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SIXTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session 
SENATE 
S.B. N:o.ll7 5 
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'14 HARl1 PS:Ol 
AN ACT CLARIFYING THE REQUIREMENTS FOR ENGAGING IN ACTNITIES 
COVERED BY THE SECONDARY PURPOSE CLAUSE OF CORPORATIONS, 
AMENDING BAT AS P AMBANSA BLG. 68 OTHERWISE KNOWN AS THE 
CORPORATION CODE OF THE PHILIPPINES 
EXPLANATORY NOTE 
Pursuant to the Corporation Code of the Philippines or Batas Pambansa BIg. 68 (the 
"Corporation Code"), Corporations are allowed to engaged in activities covered by their 
primary purpose clausels and secondary purpose clausels as stated in their Articles of 
Incorporation. 
Despite years of practice under the Corporation Code, there appears to be disagreement as to 
the requirements for a Corporation to engage in any business and or activity covered by its 
secondary purpose clause. The reason for this may have to do with the wording of the current 
Section 42 of the Corporation Code, which appears to be the governing provision insofar as 
corporate decisions to engage in its secondary purpose clause in concerned. Section 42 
provides, to wit: 
"Section 42. 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 or 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 stockhblders 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 non-
stock corporations, at a stockholder's or member's meeting duly called for 
the purpose. Written notice of the proposed investment and the time and place 
of the meeting shall be addressed to each stockholder or member at his place 
of residence as shown on the books of the corporation and deposited to the 
addressee in the post office with postage prepaid, or served personally: 
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." 


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The following are key principles that can be implied from the legal text: 
1. Subject to the Corporation Code, a private corporation may invest its funds in another 
corporation or business 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 
non-stock corporations, at a stockholder's or member's meeting duly called for the 
purpose. The term "Subject to the Corporation Code" has been interpreted by 
academics to mean that the investment of funds in another corporation or business 
should be allowed under the Articles of Incorporation particularly the primary purpose 
clause of the Corporation. Otherwise, the act of investment may be deemed to be ultra 
vires under Section 45. (Emphasis supplied.) 
2: Subject to the Corporation Code, a private corporation may invest its funds for any 
other 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 non-stock corporations, at a 
stockholder's or member's meeting duly called for the purpose. The term "Subject to 
the Corporation Code" has been interpreted by academics to refer to the secondary 
purpose clauses of a Corporation. In other words, if the Corporation has no secondary 
purpose in its Articles of Incorporation, it cannot invoke this meaning of Section 42. 
(Emphasis supplied.) 
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As classified above, Section 42 suffers from the following ambiguities: 
First, the provision uses the tenn "invest" in relation to corporate funds. Black's Law 
Dictionary (9th Edition, 2009) defines' invest to mean "to apply money for profit" or 
"to make an outlay of money for profit." In other words, the use of corporate funds is 
used with expectation of profits or returns. 
As worded, Section 42 cannot 
contemplate mere use of funds in pursuit of secondary purposes, where such use 
is without expectation of profit. It must be noted that Section 42 applies equally 
to stock and non-stock corporations. In the case of non-stock corporations, 
corporate funds are used not necessarily for profit. 
Second, Section 42 generally applies to out-of-the-ordinary investments in pursuit of 
its primary purpose clause. This is the implication of the proviso, which states "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.". (Emphasis supplied.) 
As worded, Section 42 does not provide a rule for all types of engagement of a corporation in 
activities covered by the secondary purpose clause. Does this mean that for types of activities 
where there is no expectation of profit, there is no requirement of shareholder or member 
approval? The provision is silent. This nncertainty gives rise to needless litigations between 
and among stockholders and stockholders and the corporation. 
Section 42 therefore must be clarified. It is suggested that the sonnd rule should be that 
Corporations are required to secure prior' shareholder or member approval prior to engaging 


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in activities covered by its secondary purpose clause. The rationale is that corporate funds 
should be devoted to activities covered by the primary purpose clause, which activities are 
presumably within the expertise of said Corporation. The reasonable expectation of 
Shareholders that corporate resources are used for the primary purpose of the Corporation 
should be protected by law ·by ensuring that their consent to engage in activities covered by 
the secondary purppse clause is first secured. 
For the above reasons, the passage of this bill is earnestly recommended. 
ffloJ~ NANCY S. BINAY 
Senator 


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SIXTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session 
SEN A 1.:.Fo 
S.B. NO. _~_l 7 5 
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Introduced by Senator Maria Lourdes N aney S. Binay. 
'4 'KftR 11 P5 :01 
AN ACT CLARIFYING THE REQUIREMENTS FOR ENGAGING IN ACTIVITIES 
COVERED BY THE SECONDARY PURPOSE CLAUSE OF CORPORATIONS, 
AMENDING BATAS P AMBANSA BLG. 68 OTHERWISE KNOWN AS THE 
CORPORATION CODE OF THE PHILIPPINES 
Be if'enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
SECTION 1. Section 42 of the Corporation Code is hereby amended to read as follows: 
"Section 42. Power to invest corporate funds in another corporation or business, or [for any 
other purpose.} TO INVEST OR USE OF CORPORATE FUNDS FOR ACTIVITIES 
COVERED BY ITS SECONDARY PURPOSE CLAUSE. - Subject to the provisions of this 
Code, a private corporation may, invest its funds in any other corporation or business [or for 
any purpose other, than, the primary purpose for which it was organized] AS ALLOWED 
UNDER ITS PRIMARY PURPOSE CLAUSE; OR INVEST OR USE OF CORPORATE 
FUNDS FOR ACTIVITIES COVERED BY ITS SECONDARY PURPOSE CLAUSE, 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 non-stock corporations, at a stockholder's or member's 
meeting duly called for the purpose. Written notice of the proposed investment and the time 
and place of the meeting shall be addressed to each stockholder or member at his place of 
residence as shown on the books of the corporation and deposited to the addressee in the post 
office with postage prepaid, or served personally: 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. 
SECTION 2. 
EffectiVity Clause. This Act shall take effect fifteen (15) days after its 
complete publication in at least two (2) newspapers Qf general circulation. 
Approved,