don’t like this director anymore—let’s
ANALYSIS: If the director is legally elected and represents remove them!” (As long as 2/3 agree)
minority stockholders, removing them without cause may be
Exception: “We’re removing this minority-representing director
unfair and illegal.
just to take their seat.” (Bawal yan!)
CONCLUSION: Yes, directors can be removed without reason,
but not if it unfairly deprives minorities of representation.
Requisites for Removal of Directors or Trustees
What is the Power to Remove Directors or Trustees?
For a director or trustee to be legally removed, these
The power to remove directors or trustees belongs to:
conditions must be met:
1. Stockholders or Members – They can vote out a
1. Proper Authority – Removal must be done by:
director/trustee with at least 2/3 approval of:
 Stockholders holding at least 2/3 of outstanding
 Outstanding capital stock (for stock
shares (for stock corporations)
corporations)
 Members holding at least 2/3 of voting rights
 Voting members (for non-stock corporations)
(for non-stock corporations)
2. The SEC (Securities and Exchange Commission) –
2. Valid Meeting – The removal must happen in:
The SEC can directly remove a director/trustee if:
 A regular meeting (if included in the agenda),
 They were elected despite being disqualified
OR
 Their disqualification was discovered later
 A special meeting called specifically for
 The board failed to remove them despite
removal.
knowing about the disqualification
 The special meeting of the stockholders
or members of a corporation for the
purpose of removal must be called by
General Rule of Removal & Exception
the secretary on order of the president
General Rule: A director or trustee can be removed anytime by or on the written demand of the
a vote of at least 2/3 of the stockholders or members with or stockholders representing or holding at
without cause (Section 27). least a majority of the outstanding
capital stock or a majority of the
Exception:Minority Representation Protection – A director members entitled to vote.
representing minority stockholders cannot be removed without
cause if it deprives them of their rightful representation (as per
Section 23).
 3. Proper Notice – Stockholders or members must be 4. Timeline for Filling Vacancies
informed in advance that removal will be proposed at
 Any other vacancies? The company has 45 days to
the meeting.
elect a replacement.
4. Quorum Requirement – The meeting must have
 But take note—the new one only serves the remaining
enough stockholders/members present to vote (as
term of the person they replaced.
required by law or bylaws).
5. Exception Compliance – If the director represents 5. What If There’s No Quorum & It’s an Emergency?
minority stockholders, they cannot be removed without
a valid reason (Section 23 protection). If too many board members resign or leave, and there’s no
quorum, but something super urgent needs to be handled (like
preventing major losses), then:
SECTION 28  The remaining directors can temporarily appoint a
corporate officer as a director/trustee.
Section 28—it’s all about what happens if there’s a vacant spot
 This emergency director can only fix the emergency
in the Board of Directors or Trustees of a corporation.
situation and must step down once things are back to
1. How to Fill a Vacancy? normal or once a proper replacement is elected.
 If a director/trustee leaves early (but not because of BTW, the company has to inform the SEC within 3 days.
removal), the remaining board members can vote for a
6. What If the Number of Directors Increases?
replacement as long as they still have a quorum
(meaning, enough people to make official decisions).  If the company decides to add more board members,
 No quorum? Then the stockholders or members have these new spots must be filled through an election in a
to elect a replacement in a regular or special meeting. regular or special meeting.
 If the meeting already mentions that they’ll be electing
2. What If the Term Just Ends?
new directors, then they can elect them right away in
 If a director/trustee’s term naturally expires, they must the same meeting.
elect a new one on the last day of the term or earlier.
7. Follow Standard Election Rules
3. What If the Director/Trustee Was Removed?
No matter the situation, the election process must follow
 If a director/trustee is removed by stockholders or Sections 23 and 25 (which explain how elections should be
members, they can elect a replacement on the same done).
day (but only if it was stated in the meeting agenda and
notice).
1. Can the board just replace a director/trustee anytime they 6. If they add more board seats, can they just assign new
want? directors?
 Answer: No, they can’t just replace anyone anytime.  Answer: No, they need to hold an election.
 Legal Basis: Section 28 says they can only do it if  Legal Basis: Section 28 says that new board seats
there’s still a quorum. If not, stockholders/members must be filled through an election in a regular or special
have to elect a new one. meeting.
2. What if a director’s term expires—can they just stay until
there’s a replacement?
SECTION 29
 Answer: No, bawal mag-extend.
What’s This Section About?
 Legal Basis: Section 28 says they need to hold an
election on or before the last day of the term. Section 29 is about how directors or trustees in a corporation
get paid. Normally, they don’t receive a salary just for holding
3. If a director is removed, can they elect a replacement agad-
the position unless it’s clearly stated in the company’s bylaws.
agad?
Pero kahit wala silang fixed salary, they can still receive per
 Answer: Yes, pero only if it’s in the agenda and diems—which is like an allowance for attending meetings or
meeting notice. doing official work.
 Legal Basis: Section 28 allows same-day elections as
When Can They Get Compensation?
long as it was planned and stated in the notice.
If the majority of the stockholders (for stock corporations) or
4. How long does the company have to replace a director if the
members (for non-stock corporations) agree, they can decide
seat becomes vacant?
to give the directors/trustees a fixed compensation. This
 Answer: 45 days lang. decision has to be made during a regular or special meeting—
 Legal Basis: Section 28 says they must elect a new hindi lang basta-basta puwedeng magbigay ng sweldo ang
one within 45 days, except if it’s due to term expiration board nang walang approval.
or removal.
Compensation Limit
5. What if madaming directors umalis and wala nang quorum
There’s a cap on how much directors can be paid:
—can they still function?
 Total yearly compensation can’t exceed 10% of the
 Answer: Yes, but pang-emergency lang.
company’s net income before tax from the previous
 Legal Basis: Section 28 allows the remaining directors
year.
to appoint a temporary officer to act as director. They
also need to inform the SEC within 3 days.
 Example: Let’s say the company made ₱10 million in net  Encourage transparency, especially for corporations
income before tax last year. That means the total that impact the public.
compensation for all directors can’t be more than ₱1
million for the year (10% of ₱10M).
NOTE: THE PROVISION ON COMPENSATION OF
This rule exists para hindi abusuhin ng directors ang company
DIRECTORS DOES NOT INCLUDE CORPORATE
funds at siguraduhin na may enough money pa rin for
OFFICERS WHO ARE NOT DIRECTORS
operations and growth.
Directors Can’t Approve Their Own Compensation
GENERAL AND EXCEPTION OF SEC. 29
Directors can’t be the ones deciding their own pay—obviously,
that would be unfair, diba? Imagine kung sila lang nag-uusap GENERAL RULE:
sa board meeting. They can’t vote or participate in setting their
own per diems or salaries. That decision belongs to the Directors or trustees shall not receive any compensation, as
stockholders or members. such directors or trustees, except for reasonable per diems.

Special Rule for Public Interest Corporations EXCEPTION:

For corporations that affect the public, like banks, insurance 1. When it is fixed by the corporations by laws
companies, publicly listed companies, or those regulated by 2. When the stockholders, representing at least a majority
the government, there’s an extra transparency rule: of the outstanding capital stock, or majority of the
members, vote to grant the same.
 They have to submit a report every year showing how
much each director or trustee got paid.
 This report goes to the shareholders and the SECTION 30
Commission (SEC) para klaro at walang tinatago. So, Section 30 is basically saying that directors, trustees, or
Why Is This Important? officers can’t just do whatever they want, especially if it’s
illegal, reckless, or self-serving. If they make bad decisions
This rule exists para: that harm the company, stockholders, or other people, they will
be personally liable—as in, they have to pay for the damages
 Protect company funds from being abused by directors.
themselves (hindi puwedeng charge to company, okay?).
 Ensure fairness—hindi sila nagse-self-approve ng
mataas na sweldo. When Are They Liable?
 Make sure stockholders/members have a say in
director pay. 1️⃣ If they approve or allow something illegal – Like, if they let
the company do something that’s obviously against the law.
2️⃣ If they’re super negligent or act in bad faith – Meaning, they Example of Bad Faith:
don’t do their job properly or they make selfish decisions.
 A director sabotages the company’s business so that a
3️⃣ If they use their position to benefit personally – Example: competitor (where they secretly have shares) can
They find out the company is planning to buy land, tapos sila benefit.
pala secretly bumili ng lupa na yun para sila ang kumita  A trustee fakes financial reports to make the company
instead. look profitable when it’s actually losing money.
 A company officer sells company assets at a super low
What Happens If They Violate This? price to a friend, knowing it’s a shady deal
They will be held responsible and must pay for the damages
personally—walang lusot, hindi puwedeng charge sa
company. Gross Negligence

If they secretly profit from a deal that should have been for the  Extreme carelessness or irresponsibility.
company, they have to return the money kasi that was  No bad intent, but the person is so reckless that it
supposed to be for the business, not them. causes serious harm to the company.
Example of Gross Negligence:

Doctrine of Corporate Opportunity  A CEO signs contracts without reading them, leading to
huge financial losses.
The Doctrine of Corporate Opportunity is a legal rule that  A finance officer forgets to pay taxes, causing the
prevents directors, trustees, and officers from taking business company to face penalties.
opportunities that should rightfully belong to the corporation. If  A director ignores warnings about a major risk (e.g.,
they come across an opportunity because of their position, safety issues in a factory), and it leads to an accident.
they must offer it to the company first before considering it for
themselves.
SECTION 31

Bad Faith Okay, so Section 31 is all about business deals between the
company and its own directors, trustees, or officers (or even
 Intentionally doing something wrong, dishonest, or their family members). The law is super strict about these
unfair. transactions because they could be unfair or involve conflicts
 There is malicious intent—the person knows what of interest.
they’re doing is wrong but does it anyway.
General Rule: These contracts are “voidable”  A self-dealing director, trustee, or officer is someone
who uses their position in the company to make a deal
Meaning, the company can cancel the contract anytime unless
that benefits themselves instead of the company.
it follows specific conditions to make sure everything is fair and
 Basically, they’re on both sides of the transaction—one
legit.
as a company decision-maker and the other as the
How to Make the Contract Valid? person who benefits from the deal.

For the contract not to be sketchy, these conditions must all be

met:
What is Ratification by Stockholders in Self-Dealing
1️⃣ The director/trustee wasn’t needed to meet the quorum – Transactions?
So, even if they weren’t there, the meeting could still push Ratification means the stockholders approve a self-dealing
through. transaction, making it valid even if it had potential conflicts of
2️⃣ Their vote wasn’t needed for approval – The contract interest.
should be approved by the board, even without their vote. Normally, if a director, trustee, or officer enters into a deal
3️⃣ The deal is fair and reasonable – Hindi overpriced or where they personally benefit, the contract is voidable
sobrang lugi for the company. (meaning, the company can cancel it anytime). But if the
stockholders approve it, then it becomes valid and cannot be
4️⃣ For public interest corporations – Majority of the voided later.
independent directors (those who don’t own shares) must
approve the contract. How Can Stockholders Ratify a Self-Dealing Transaction?

5️⃣ For officers – The board must pre-approve the contract For stockholders to approve (ratify) a self-dealing transaction,
before it happens. these two conditions must be met:

What if Some of These Conditions Are Missing? 1️⃣ A vote of at least 2/3 of the stockholders or members –
Meaning, at least two-thirds (66.67%) of those who own
If any of the first three conditions (quorum, voting, fairness) are shares or are members must agree to approve the deal.
not met, the contract is still voidable, unless the stockholders
(or members) approve it with a 2/3 majority vote during a 2️⃣ Full disclosure – The director, trustee, or officer must reveal
meeting where full disclosure is made. their personal interest in the contract before the vote. This
ensures transparency so stockholders can decide if the deal is
fair or if they should reject it.
What is Self-Dealing?
 TITLE IV : POWERS OF
SECTION 32
Okay, Section 32 is all about contracts between corporations
that share the same directors—a situation called interlocking
directorship. Basically, it answers the question: CORPORATIONS
“Can two companies enter into a deal if they have the same What is Corporate Powers?
directors?"
Corporate powers refer to the legal rights and abilities of a
General Rule: These contracts are NOT automatically corporation—basically, what a company is allowed to do under
invalid! the law. 🚀
Just because two companies have the same director(s) Since a corporation is treated like a "legal person", it has
doesn’t mean their contract is automatically bad or illegal. As certain powers that let it operate and do business. These
long as the deal is fair and there’s no fraud, it’s totally fine. powers are usually listed in the law (like the Revised
What If One Director Has More Power in One Company? Corporation Code) and in the company’s Articles of
Incorporation.
 If a director owns a big stake (more than 20% of
shares) in one company but only a small stake in the The corporation exercises its powers through its board of
other, then the contract will be treated like a self- directors and/or its duly authorized officers and agents, except
dealing transaction (see Section 31). in instances where the corporation code requires stockholders
 This means extra rules apply, like requiring full approval for certain specific acts.
disclosure and approval from stockholders to ensure Types of Corporate Powers
the deal is fair and not one-sided.
1️⃣ Express Powers – These are specifically stated in the law
or in the company’s Articles of Incorporation.
 Example: The law says a corporation can sue and be
sued, own property, and sell stocks if it’s a stock
corporation.
2️⃣ Implied Powers – These are not explicitly written but are
necessary for the company to achieve its purpose.
 Example: A restaurant corporation can hire chefs or
buy ingredients, even if it’s not specifically mentioned in
the law.
 7️⃣ Own and deal with property – It can buy, sell, lease, or
mortgage land, buildings, and other assets.
3️⃣ Incidental Powers – These are minor powers that naturally
come with running a business. 8️⃣ Form partnerships and mergers – It can enter into business
deals, joint ventures, or even merge with other companies.
 Example: A corporation can print business cards, open
a bank account, or advertise its products. 9️⃣ Give donations – It can donate for charity, culture, science,
or public welfare, but foreign corporations can’t donate to
politicians or political campaigns.
SECTION 35
[Link] employee benefits – It can create pension and
Section 35 is basically a list of things a corporation is legally retirement plans for its people.
allowed to do—a.k.a. its powers and capacity. Think of it as
1️⃣1️⃣ Do anything necessary for its business – If the company
the "superpowers" of a corporation under the law.
needs to do something to achieve its purpose, it can do it as
What Can a Corporation Do? long as it’s legal.

1️⃣ Sue and be sued – The company can file cases in court
and can also be sued under its corporate name.
What is the Power of a Corporation to Sue?
2️⃣ Exist forever – It has perpetual existence unless stated
The power to sue means that a corporation, as a legal entity,
otherwise in its certificate of incorporation (meaning, the
has the right to file a lawsuit in its corporate name. Just like a
company doesn’t automatically expire).
person can go to court to protect their rights, a corporation can
3️⃣ Have a corporate seal – Kind of like a stamp to make also do the same.
official documents look legit.
Where Does This Power Come From?
4️⃣ Change its articles of incorporation – It can amend its
This is part of the corporate powers under the Revised
founding documents as long as it follows the legal process. Corporation Code (Section 35), which states that a corporation
5️⃣ Make its own rules – It can create bylaws (company has the ability “to sue and be sued” in its corporate name.
policies), as long as they’re not illegal or immoral. When Can a Corporation Sue?
6️⃣ Issue stocks – If it’s a stock corporation, it can sell shares A corporation can sue if its rights or interests are violated.
to investors and even sell its own treasury stocks (stocks it Some common reasons include:
previously bought back).
 Breach of Contract – If a supplier fails to deliver goods,
the company can sue for damages.
  Unpaid Debts – If a customer or business partner owes  All stockholders must be informed—they get a written
money, the company can file a case to collect payment. notice by mail, personal delivery, or even email (if
 Intellectual Property Violations – If another company allowed).
copies its brand name or logo, the corporation can sue
What if some stockholders don’t agree?
for trademark infringement.
 Fraud or Illegal Acts – If a former employee or business They can use something called the right of appraisal
partner commits fraud, the company can take legal (basically, they can demand to be paid the fair value of their
action. shares if they don’t want to be part of the company anymore).
Who Exercises This Power? What is an Appraisal Right?
Since a corporation is not a person, it acts through its: An appraisal right is the right of a stockholder to demand
payment for the fair value of their shares when they disagree
 Board of Directors – They approve the decision to sue.
with certain major decisions made by the corporation. Instead
 Corporate Officers (CEO, President, etc.) – They carry
of staying in a company they no longer believe in, they can sell
out legal actions.
their shares back to the corporation for a fair price.
 Lawyers/Legal Team – They handle the court case.
When Can a Stockholder Use Appraisal Rights?
A stockholder can exercise this right if they don’t agree with
SECTION 36
big corporate decisions, such as:
Section 36 is all about changing the lifespan of a corporation—
 Merger or consolidation – If two companies combine
meaning, it explains how a corporation can extend or shorten
and a stockholder doesn’t like it, they can sell their
its corporate term (a.k.a. how long it exists).
shares.
So, when a corporation is created, it has a corporate term  Sale or disposal of assets – If the company sells most
(which can be forever or for a specific number of years). But of its assets and the stockholder doesn’t agree, they
what if the company wants to extend or shorten that term? can opt out.
 Extension of corporate term – If the company decides
To extend or shorten the corporate life, here’s what needs to
to operate longer than planned, dissenting
happen:
stockholders can demand payment.
 The Board of Directors or Trustees must approve the  Changes that reduce stockholder rights – If new
change. company rules negatively affect stockholder rights,
 At least 2/3 of stockholders or members must vote YES they can exit.
in a meeting.
SECTION 37 2. Purchase of redeemable shares by the corporation,
Section 37 is basically all about how a corporation can regardless of the existence of unrestricted retained
increase or decrease its capital (a.k.a. its total investment earnings
money) or take on big debts (bonded indebtedness). Here’s 3. Dissolution and eventual liquidation of the corporation
the lowdown in conyo style:
GENERAL RULE:
Bond indebtedness
A corporation cannot just randomly decide to add or reduce
It is a long-term indebtedness secured usually by real property
money (capital stock) or borrow huge amounts (bonds) without
proper approval. It has to go through a process.
📈 Increasing or 📉 Decreasing Capital Stock (a.k.a. Money SECTION 38
in the Business)
Section 38 talks about the preemptive right of stockholders.
If a corporation wants to increase its capital stock (meaning, This basically means that when a corporation issues new
raise more funds by selling more shares) or decrease it (like shares, existing stockholders have the first chance to buy in
buying back shares or reducing investment money), they proportion to what they already own. Parang VIP sila—before
need: anyone else can invest, they get to decide if they want more
shares or not.
 Majority approval from the board of directors
 2/3 approval from the stockholders (owners of shares) BUT! This right is not absolute because it can be denied if:
What About Borrowing Big Time? (Bonded Indebtedness) 1️⃣ The articles of incorporation say so (meaning, the
company’s founding rules don’t allow preemptive rights).
If a corporation wants to borrow money through bonds (which
is like getting loans from investors), the same process applies: 2️⃣ The shares are issued because the law requires it (like
 Board of directors approve public offerings).
 2/3 of stockholders agree 3️⃣ The shares are issued to pay debts or acquire property
needed for the business (as long as 2/3 of stockholders
approve).
THREE INSTANCES OF DISTRIBUTION OF CORPORATE
CAPITAL What is Preemptive Right?

1. Amendment of AOI to reduce the authorized capital Preemptive right is like a VIP pass for stockholders. When a
stock corporation issues new shares, existing stockholders get the
first chance to buy them before anyone else. This is to protect
their ownership percentage so they don’t get diluted (aka their makakapag-operate properly, mas stricter yung approval
share in the company doesn’t shrink). process.
PRE-EMPTIVE RIGHT IS NOT AVAILABLE (POWER TO What If It's a Big Sale? (Selling "All or Substantially All" of
DENY PRE-EMPTIVE RIGHT) the Assets)
1. Shares to be issued in compliance with laws requiring Now, if the company is selling almost everything—or at least a
stock offerings or minimum stock ownership by the huge chunk of its assets na parang wala na siyang choice but
public and to shut down or change its entire business—kailangan na ng
2. Shares to be issued in good faith with the approval of approval from the stockholders or members.
the stockholders representing 2/3 of the outstanding
 For stock corporations (companies that issue
capital stock, in exchange for property needed for
shares/stocks), at least two-thirds (2/3) of the total
corporate purposes or in payment of a previously
stockholders need to approve.
contracted debt.
 For non-stock corporations (like foundations or
associations), at least two-thirds (2/3) of the members
must approve.
SECTION 39
 For non-stock corporations na walang voting members,
this section talks about how a corporation (meaning a at least majority ng trustees should approve.
company or an organization) can sell, lease, exchange,
How do they determine kung "substantially all" na ang
mortgage, pledge, or dispose of its assets and properties—
binebenta?
pero depende sa situation, iba-iba yung approval na
kailangan. They check the company’s net asset value (basically, yung
total assets minus liabilities) based on its latest financial
Selling or Disposing of Assets in General
statements.
If the company just wants to sell, lease, or dispose of some of
If selling those assets makes it impossible for the company to
its assets, the board of directors or trustees (basically, yung
continue its business, then it’s considered as substantially all.
leaders of the company) can approve it by a majority vote.
Meaning, if most of them agree na this transaction is a good Notice Requirement: Informing the Stockholders or
move, then go na siya. Members
Before making a final decision, the company must notify all
stockholders or members about the plan to sell assets. The
Pero syempre, may limit din. If the company is selling "all or
notice should include:
substantially all" of its assets, meaning parang wala nang
matitira or it will affect the business so much na di na siya
  The proposed action (like, "Hey guys, we’re planning to  Example: A retail company selling products, or a
sell a major part of the company’s assets"). factory selling old machines to replace them with new
 The time and place of the meeting where this will be ones—this doesn’t need stockholder approval kasi
discussed and voted on. expected na yan sa business.
 If the proceeds from the sale will still be used for
How can the company send the notice?
business operations.
 Mail (to the addresses listed in the company’s records)  Example: If the company sells land or a building, but
 Personal delivery they’ll use the money to fund a new project or expand
 Email (only if allowed by the bylaws or if the operations, they don’t need to ask the stockholders.
stockholder agrees to receive it electronically)
What If Some Stockholders Don't Agree?
REQUIREMENTS
If there are stockholders who don’t like the decision, they have
1. Written notice of the proposed action and of the time
a right called "right of appraisal". This means they can demand
and place of the meeting shall be addressed to each
to be paid the fair value of their shares instead of being forced
stockholder or member at his place of residence as
to go along with the decision.
shown on the books of the corporation and deposited
Can the Board Still Cancel the Sale? to the addressee in the post office with postage
prepaid, or served personally, or when allowed by the
Yes! Even if the stockholders/members have already approved bylaws or done with the consent of the stockholder,
the sale, the board of directors or trustees can still decide to sent electronically
abandon it if they think it’s no longer a good move. 2. Approval by the majority vote of its board of directors or
Exception: If the company has already signed contracts with trustees
third parties (like buyers or banks), then the sale must follow 3. Ratification by the vote of the stockholders
through unless the agreement allows for cancellation. representing at least 2/3 of the outstanding capital
stock, or in case of non-stock corporation, by the vote
When Does the Company NOT Need Stockholder of at least to 2/3 of the members
Approval? 4. Any dissenting stockholder may exercise his appraisal
right
There are certain cases where the company can sell or
dispose of assets without needing stockholder/member Note: SEC approval is not required
approval:
Note: the determination of whether or not the sale involves all
 If the sale is part of normal business operations. or substantially all of the corporations properties and assets
must be computed based on its net asset value, as shown in nagkakaroon ng fractional shares (like 0.5 shares, 1.3
its latest financial statements shares, etc.).
 Since hindi convenient mag-handle ng partial shares,
SUBSTANTIALLY ALL OF THE CORPORATE ASSET
the company can just buy them back para rounded
A sale or other disposition shall be deemed to cover numbers lang yung stocks.
substantially all the corporate property and assets if thereby
(b) To collect or settle unpaid subscriptions
the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was  Kapag may stockholders na hindi pa fully paid sa
incorporated kanilang shares (meaning, may utang pa sila sa
company for their stock subscriptions), the company
RATIFICATION NOT REQUIRED
can:
1. If the same is necessary in the usual and regular  Sell their shares in a delinquency sale
course of business of said corporation (parang auction).
2. If the proceeds of the sale or other disposition of such  Buy back the shares itself instead of
property and assets be appropriated for the conduct of selling to others, para hindi na mawala
its remaining business. sa kanila.
(c) To pay dissenting or withdrawing stockholders

SECTION 40  Kapag may stockholder na ayaw na sa company (like if

this section explains that a corporation can buy back its own they don’t agree with big decisions, or they have the
shares—but only if it has enough unrestricted retained right to withdraw), they can sell their shares back to the
earnings (meaning, extra profits that it can freely use) to cover company.
the purchase. Hindi pwedeng bumili ng shares if it will harm  The corporation must pay them based on the rules set
the company’s financial health. in the Corporation Code.

Why Would a Company Buy Its Own Shares?

There are legit reasons why a corporation might need to INSTANCES WHEN A CORPORATION MAY ACQUIRE ITS
acquire or repurchase its own shares, including these OWN SHARES
situations:
1. To eliminate fractional shares arising out of stock
(a) To eliminate fractional shares dividends
2. To collect or compromise an indebtedness to the
 Sometimes, kapag nagbigay ng stock dividends (extra corporation, arising out of unpaid subscription, in a
shares given to stockholders instead of cash),
 delinquency sale, and to purchase delinquent shares dividends, or reinvesting in the business. It is calculated from
sold during said sale the company’s financial statements, specifically the balance
3. To pay dissenting or withdrawing stockholders entitled sheet and income statement.
to payment for their shares under the provisions of this
How to Determine Unrestricted Retained Earnings?
code
4. To acquire treasury shares Unrestricted retained earnings = Total retained earnings –
5. Redeemable shares regardless of existence of retained Restricted retained earnings
earnings
6. To effect a decrease of capital stock  Total Retained Earnings – This is the accumulated
7. In close corporations, when there is a deadlock in the profits of the company after paying expenses and
management of the business, the SEC may order the dividends.
purchase at their fair value of the shares of any  Restricted Retained Earnings – These are portions of
stockholder by a corporation regardless of the retained earnings that cannot be used freely because
availability of unrestricted earnings in its books, or by they are set aside for specific purposes (like legal
the other stockholders reserves, loan agreements, or regulatory
requirements).
Sources of Unrestricted Retained Earnings
What are FRACTIONAL SHARES?
Unrestricted retained earnings usually come from:
Fractional shares are shares which are less than one share
 Net profits from previous years (as long as they are not
GENERAL RULE: restricted)
 Income from operations that hasn’t been earmarked for
The corporation may only acquire its own stocks in the
other obligations
presence of unrestricted retained earnings
 Reversals of previous restrictions (like when legal
EXCEPTIONS: reserves are no longer required)
1. Redeemable shares may be acquired even without Restrictions That May Apply
surplus profit for as long as it will not result to the
Some factors that restrict retained earnings and make them
insolvency of the corporation
unavailable for share buybacks:
2. In a close corporation
 Legal reserves – Some laws require companies to set
The basis of unrestricted retained earnings is the portion of a
aside a portion of profits as reserves.
corporation's retained earnings that is free for distribution and
 Debt covenants – Loan agreements may prevent the
can be used for things like buying back shares, paying
company from using its earnings freely.
  Board or stockholder agreements – If the company’s If the company wants to invest in something outside its primary
board or stockholders agree to restrict earnings for a purpose (yung stated sa Articles of Incorporation), it needs
project, expansion, or investment, then they can’t be approval from:
used for buying back shares.
 Majority of the Board of Directors or Trustees
Where to Find Unrestricted Retained Earnings? (meaning, most of the company’s leaders must agree).
 At least 2/3 of the stockholders (for stock corporations)
You can check the Statement of Retained Earnings or the
or 2/3 of the members (for nonstock corporations) in a
Equity section of the Balance Sheet. Some companies also
special meeting.
disclose restrictions in the notes to financial statements.
Stockholders or members must be informed in advance!
The company must send a notice to stockholders or members,
THREE INSTANCES OF DISTRIBUTION OF CORPORATE
which includes:
CAPITAL
 Details of the proposed investment
1. Amendment of the articles of incorporation to reduce
 Time and place of the meeting
the authorized capital stock
2. Purchase of redeemable shares by the corporation, This notice can be sent via:
regardless of the existence of unrestricted retained
 Mail (with prepaid postage)
earnings and
 Personal delivery
3. Dissolution and eventual liquidation of the corporation
 Email or electronic message (if allowed by the bylaws
or agreed upon by stockholders)
SECTION 41 What if some stockholders disagree?
So basically, this section explains that a corporation can invest If a stockholder does not agree with the investment decision,
its money in another business, another corporation, or for any they have the right of appraisal—meaning they can demand to
other purpose—pero depende kung aligned ba ito sa primary be paid the fair value of their shares instead of staying in the
purpose ng company or not. company.
If the Investment is Related to the Company's Main
Purpose
If the Investment is NOT Related to the Company's Main
Purpose No need for stockholder approval! If the investment is
necessary to help the company achieve its main purpose (as
written in its Articles of Incorporation), the Board of Directors  The term funds include any corporate property to be
or Trustees can approve it without needing a stockholder vote. used in furtherance of business

REQUISITES: SECTION 42: POWER TO DECLARE DIVIDENDS

[Link] ACCOMPLISH ITS PRIMARY PURPOSE Who Can Declare Dividends?
1. Approval of the majority of the board of directors or So like, the board of directors has the power to declare
trustees dividends, but only if the company has unrestricted retained
2. The approval of the stockholders or members shall not earnings (a.k.a. extra profits that are free to distribute). This
be necessary means they can’t just give out dividends anytime—there has to
be enough legal earnings to share.
II. TO ACCOMPLISH A PURPOSE OTHER THAN THE
PRIMARY PURPOSE Types of Dividends
1. Approval of the majority of the board of directors or Stockholders can receive dividends in different ways:
trustees
✅ Cash dividends – You get actual money, love it. 💸
2. Ratification by the stockholders representing at least
2/3 of the outstanding capital stock, or by at least 2/3 of ✅ Property dividends – Instead of cash, the company gives you
the members’ meeting duly called for the purpose assets (like maybe land or products).
3. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each ✅ Stock dividends – They give you additional shares instead of
stockholder or member by mail or served personally, or cash, so you own more of the company.
sent electronically in accordance with the rules and Basically, the more shares you have, the bigger your dividend.
regulations of the commission on the use of electronic #MoreSharesMoreMoney
data message, when allowed by the by laws or done
with the consent of the stockholders Important Rules to Remember
4. Any dissenting stockholder shall have appraisal right
🔹 For Delinquent Stockholders (a.k.a. those who haven’t fully
and
paid for their shares):
5. The ratification must be made at a stockholders or
members meeting duly called for the purpose

If you still owe money on your shares, any cash dividends

you’re supposed to get will first be used to pay off your
FUNDS
balance, plus any other costs.
Meaning, no cash for you until your shares are fully paid. 😬 REATINED EARNINGS
🔹 Stock Dividend Approval:  The accumulated profits realized out of normal and
continuous operations of the corporation after
Unlike cash and property dividends, stock dividends need deducting therefrom distributions to stockholders and
approval from at least 2/3 of all stockholders. transfers to capital stock or other accounts
This must happen during a regular or special meeting that’s UNAPPROPRIATED/UNRESTRICTED RETAINED
officially called for this purpose. EARNINGS
Can a Company Hoard Profits?  The amount of accumulated profits and gains realized
Uhm, nope. Companies aren’t allowed to keep surplus profits out of the normal and continuous operations of the
beyond 100% of their paid-in capital stock, unless they have a corporation after deducting therefrom distributions to
good excuse. stockholders and transfers to capital stock or other
accounts and which is:
💡 But there are exceptions! They can keep the extra money if: [Link] appropriated by the BOD for definite corporate
1️⃣ They have an expansion plan that’s approved by the board expansion projects or programs
[Link] covered by a restriction for dividend declaration
(so like, they need funds for growth).
under a loan agreement
2️⃣ They have a loan agreement that stops them from [Link] required to be retained under special
declaring dividends unless they get permission from their circumstances obtaining in the corporation, such as
lenders (bank or creditors). when there is a need for a special reserve for probable
contingencies
3️⃣ There’s a special reason (like the company needs to save
money for emergencies, economic downturns, or other major DIVIDEND
risks).
 It refers to corporate profits allocated, lawfully declared
by the corporation to be paid to the stockholders on
demand or at a fixed time.

REQUIREMENTS FOR THE DECLARATION OF DIVIDENDS

PAID-IN CAPITAL
1. Existence of unrestricted retained earnings
 The sum of the amount paid for shares of stock issued, 2. Resolution of the board of directors
including the additional paid-in capital (apic) or 3. For stock dividends, the additional requirements are:
premium paid over the par value of such shares
 a. A vote representing not less than 2/3 of outstanding Okay, so just because you own shares doesn’t mean you’re
capital entitled to dividends all the time. It’s not like, “I have shares, so
b. A corporation must have also a sufficient number of where’s my money?” Nope, it doesn’t work that way. 😬
authorized unissued shares for distribution to
stockholders Here’s why:
1️⃣ Profits First, Dividends Later – The company can only give
dividends if may extra profits (a.k.a. unrestricted retained
CASH DIVIDENDS VS. STOCK DIVIDENDS earnings). If wala, then wala rin dividends. 💸💀
2️⃣ Board Decision = Final Say – It’s the board of directors who
decides if and when to give dividends. If they think it’s better to
keep the money for expansion or rainy days, then no dividends
for now. 🤷‍♀️
3️⃣ Stockholder Approval for Stock Dividends – If the company
decides to give stock dividends, they still need 2/3 of
stockholders to say yes in a legit meeting. No approval = no
extra shares for you.
4️⃣ Legal and Loan Restrictions – Sometimes, companies can’t
give dividends because their loan agreements or the law says
“nope” until certain conditions are met.

"Dividend is Dependent Upon the Availability of

Unrestricted Retained Earnings" – What Does It Mean?
Basically, a company can’t just give out dividends anytime it
wants. It can only distribute dividends if it has enough
unrestricted retained earnings—which means profits that are
free for distribution and not tied up in legal, operational, or
financial obligations.
"Payment of Dividends is Not a Matter of Right
Breaking It Down:
1️⃣ What Are Retained Earnings?
  These are profits the company has kept instead of  When the board of directors announces a dividend,
spending or distributing. they set a specific amount (e.g., ₱5 per share).
 Think of it as savings from past earnings that the  Stockholders will receive exactly what was declared,
company can use for different purposes (expansion, whether in cash, assets, or additional shares.
paying debts, or dividends).
2️⃣ Cash Dividend Example 💰
2️⃣ What Does "Unrestricted" Mean?
 If a company declares a ₱10 dividend per share and
 Not all retained earnings can be used for dividends. you own 100 shares, you get: ₱10 × 100 shares =
Some are restricted because they’re allocated for ₱1,000 in cash.
things like loan repayments, legal reserves, or future
3️⃣ Stock Dividend Example 📈
projects.
 Only the unrestricted portion (the extra profits that are  If a company declares a 10% stock dividend and you
free for use) can be distributed as dividends. own 100 shares, you get:10% of 100 = 10 additional
3️⃣ No Profits = No Dividends shares.
So now, you have 110 shares instead of 100.
 If a company doesn’t have enough unrestricted
retained earnings, it cannot declare dividends—even if 4️⃣ Property Dividend Example 🏢
stockholders expect it.
 The law protects the company from giving out money it  If the company issues dividends in the form of assets
doesn’t have, preventing financial instability. (e.g., land, products, or investments), the value of what
you receive is equal to the declared amount of the
dividend.
"Dividends Valued at the Amount of the Declared
Dividend" – What Does It Mean?
Okay, this just means that once the company declares
dividends, the value is fixed at the amount they announced—
whether it’s in cash, property, or stock.

Breaking It Down:
1️⃣ Declared = Fixed Amount
 acquired. The right of the stockholders to be paid
dividends accrues as soon as the declaration is made.
3. The right to dividend accrues even if there is no SEC
Approval
4. Declaration of dividends is discretionary upon the
board of directors
5. Dividends cannot be declared out of paid-in surplus
and revaluation surplus
6. Treasury shares cannot be declared as stock or cash
dividends

GENERAL RULE:
Stock corporations are prohibited from retaining surplus in
excess of 100% of their paid-in capital stock
Example:
EXCEPTONS:
🔹 Capital Dividend – A company distributes ₱1 million from
capital surplus, meaning it’s not from profits but from funds it 1. When justified by definite corporate expansion projects
initially raised. or programs approved by the BOD
2. When the corporation is prohibited under any loan
🔹 Stock Dividend – A company declares a 10% stock dividend, agreement with any financial institution or creditor,
so if you own 100 shares, you get 10 extra shares, making whether local or foreign, from declaring dividends
your total 110 shares. without its/his consent, and such consent has not yet
been secured
3. When it can be clearly shown that such retention is
LIMITATIONS ON DIVIDENDS necessary under special circumstances obtaining in the
corporation, such as when there is need for special
1. The right to dividend is based on duly recorded reserve for probable contingencies.
stockholdings
2. Dividends among stockholders of the same class must
always be pro rata equal and without discrimination
SECTION 43: POWER TO ENTER INTO MANAGEMENT
and regardless of the time when the shares were
CONTRACT