Batas Pambansa Blg. 68 The Corporation Code of The Philippines Title I - General Provisions Definitions and Classifications
Batas Pambansa Blg. 68 The Corporation Code of The Philippines Title I - General Provisions Definitions and Classifications
Section 27. Disqualification of directors, Section 29. Vacancies in the office of director
trustees or officers. - No person convicted by or trustee. - Any vacancy occurring in the board of
final judgment of an offense punishable by directors or trustees other than by removal by the
imprisonment for a period exceeding six (6) years, stockholders or members or by expiration of term,
or a violation of this Code committed within five may be filled by the vote of at least a majority of
(5) years prior to the date of his election or the remaining directors or trustees, if still
appointment, shall qualify as a director, trustee or constituting a quorum; otherwise, said vacancies
officer of any corporation. (n) must be filled by the stockholders in a regular or
special meeting called for that purpose. A director
Section 28. Removal of directors or trustees. - or trustee so elected to fill a vacancy shall be
Any director or trustee of a corporation may be elected only or the unexpired term of his
removed from office by a vote of the stockholders predecessor in office. Any directorship or
holding or representing at least two-thirds (2/3) trusteeship to be filled by reason of an increase in
of the outstanding capital stock, or if the the number of directors or trustees shall be filled
corporation be a non-stock corporation, by a vote only by an election at a regular or at a special
of at least two-thirds (2/3) of the members meeting of stockholders or members duly called
entitled to vote: Provided, That such removal shall for the purpose, or in the same meeting
authorizing the increase of directors or trustees constitute a quorum for such meeting; 2. That the
if so stated in the notice of the meeting. (n) vote of such director or trustee was not necessary
for the approval of the contract; 3. That the
Section 30. Compensation of directors. - In the contract is fair and reasonable under the
absence of any provision in the by-laws fixing their circumstances; and 4. That in case of an officer,
compensation, the directors shall not receive any the contract has been previously authorized by the
compensation, as such directors, except for board of directors. Where any of the first two
reasonable per diems: Provided, however, That any conditions set forth in the preceding paragraph is
such compensation other than per diems may be absent, in the case of a contract with a director or
granted to directors by the vote of the trustee, such contract may be ratified by the vote
stockholders representing at least a majority of of the stockholders representing at least two-
the outstanding capital stock at a regular or thirds (2/3) of the outstanding capital stock or of
special stockholders' meeting. In no case shall the at least twothirds (2/3) of the members in a
total yearly compensation of directors, as such meeting called for the purpose: Provided, That full
directors, exceed ten (10%) percent of the net disclosure of the adverse interest of the directors
income before income tax of the corporation or trustees involved is made at such meeting:
during the preceding year. (n) Provided, however, That the contract is fair and
reasonable under the circumstances. (n)
Section 31. Liability of directors, trustees or
officers. - Directors or trustees who willfully and Section 33. Contracts between corporations with
knowingly vote for or assent to patently unlawful interlocking directors. - Except in cases of fraud,
acts of the corporation or who are guilty of gross and provided the contract is fair and reasonable
negligence or bad faith in directing the affairs of under the circumstances, a contract between two
the corporation or acquire any personal or or more corporations having interlocking directors
pecuniary interest in conflict with their duty as shall not be invalidated on that ground alone:
such directors or trustees shall be liable jointly Provided, That if the interest of the interlocking
and severally for all damages resulting therefrom director in one corporation is substantial and his
suffered by the corporation, its stockholders or interest in the other corporation or corporations is
members and other persons. When a director, merely nominal, he shall be subject to the
trustee or officer attempts to acquire or acquires, provisions of the preceding section insofar as the
in violation of his duty, any interest adverse to the latter corporation or corporations are concerned.
corporation in respect of any matter which has Stockholdings exceeding twenty (20%) percent of
been reposed in him in confidence, as to which the outstanding capital stock shall be considered
equity imposes a disability upon him to deal in his substantial for purposes of interlocking directors.
own behalf, he shall be liable as a trustee for the (n)
corporation and must account for the profits which
otherwise would have accrued to the corporation. Section 34. Disloyalty of a director. - Where a
(n) director, by virtue of his office, acquires for
himself a business opportunity which should belong
Section 32. Dealings of directors, trustees or to the corporation, thereby obtaining profits to
officers with the corporation. - A contract of the the prejudice of such corporation, he must account
corporation with one or more of its directors or to the latter for all such profits by refunding the
trustees or officers is voidable, at the option of same, unless his act has been ratified by a vote of
such corporation, unless all the following conditions the stockholders owning or representing at least
are present: 1. That the presence of such director two-thirds (2/3) of the outstanding capital stock.
or trustee in the board meeting in which the This provision shall be applicable, notwithstanding
contract was approved was not necessary to the fact that the director risked his own funds in
the venture. (n) provided in this Code; 9. To make reasonable
donations, including those for the public welfare or
Section 35. Executive committee. - The by-laws of for hospital, charitable, cultural, scientific, civic,
a corporation may create an executive committee, or similar purposes: Provided, That no corporation,
composed of not less than three members of the domestic or foreign, shall give donations in aid of
board, to be appointed by the board. Said any political party or candidate or for purposes of
committee may act, by majority vote of all its partisan political activity; 10. To establish pension,
members, on such specific matters within the retirement, and other plans for the benefit of its
competence of the board, as may be delegated to directors, trustees, officers and employees; and
it in the by-laws or on a majority vote of the 11. To exercise such other powers as may be
board, except with respect to: (1) approval of any essential or necessary to carry out its purpose or
action for which shareholders' approval is also purposes as stated in the articles of incorporation.
required; (2) the filing of vacancies in the board; (13a)
(3) the amendment or repeal of by-laws or the
adoption of new by-laws; (4) the amendment or Section 37. Power to extend or shorten
repeal of any resolution of the board which by its corporate term. - A private corporation may
express terms is not so amendable or repealable; extend or shorten its term as stated in the
and (5) a distribution of cash dividends to the articles of incorporation when approved by a
shareholders. TITLE IV - POWERS OF majority vote of the board of directors or
CORPORATIONS trustees and ratified at a meeting by the
stockholders representing at least two-thirds
Section 36. Corporate powers and capacity. - (2/3) of the outstanding capital stock or by at
Every corporation incorporated under this Code least two-thirds (2/3) of the members in case of
has the power and capacity: 1. To sue and be sued non-stock corporations. Written notice of the
in its corporate name; 2. Of succession by its proposed action and of the time and place of the
corporate name for the period of time stated in meeting shall be addressed to each stockholder or
the articles of incorporation and the certificate of member at his place of residence as shown on the
incorporation; 3. To adopt and use a corporate seal; books of the corporation and deposited to the
4. To amend its articles of incorporation in addressee in the post office with postage prepaid,
accordance with the provisions of this Code; 5. To or served personally: Provided, That in case of
adopt by-laws, not contrary to law, morals, or extension of corporate term, any dissenting
public policy, and to amend or repeal the same in stockholder may exercise his appraisal right under
accordance with this Code; 6. In case of stock the conditions provided in this code. (n)
corporations, to issue or sell stocks to subscribers
and to sell stocks to subscribers and to sell Section 38. Power to increase or decrease capital
treasury stocks in accordance with the provisions stock; incur, create or increase bonded
of this Code; and to admit members to the indebtedness. - No corporation shall increase or
corporation if it be a non-stock corporation; 7. To decrease its capital stock or incur, create or
purchase, receive, take or grant, hold, convey, sell, increase any bonded indebtedness unless approved
lease, pledge, mortgage and otherwise deal with by a majority vote of the board of directors and,
such real and personal property, including at a stockholder's meeting duly called for the
securities and bonds of other corporations, as the purpose, two-thirds (2/3) of the outstanding
transaction of the lawful business of the capital stock shall favor the increase or diminution
corporation may reasonably and necessarily of the capital stock, or the incurring, creating or
require, subject to the limitations prescribed by increasing of any bonded indebtedness. Written
law and the Constitution; 8. To enter into merger notice of the proposed increase or diminution of
or consolidation with other corporations as the capital stock or of the incurring, creating, or
increasing of any bonded indebtedness and of the of any bonded indebtedness authorized, as the
time and place of the stockholder's meeting at certificate of filing may declare: Provided, That
which the proposed increase or diminution of the the Securities and Exchange Commission shall not
capital stock or the incurring or increasing of any accept for filing any certificate of increase of
bonded indebtedness is to be considered, must be capital stock unless accompanied by the sworn
addressed to each stockholder at his place of statement of the treasurer of the corporation
residence as shown on the books of the corporation lawfully holding office at the time of the filing of
and deposited to the addressee in the post office the certificate, showing that at least twenty-five
with postage prepaid, or served personally. A (25%) percent of such increased capital stock has
certificate in duplicate must be signed by a been subscribed and that at least twenty-five
majority of the directors of the corporation and (25%) percent of the amount subscribed has been
countersigned by the chairman and the secretary paid either in actual cash to the corporation or
of the stockholders' meeting, setting forth: (1) that there has been transferred to the
That the requirements of this section have been corporation property the valuation of which is
complied with; (2) The amount of the increase or equal to twenty-five (25%) percent of the
diminution of the capital stock; (3) If an increase subscription: Provided, further, That no decrease
of the capital stock, the amount of capital stock or of the capital stock shall be approved by the
number of shares of no-par stock thereof actually Commission if its effect shall prejudice the rights
subscribed, the names, nationalities and residences of corporate creditors. Non-stock corporations
of the persons subscribing, the amount of capital may incur or create bonded indebtedness, or
stock or number of no-par stock subscribed by increase the same, with the approval by a majority
each, and the amount paid by each on his vote of the board of trustees and of at least two-
subscription in cash or property, or the amount of thirds (2/3) of the members in a meeting duly
capital stock or number of shares of no-par stock called for the purpose. Bonds issued by a
allotted to each stock-holder if such increase is corporation shall be registered with the Securities
for the purpose of making effective stock dividend and Exchange Commission, which shall have the
therefor authorized; (4) Any bonded indebtedness authority to determine the sufficiency of the
to be incurred, created or increased; (5) The terms thereof. (17a)
actual indebtedness of the corporation on the day
of the meeting; (6) The amount of stock Section 39. Power to deny pre-emptive right. -
represented at the meeting; and (7) The vote All stockholders of a stock corporation shall enjoy
authorizing the increase or diminution of the pre-emptive right to subscribe to all issues or
capital stock, or the incurring, creating or disposition of shares of any class, in proportion to
increasing of any bonded indebtedness. Any their respective shareholdings, unless such right is
increase or decrease in the capital stock or the denied by the articles of incorporation or an
incurring, creating or increasing of any bonded amendment thereto: Provided, That such pre-
indebtedness shall require prior approval of the emptive right shall not extend to shares to be
Securities and Exchange Commission. One of the issued in compliance with laws requiring stock
duplicate certificates shall be kept on file in the offerings or minimum stock ownership by the
office of the corporation and the other shall be public; or to shares to be issued in good faith with
filed with the Securities and Exchange Commission the approval of the stockholders representing two
and attached to the original articles of thirds (2/3) of the outstanding capital stock, in
incorporation. From and after approval by the exchange for property needed for corporate
Securities and Exchange Commission and the purposes or in payment of a previously contracted
issuance by the Commission of its certificate of debt.
filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing Section 40. Sale or other disposition of assets. -
Subject to the provisions of existing laws on illegal the conduct of its remaining business. In non-stock
combinations and monopolies, a corporation may, by corporations where there are no members with
a majority vote of its board of directors or voting rights, the vote of at least a majority of the
trustees, sell, lease, exchange, mortgage, pledge or trustees in office will be sufficient authorization
otherwise dispose of all or substantially all of its for the corporation to enter into any transaction
property and assets, including its goodwill, upon authorized by this section.
such terms and conditions and for such
consideration, which may be money, stocks, bonds Section 41. Power to acquire own shares. - A
or other instruments for the payment of money or stock corporation shall have the power to purchase
other property or consideration, as its board of or acquire its own shares for a legitimate
directors or trustees may deem expedient, when corporate purpose or purposes, including but not
authorized by the vote of the stockholders limited to the following cases: Provided, That the
representing at least two-thirds (2/3) of the corporation has unrestricted retained earnings in
outstanding capital stock, or in case of non-stock its books to cover the shares to be purchased or
corporation, by the vote of at least to two-thirds acquired: 1. To eliminate fractional shares arising
(2/3) of the members, in a stockholder's or out of stock dividends; 2. To collect or compromise
member's meeting duly called for the purpose. an indebtedness to the corporation, arising out of
Written notice of the proposed action and of the unpaid subscription, in a delinquency sale, and to
time and place of the meeting shall be addressed purchase delinquent shares sold during said sale;
to each stockholder or member at his place of and 3. To pay dissenting or withdrawing
residence as shown on the books of the corporation stockholders entitled to payment for their shares
and deposited to the addressee in the post office under the provisions of this Code. (a)
with postage prepaid, or served personally:
Provided, That any dissenting stockholder may Section 42. Power to invest corporate funds in
exercise his appraisal right under the conditions another corporation or business or for any other
provided in this Code. A sale or other disposition purpose. - Subject to the provisions of this Code, a
shall be deemed to cover substantially all the private corporation may invest its funds in any
corporate property and assets if thereby the other corporation or business or for any purpose
corporation would be rendered incapable of other than the primary purpose for which it was
continuing the business or accomplishing the organized when approved by a majority of the
purpose for which it was incorporated. After such board of directors or trustees and ratified by the
authorization or approval by the stockholders or stockholders representing at least two-thirds
members, the board of directors or trustees may, (2/3) of the outstanding capital stock, or by at
nevertheless, in its discretion, abandon such sale, least two thirds (2/3) of the members in the case
lease, exchange, mortgage, pledge or other of non-stock corporations, at a stockholder's or
disposition of property and assets, subject to the member's meeting duly called for the purpose.
rights of third parties under any contract relating Written notice of the proposed investment and the
thereto, without further action or approval by the time and place of the meeting shall be addressed
stockholders or members. Nothing in this section is to each stockholder or member at his place of
intended to restrict the power of any corporation, residence as shown on the books of the corporation
without the authorization by the stockholders or and deposited to the addressee in the post office
members, to sell, lease, exchange, mortgage, with postage prepaid, or served personally:
pledge or otherwise dispose of any of its property Provided, That any dissenting stockholder shall
and assets if the same is necessary in the usual have appraisal right as provided in this Code:
and regular course of business of said corporation Provided, however, That where the investment by
or if the proceeds of the sale or other disposition the corporation is reasonably necessary to
of such property and assets be appropriated for accomplish its primary purpose as stated in the
articles of incorporation, the approval of the representing the same interest of both the
stockholders or members shall not be necessary. managing and the managed corporations own or
(17 1/2a) control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the
Section 43. Power to declare dividends. - The managing corporation; or (2) where a majority of
board of directors of a stock corporation may the members of the board of directors of the
declare dividends out of the unrestricted retained managing corporation also constitute a majority of
earnings which shall be payable in cash, in property, the members of the board of directors of the
or in stock to all stockholders on the basis of managed corporation, then the management
outstanding stock held by them: Provided, That any contract must be approved by the stockholders of
cash dividends due on delinquent stock shall first the managed corporation owning at least two-
be applied to the unpaid balance on the thirds (2/3) of the total outstanding capital stock
subscription plus costs and expenses, while stock entitled to vote, or by at least two-thirds (2/3) of
dividends shall be withheld from the delinquent the members in the case of a non-stock
stockholder until his unpaid subscription is fully corporation. No management contract shall be
paid: Provided, further, That no stock dividend entered into for a period longer than five years
shall be issued without the approval of for any one term. The provisions of the next
stockholders representing not less than two-thirds preceding paragraph shall apply to any contract
(2/3) of the outstanding capital stock at a regular whereby a corporation undertakes to manage or
or special meeting duly called for the purpose. operate all or substantially all of the business of
(16a) Stock corporations are prohibited from another corporation, whether such contracts are
retaining surplus profits in excess of one hundred called service contracts, operating agreements or
(100%) percent of their paid-in capital stock, otherwise: Provided, however, That such service
except: (1) when justified by definite corporate contracts or operating agreements which relate to
expansion projects or programs approved by the the exploration, development, exploitation or
board of directors; or (2) when the corporation is utilization of natural resources may be entered
prohibited under any loan agreement with any into for such periods as may be provided by the
financial institution or creditor, whether local or pertinent laws or regulations. (n)
foreign, from declaring dividends without its/his
consent, and such consent has not yet been Section 45. Ultra vires acts of corporations. - No
secured; or (3) when it can be clearly shown that corporation under this Code shall possess or
such retention is necessary under special exercise any corporate powers except those
circumstances obtaining in the corporation, such as conferred by this Code or by its articles of
when there is need for special reserve for incorporation and except such as are necessary or
probable contingencies. (n) incidental to the exercise of the powers so
conferred. (n)
Section 44. Power to enter into management
contract. - No corporation shall conclude a
management contract with another corporation
unless such contract shall have been 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 non-stock corporation, of both the
managing and the managed corporation, at a
meeting duly called for the purpose: Provided, That
(1) where a stockholder or stockholders