Summary
Highlights
For board actions to be valid, they must occur during a duly convened meeting with a quorum (majority, unless bylaws specify otherwise). Exceptions to this rule exist, especially when an officer is authorized to act on behalf of the board, such as a general manager handling day-to-day operations. However, actions must be within the scope of authority to bind the corporation.
This section introduces Title 3 of the Revised Corporation Code of the Philippines, focusing on the roles and responsibilities of the board of directors or trustees and corporate officers. It clarifies that while stockholders own the corporation, they indirectly control its management through the board.
Section 22 outlines the qualifications and term limits for directors and trustees. Directors are elected for one-year terms from stock corporation shareholders, while trustees serve for up to three years from non-stock corporation members. It also introduces the requirement for independent directors in corporations vested with public interest, constituting at least 20% of the board.
The board of directors or trustees acts as the governing body, exercising corporate powers within the scope of the corporation's charter. While stockholders possess ownership, the board is delegated the exclusive authority to manage the business. However, there are limitations, particularly regarding fundamental or major changes in the corporation, which require stockholder approval. The board also has a fiduciary duty based on trust, requiring good faith and diligence.
The number of directors in a stock corporation is capped at 15, while trustees in a non-stock corporation can exceed 15. Directors must own at least one share of stock and a majority must be Philippine residents. Trustees must be members. Terms are generally one year for directors and up to three years for trustees, holding office until successors are elected ('holdover principle').
This section details the election process for directors and trustees, allowing stockholders to nominate candidates and vote in person or through remote communication. It explains cumulative voting, which benefits minority stakeholders by allowing them to concentrate votes to secure representation on the board, unlike straight voting.
Immediately after election, directors must elect corporate officers: a president (who must also be a director), a treasurer (a Philippine resident), a secretary (a Philippine resident and citizen), and other officers as provided by bylaws. Corporations with public interest must also elect a compliance officer. Certain positions, like president and secretary or president and treasurer, cannot be held concurrently due to potential conflicts of interest.
Within 30 days of election, the corporate secretary must submit to the SEC a report detailing the names, nationalities, shareholdings, and addresses of the elected directors, trustees, and officers. Non-holding of elections must also be reported within 30 days, specifying a new election date within 60 days. Cessation from office due to death, resignation, or other reasons must be reported within 7 days.
Individuals convicted of offenses punishable by six or more years of imprisonment, violating the Revised Corporation Code or security laws, found administratively liable for fraud, or sanctioned by a foreign court for similar acts within five years prior to election are disqualified from holding office. The SEC may impose further disqualifications to promote good corporate governance.
Directors or trustees may be removed by a vote of stockholders/members representing at least two-thirds of the outstanding capital stock/members entitled to vote, with prior notice. Special meetings for removal can be called by the president or by stockholders/members holding a majority of the capital stock/entitled to vote. Importantly, a director elected by minority cumulative votes cannot be removed without cause, to protect minority representation.
Vacancies (other than by removal or term expiration) can be filled by the remaining directors/trustees if they still constitute a quorum; otherwise, stockholders/members fill the vacancy. Vacancies due to term expiration or removal require a new election no later than the day of expiration or removal. Other vacancies must be filled within 45 days. In emergencies, officers may temporarily fill vacancies by unanimous board vote, but only for necessary emergency actions.
Directors and trustees generally do not receive compensation in their official capacity, except for reasonable per diems, unless specified in the bylaws. Stockholders representing a majority of the capital stock can approve compensation. Total yearly compensation must not exceed 10% of the corporation's net income before income tax during the preceding year. Directors/trustees cannot determine their own compensation.
Directors, trustees, or officers who willfully vote for unlawful acts, are grossly negligent or act in bad faith, or acquire personal interests in conflict with their duties are jointly and severally liable for damages. This can lead to piercing the corporate veil, holding individuals personally responsible. The fiduciary nature of their roles emphasizes the trust placed in them by stockholders and members.
Contracts between a corporation and its directors, trustees, officers, or their close relatives (within the fourth civil degree of consanguinity or affinity) are voidable at the option of the corporation unless certain conditions are met, such as the interested party's presence not being necessary for a quorum, their vote not being essential for approval, and the contract being fair and reasonable. Such voidable contracts can be ratified by stockholders with full disclosure.
Contracts between corporations with interlocking directors (individuals serving on the boards of both corporations) are not automatically invalidated if the contract is fair and reasonable and no fraud is involved. If an interlocking director has a substantial interest (exceeding 20% of outstanding capital stock) in one corporation and a nominal interest in the other, then the rules of Section 31 (dealings with the corporation) apply to the latter corporation.
If a director, by virtue of their office, acquires a business opportunity that should belong to the corporation, thereby obtaining personal profits to the corporation's prejudice, they must account for and refund these profits. This is known as the 'Doctrine of Corporate Opportunity.' This applies even if the director used their own funds. However, the doctrine does not apply if the opportunity is not essential to the corporate business, the corporation is unable to avail itself of the opportunity, or the director acts in good faith within a distinct enterprise.
The board may create an executive committee, typically composed of at least three directors, to handle specific matters within the board's competence, as delegated by bylaws or majority vote. However, this committee cannot approve actions requiring shareholder approval, fill board vacancies, amend bylaws, or distribute cash dividends. The board can also create other special, temporary, or permanent committees.
The speaker concludes the discussion and provides important announcements regarding class schedules, upcoming exams, and a deadline for a corporate creation project, emphasizing the topics covered in Title 1 to Title 5 of the Revised Corporation Code.