Under Philippine law, the powers of corporations, particularly their incidental powers and the concept of ultra vires, are governed by the Revised Corporation Code (RCC) of the Philippines, Republic Act No. 11232, which became effective in 2019. This framework outlines the express powers corporations hold, incidental powers that are reasonably necessary to carry out corporate purposes, and limitations established by the ultra vires doctrine. Here is an exhaustive examination of the topic.

1. Powers of Corporations Under the Revised Corporation Code

The powers of corporations in the Philippines are defined both by statute and by their Articles of Incorporation. Under Section 35 of the RCC, corporations have several specific powers, including the authority to sue and be sued, to have a perpetual existence unless otherwise specified, to issue or reacquire stocks, and to exercise all other powers necessary or incidental to their corporate purpose. These powers fall into express and implied (or incidental) categories, with their exercise bounded by the ultra vires doctrine.

A. Express Powers of Corporations

Express powers are those explicitly granted by the RCC, the corporation’s Articles of Incorporation, and its By-laws. These include:

Capacity to Sue and Be Sued - A corporation has the legal capacity to bring or defend itself in any suit, necessary for protecting its rights or enforcing contracts.
Perpetual Existence - Corporations have perpetual existence unless otherwise provided in the Articles of Incorporation. This provision aligns with modern business needs by providing stability and longevity for corporate operations.
Power to Acquire and Hold Real and Personal Property - Corporations may acquire, own, and dispose of real and personal property as may be necessary or convenient for the promotion of their corporate purposes.
Borrowing Power - Corporations have the power to borrow or incur indebtedness as required to finance their corporate undertakings.
Issuance of Shares and Collection of Capital - Corporations can issue stock shares as authorized, allowing for the accumulation of capital needed to pursue their objectives.
Declare Dividends - The board of directors may declare dividends, whether in cash or property, from the surplus profits of the corporation.
Adoption of By-laws - Corporations may adopt by-laws to regulate internal affairs, subject to the RCC’s standards.

B. Implied or Incidental Powers

Implied powers are those not explicitly stated but which are reasonably necessary to carry out the corporation’s express powers and purpose. The law recognizes that corporations must have flexibility in operations to adapt to real-world requirements and opportunities, as long as these incidental actions are in line with their principal business.

For instance, if a corporation's express purpose involves manufacturing goods, it has the implied power to engage in advertising, enter into supply contracts, or establish warehouses, as these are incidental to manufacturing and selling products.

2. Ultra Vires Doctrine

The ultra vires doctrine limits a corporation to activities explicitly or implicitly authorized in its purpose clause in the Articles of Incorporation and those granted by law. Ultra vires, meaning "beyond powers," refers to acts by the corporation that exceed its lawful authority. The doctrine prevents corporate assets from being used for purposes not intended by shareholders or corporate founders, ensuring that corporations remain within the scope defined by law and their own governing documents.

A. Types of Ultra Vires Acts

Acts Beyond the Corporate Charter or Articles of Incorporation - These are acts explicitly outside the corporation’s purpose or powers as stated in its governing documents. For example, if a corporation established to engage in manufacturing begins to operate in the retail sector without amending its Articles of Incorporation, this activity may be ultra vires.
Acts Outside Statutory Law - These involve activities beyond those allowed under the Revised Corporation Code or other governing statutes. An example would be declaring dividends from a corporation’s capital when the RCC mandates that dividends must be declared from surplus profits.
Acts Beyond the Board of Directors' Authority - In some cases, actions taken by a corporation’s board may also be ultra vires if they exceed the board’s granted powers. The board is bound by the limits of authority established in the corporation's governing documents, by-laws, and applicable statutes.

B. Consequences of Ultra Vires Acts

Ultra vires acts may have several consequences, including:

Voidability of Transactions - Ultra vires transactions may be voided by a court if they are found to exceed corporate authority. This often depends on the specific nature of the act and its impact on corporate stakeholders.
Personal Liability of Corporate Officers and Directors - In cases where ultra vires acts cause harm or loss, directors and officers may be held personally liable, especially if these actions constitute a breach of their fiduciary duties.
Legal Action for Injunction - Shareholders may seek an injunction to prevent the corporation from committing ultra vires acts, protecting corporate assets and the company’s operational focus.
Corporate Dissolution - Repeated ultra vires acts may give grounds for corporate dissolution if deemed as abuse of corporate powers.

3. Exceptions and Evolution of the Ultra Vires Doctrine

While traditionally strict, the application of the ultra vires doctrine has become less rigid over time. Modern jurisprudence tends to limit the doctrine’s application to cases where corporate action directly harms shareholder or public interests. Courts often distinguish between acts that are merely unauthorized versus those that are expressly prohibited.

Doctrine of Ratification - Acts beyond the corporation's power may be ratified by shareholders, provided they do not violate the RCC or contravene public policy.
Protection of Third Parties - Under the RCC, third parties acting in good faith with the corporation are generally protected from the voiding of ultra vires acts, as long as there was no knowledge of the corporate limitations. This provision seeks to promote fair dealing and confidence in business transactions.

4. Fiduciary Duties and Ultra Vires Acts

Corporate directors and officers have a fiduciary duty to exercise only the corporation’s lawful powers, adhering strictly to the limits set by the corporation’s governing documents. The fiduciary duties of loyalty and care require directors and officers to avoid ultra vires acts, especially those that may result in financial or reputational harm to the corporation.

5. Judicial Relief and Remedies in Ultra Vires Situations

When ultra vires acts occur, various judicial remedies may apply:

Injunction - Courts may issue an injunction to prevent further ultra vires acts if the potential damage to corporate assets or shareholder interests is clear.
Recovery of Funds or Property - In some cases, corporations may be able to recover funds or property expended in ultra vires transactions, especially where misuse of assets is evident.
Imposing Personal Liability - Directors and officers involved in ultra vires acts may face personal liability for resulting damages, protecting corporate integrity and shareholder interests.

6. Practical Implications and Corporate Governance

To avoid ultra vires issues, corporations often define their purpose clause broadly within the Articles of Incorporation, providing the board with flexibility to operate and adapt as market demands change. Effective corporate governance practices, including regular legal review and board training on the corporation’s powers, are essential in ensuring compliance.

In summary, the powers of corporations in the Philippines, both express and incidental, allow them to pursue their business purposes within legally defined limits. The ultra vires doctrine remains a critical control mechanism, ensuring that corporate actions align with the corporation’s purpose and the expectations of stakeholders.