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TITLE III
BOARD OF DIRECTORS/ TRUSTEES AND OFFICERS

SEC. 22. The Board of Directors or Trustees of a What is stakeholder-centered model?

Corporation; Qualification and Term. – The corporation, in making business decisions, should not only consider the interests of the stockholders but also other interests of
Unless otherwise provided in this Code, the board of stakeholders (such as employees, creditors etc.). It needs to consider and balance the varied interests.
directors or trustees shall exercise the corporate powers,
conduct all business, and control all properties of the Who is the governing body of the corporation? The Board of Directors.
corporation.
What do you mean by governing body?
Directors shall be elected for a term of one (1) year from 1. It exercises corporate powers
among the holders of stocks registered in the corporation’s 2. conduct all business, and
books, while trustees shall be elected for a term not 3. control all properties of the corporation (to sell or lease the properties)
exceeding three (3) years from among the members of the
corporation. Each director and trustee shall hold office until What is the Business Judgment Rule?
the successor is elected and qualified. A director who Decisions of the Board, insofar as business or administrative matters are concerned, cannot be challenged by stakeholders or
ceases to own at least one (1) share of stock or a trustee courts as long as such acts are intra vires in nature (within their authority or power.) – this is discretionary upon the Board.
who ceases to be a member of the corporation shall cease Exception: (1) Those acts and contracts that are oppressive and unconscionable that will prejudice the rights of the minority; (2)
to be such. when there is gross negligence of the Board. In this case, the stakeholders or courts can question such acts.

The board of the following corporations vested with public What is the term limit of a director? 1 year until a new director has been elected and qualified (hold-over principle)
interest shall have independent directors constituting at
least twenty percent (20%) of such board: What is the term limit of a trustee? Should not exceed 3 years until a new trustee has been elected and qualified (hold-over
principle)
(a) Corporations covered by Section 17.2 of Republic
Act No. 8799, otherwise known as “The Hold-over principle? You will hold to your position until and unless the successor is elected and qualified.
Securities Regulation Code,” namely those
whose securities are registered with the What are the qualifications of a director?
Commission, corporations listed with an 1. He must own at least one share of stock
exchange or with assets of at least Fifty million 2. That stock must be under his name
pesos (P50,000,000.00) and having two hundred 3. He must continuously own such stock
(200) or more holders of shares, with at least
one hundred (100) shares of a class of its equity What are the grounds for disqualification of a director? (See Sec. 26)
shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops, Grace Christian High School v CA (1997)
corporations engaged in money service business, A by-law or provision providing for a perpetual term of office for a director is contrary to law and cannot attain validity
pre-need, trust and insurance companies, and through acquiescence or on the basis of long practice, nor give rise to any vested right.
other financial intermediaries; and (Re: Term of office—If your term expires, you need to run again and win again; you can be there permanently)
(c) Other corporations engaged in business vested
with public interest similar to the above, as may Gokongwei, Jr. v SEC (1979)
be determined by the Commission, after taking By-laws which prohibit a director of a corporation from serving at the same time as a director of a competing
into account relevant factors which are germane corporation, have been upheld as valid and reasonable.
to the objective and purpose of requiring the
election of an independent director, such as the Inter-Asia Investments, Inc. v CA (2003)

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extent of minority ownership, type of financial An officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to
products or securities issued or offered to perform all other obligations arising therefrom such as payment of the shares of stock.
investors, public interest involved in the nature What is the doctrine of apparent authority?
of business operations, and other analogous (It includes express, implied and incidental powers)
factors. In this case, he was authorized to buy the stocks, so it is implied that he is also authorized to pay for such stocks.

[For corporations vested with public interest]

An independent director is a person who, apart from Who is an independent director?
shareholdings and fees received from the corporation, is An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of
independent of management and free from any business or management and free from any business or other relationship which could, or could reasonably be perceived to materially
other relationship which could, or could reasonably be interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
perceived to materially interfere with the exercise of  “any business or other relationship”—e.g. family relations
independent judgment in carrying out the responsibilities  “Independent of management”— he must not occupy a managerial or executive position; he must not manage
as a director.  May a stockholder in the same corporation be appointed as an independent director? Yes, as long as he is free of
management and free from any business or other relationship
Independent directors must be elected by the shareholders
present or entitled to vote in absentia during the election What is the minimum number of independent directors?
of directors. Independent directors shall be subject to rules  If the corporation is imbued with public interest—at least 20% of the of the Board
and regulations governing their qualifications,  If not, no minimum requirement.
disqualifications, voting requirements, duration of term
and term limit, maximum number of board memberships What is a corporation vested with public interest?
and other requirements that the Commission will prescribe (a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code,”
to strengthen their independence and align with namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets
international best practices. of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, with at least
one hundred (100) shares of a class of its equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and
insurance companies, and other financial intermediaries; and
(c) Other corporations engaged in business vested with public interest similar to the above, as may be determined by the
Commission, after taking into account relevant factors which are germane to the objective and purpose of requiring the
election of an independent director, such as the extent of minority ownership, type of financial products or securities
issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.
What do you mean by publicly listed? Registered with the Philippine Stock Exchange

What is the test of independence?

A director is independent even when he is assigned shares by controlling shareholders or he receives fees from the corporation.
Independence is gauged using the following parameters:
1. The existence of “business or other relationship.”  Professional and family relationships are included. The relationship
must exist at the time of appointment.
2. Such relationship “could or could reasonably be perceived to” cause interference  Mere likelihood is sufficient.
3. The likelihood of inference must be material overall costs of terminating such relationship (e.g. revenues or fees
received from such relationship) vis-a-vis the overall benefit of asserting independence (e.g. shareholdings and fees
received from corporation, which should consider the benefits of being an independent director for the maximum
allowable period, and as a non-independent director as permitted under the Code of Corporate Governance)

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“The likelihood of interference must be material”?

Even if the relationship exists, if the cost of losing independent directorship is higher compared to the benefit derived from the
existing relationship, the existence of such relationship will not disqualify the director for being “independent”.

*There are other qualifications according to the SEC Memorandum #19 (see book)

Can a Chairman of the Board be an independent director? (because usually, the position of Chairman is managerial)
Yes, the Chairman of the board may be an independent director as long as he does not hold an executive position and should not
be involved in the corporation’s day-to-day operations. (Meaning, he is free of management; his role is only to preside meetings;
he is usually the tie breaker being the last to vote; he must not hold a managerial position)

Suggested mechanism in order to prevent any interference in cases where the chairman holds an executive position:
What are the functions of a Lead Independent director?
a) Serves as an intermediary between the Chairman and the other directors when necessary;
b) Convenes and chairs meetings of the non-executive directors;
c) Contributes to the performance evaluation of the Chairman as required.

Additional requirements under the bylaws

Bylaws may prescribe additional qualifications or disqualifications.

SEC. 23. Election of Directors or Trustees. – Except when the exclusive right is reserved for What are the rules on the Election of Directors or Trustees?
holders of founders’ shares under Section 7 of this Code, each stockholder or member shall have 1. [There must be a nomination] Each stockholder or member shall have the right to
the right to nominate any director or trustee who possesses all of the qualifications and none of nominate any director or trustee who possess all of the qualifications and none of
the disqualifications set forth in this Code. the disqualification.
2. There must be a meeting duly called for that purpose.
At all elections of directors or trustees, there must be present, either in person or through a 3. Modes of casting the vote:
representative authorized to act by written proxy, the owners of majority of the outstanding a. In person
capital stock, or if there be no capital stock, a majority of the members entitled to vote. When b. Written proxy
so authorized in the bylaws or by a majority of the board of directors, the stockholders or c. In absentia (if provided by bylaws)
members may also vote through remote communication or in absentia: Provided, That the right 4. Quorum: Majority of the OCS/ members
to vote through such modes may be exercised in corporations vested with public interest, 5. If stock corporation, 1 share= 1 vote
notwithstanding the absence of a provision in the by-laws of such corporations. If nonstock corporation, 1 member= 1 vote
6. Total number of votes cast shall not exceed the number of shares owned by the SH
A stockholder or member who participates through remote communication or in absentia, shall as shown in the books of corporation multiplied by the whole number of directors
be deemed present for purposes of quorum. to be elected
7. Manner of voting:
The election must be by ballot if requested by any voting stockholder or member. a. Ballot or poll (if requested by any voting SH/M)
In stock corporations, stockholders entitled to vote shall have the right to vote the number of b. Raise of hands; viva voce
shares of stock standing in their own names in the stock books of the corporation at the time 8. No delinquent stocks shall be voted

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fixed in the bylaws or where the bylaws are silent, at the time of the election. The said 9. [Plurality] Nominees for directors or trustees receiving the highest number of votes
stockholder may: (a) vote such number of shares for as many persons as there are directors to shall be declared elected
be elected; Is voting in absentia available to all corporation? No, it must be authorized in the bylaws or
(b) cumulate said shares and give one (1) candidate as many votes as the number of directors to by a majority of the board of directors. But, if it is a corporation vested with public interest, it
be elected multiplied by the number of the shares owned; or is allowed notwithstanding the absence of a provision in the bylaws of such corporation.
(c) distribute them on the same principle among as many candidates as may be seen fit:
Provided, That the total number of votes cast shall not exceed the number of shares owned by In a case where the stockholder owns 100 shares and there are 5 candidates; total vote is 500
the stockholders as shown in the books of the corporation multiplied by the whole number of Straight voting—If there are 5 candidates, the SH can vote 100 votes per candidate.
directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless Cumulative voting—If there are 5 candidates, the SH can vote 500 to one candidate.
otherwise provided in the articles of incorporation or in the bylaws, members of non-stock Cumulative by distribution—In his discretion, 200 to A, 50 to B etc.
corporations may cast as many votes as there are trustees to be elected but may not cast more
than one (1) vote for one (1) candidate. Nominees for directors or trustees receiving the highest What is the required quorum? Majority of the OCS/members
number of votes shall be declared elected.
What is the manner of voting? Ballot if so requested, otherwise, raise of hands
If no election is held, or the owners of majority of the outstanding capital stock or majority of Do you need to personally attend the meeting? No, it can be through a representative by
the members entitled to vote are not present in person, by proxy, or through remote written proxy
communication or not voting in absentia at the meeting, such meeting may be adjourned and
the corporation shall proceed in accordance with Section 25 of this Code.

The directors or trustees elected shall perform their duties as prescribed by law, rules of good
corporate governance, and by-laws of the corporation.

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SEC. 24. Corporate Officers. – Who may be considered as corporate officers?

Immediately after their election, the 1. President
directors of a corporation must 2. Treasurer
formally organize and elect: 3. Secretary
(a) a president, who must be a 4. Such other officers as may be provided in the bylaws
director; (b) a treasurer, who must be 5. Compliance officer (if the corporation is vested with public interest)
a resident; (c) a secretary, who must
be a citizen and resident of the Marc II Marketing, Inc. v Joson (2011)
Philippines; and Section 24 of the Corporation Code enumerates the corporate officers. A corporate officer may be terminated at will, while a non-corporate
(d) such other officers as may be officer may only be terminated for just or authorized cause.
provided in the bylaws. If the  Can the board create a position without amending the bylaws? Yes, the Board may create any office, but the person will not be
corporation is vested with public considered as a corporate officer, but simply an employee.
interest, the board shall also elect a
compliance officer. The same person What is the function of a compliance officer? He must make sure that the rules and regulations are complied with. He must see to it that all the
may hold two (2) or more positions requirements that the corporation must submit or comply. (For example: submission of the election report to the SEC)
concurrently, except that no one shall
act as president and secretary or as What are the qualifications of a compliance officer? He must not be a member of the Board. He is primarily liable to the corporation and its
president and treasurer at the same shareholders, and not to the Chairman or President of the company.
time, unless otherwise allowed in this
Code. What are the qualifications of the President?
1. He must be a director
The officers shall manage the 2. He must own at least one share
corporation and perform such duties
as may be provided in the bylaws Of the Secretary?
and/or as resolved by the board of 1. He must be a citizen
directors. 2. He must be a resident of the Philippines

Of the Treasurer?
1. He must be a resident of the Philippines

Can one person occupy 2 positions?

General rule: the same person may hold two (2) or more positions concurrently
Exception: no one shall act as president and secretary or as president and treasurer at the same time, unless otherwise allowed in this Code.

Can foreigners be the President/CEO Yes, except in nationalized corporations. (“nationalized”—there is a law requiring a certain number of Filipino
ownership)(Example: There are laws which require the percentage of Board that should be Filipinos; mass media—100% Filipino ownership)

Can directors attend meetings through proxy?No, because they are elected to perform the duties of a director/trustee. What has been delegated
cannot be further delegated.

What are the 3 functions of the BOD?

1. It exercises corporate powers
2. conduct all business, and
3. control all properties of the corporation

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SEC. 25. Report of Election of Directors, Trustees and Officers, Non-holding of Election In case of non-election, what should the corporation do?
and Cessation from Office.– Within thirty (30) days after the election of the directors, The corporation must report the non-election to the SEC within 30 days from the date of the
trustees and officers of the corporation, the secretary, or any other officer of the scheduled election.
corporation, shall submit to the Commission, the names, nationalities, shareholdings,
and residence addresses of the directors, trustees, and officers elected. What should the report indicate?
The report shall specify a new date for the election, which shall not be later than 60 days from the
The non-holding of elections and the reasons therefor shall be reported to the scheduled date.
Commission within thirty (30) days from the date of the scheduled election. The report
shall specify a new date for the election, which shall not be later than sixty (60) days What if no new date or if the rescheduled election did not push through?
from the scheduled date. 1. The SH/M/director or trustee must send an application to the SEC
2. The SEC may, after verification of the unjust non-holding of the election, summarily order
If no new date has been designated, or if the rescheduled election is likewise not held, that an election be held.
the Commission may, upon the application of a stockholder, member, director or 3. The SEC may order the petitioning SH/M/D/T the issuance of a notice stating the time and
trustee, and after verification of the unjustified non-holding of the election, summarily place of the election, designated presiding officer, and the record date/dates for the
order that an election be held. The Commission shall have the power to issue such determination of SH/M entitled to vote.
orders as may be appropriate, including orders directing the issuance of a notice stating
the time and place of the election, designated presiding officer, and the record date or What if there is no quorum in the election held by the Commission?
dates for the determination of stockholders or members entitled to vote. Despite the lack of quorum, it does not matter. Whoever is there, that is already the quorum. They
may proceed with the election and the person having the highest number of votes shall be elected.
Notwithstanding any provision of the articles of incorporation or bylaws to the
contrary, the shares of stock or membership represented at such meeting and entitled What is the rule on election contest?
to vote shall constitute a quorum for purposes of conducting an election under this 1. Check the bylaws if there is a mechanism there.
section. 2. If the bylaws is silent?
3. The period to file an election contest is?
Should a director, trustee or officer die, resign or in any manner cease to hold office,
the secretary, or the director, trustee or officer of the corporation, or in case of death, Who has jurisdiction in an election contest?
the officer’s heirs shall, within seven (7) days from knowledge thereof, report in writing The jurisdiction was transferred to thecommercial court of the RTC as provided in the SRC.
such fact to the Commission.

SEC. 26. Disqualification of Directors, Trustees or Officers. – A person shall be What are the grounds for disqualification of a director?
disqualified from being a director, trustee, or officer of any corporation if, within five (5) (a) Convicted by final judgment: (if the case is still pending, it is not a ground)
years prior to the election or appointment as such, the person was: (1) Of an offense punishable by imprisonment for a period exceeding six (6) years; (it should be
exceeding 6 years, not at least 6 years)
(a) Convicted by final judgment: (2) For violating this Code; and
(1) Of an offense punishable by imprisonment for a period exceeding six (6) (3) For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”;
years; (b) Found administratively liable for any offense involving fraud acts; and
(2) For violating this Code; and (c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct
(3) For violating Republic Act No. 8799, otherwise known as “The Securities similar to those enumerated in paragraphs (a) and (b) above. (there must be a conviction—(a))
Regulation Code”;
(b) Found administratively liable for any offense involving fraud acts; and Is the enumeration exclusive? No. What are other disqualifications?
(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or Those provided in the bylaws as long as not contrary to the Corp. Code or other related laws. The
misconduct similar to those enumerated in paragraphs (a) and (b) above. absence of certain qualifications such in the case of the President, when he ceases to have 1 share, he
could not be a director, so he is no longer qualified to become the President.
The foregoing is without prejudice to qualifications or other disqualifications, which the

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Commission, the primary regulatory agency, or the Philippine Competition Commission

may impose in its promotion of good corporate governance or as a sanction in its Who may provide for additional qualifications and disqualifications?
administrative proceedings. 1. Bylaws
2. SEC (Securities and Exchange Commission)
3. PCC (Philippine Competition Commission)

SEC. 27. Removal of Directors or Trustees. – Any director or trustee of a corporation What are the rules on removal of a director?
may be removed from office by a vote of the stockholders holding or representing at 1. There must be previous notice stating the purpose of the meeting which is to remove a
least two-thirds (2/3) of the outstanding capital stock, or in a nonstock corporation, by director (including the time and place of the meeting).
a vote of at least two-thirds (2/3) of the members entitled to vote: Provided,  How to send the notice? Through publication or written notice
 What is the mode of delivery of the written notice? Any mode as long as it is
That such removal shall take place either at a regular meeting of the corporation or at a received by the SH (such as personal mail or postal mail)
special meeting called for the purpose, and in either case, after previous notice to 2. It must be held in a regular or special meeting.
stockholders or members of the corporation of the intention to propose such removal 3. It may be called by the secretary upon the order of the president.
at the meeting. 4. If there is no secretary, or if the secretary, despite demand, fails or refuses to call the special
meeting or to give notice thereof, the SH/M of the corporation signing the demand may call
A special meeting of the stockholders or members for the purpose of removing any for the meeting by directly addressing the SH/M. (The SH/M who signed the petition to
director or trustee must be called by the secretary on order of the president, or upon remove included in the majority of the OCS/M).
written demand of the stockholders representing or holding at least a majority of the 5. The SH representing the majority of the OCS/ majority of the members.
outstanding capital stock, or a majority of the members entitled to vote. 6. Required vote: 2/3 OCS or members
7. The removal need not have a cause or ground.
If there is no secretary, or if the secretary, despite demand, fails or refuses to call the Exception: If the removal without cause is used to deprive minority SH or members of the
special meeting or to give notice thereof, the stockholder or member of the corporation right of representation to which they may be entitled (under Sec. 23).
signing the demand may call for the meeting by directly addressing the stockholders or 8. The SEC, upon discovery of the disqualification, can, on its own or upon verified complaint,
members. order the removal of director or trustee.
9. The SEC may impose on the Board of directors or trustees who, with knowledge of the
Notice of the time and place of such meeting, as well as of the intention to propose disqualification, failed to remove such D/T.
such removal, must be given by publication or by written notice prescribed in this Code.  The BOD is the governing body so they must do something about it. They could
Removal may be with or without cause: Provided, That removal without cause may not either inform the SH/M that the person they elected is disqualifiedor report such
be used to deprive minority stockholders or members of the right of representation to disqualification to the SEC.
which they may be entitled under Section 23 of this Code.

The Commission shall, motu proprio or upon verified complaint, and after due notice
and hearing, order the removal of a director or trustee elected despite the
disqualification, or whose disqualification arose or is discovered subsequent to an
election. The removal of a disqualified director shall be without prejudice to other
sanctions that the Commission may impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to remove such director or trustee.

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SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any How do we fill in the vacancies?
vacancy occurring in the board of directors or trustees other than by removal or by 1. By the stockholders
expiration of term, may be filled by the vote of at least a majority of the remaining 2. By the Board
directors or trustees, if still constituting a quorum; otherwise, said vacancies must be
filled by the stockholders or members in a regular or special meeting called for that Instances when the SH can fill in the vacancies? (4)
purpose. 1. Vacancy is caused by the expiration of term
2. Death, resignation, abandonment if the remaining board does not constitute a quorum
When the vacancy is due to term expiration, the election shall be held no later than the 3. Vacancy arises as a result of removal by the SH/M
day of such expiration at a meeting called for that purpose. 4. Increase in the number of directors brought by the amendment in the AOI
When the vacancy arises as a result of removal by the stockholders or members, the
election may be held on the same day of the meeting authorizing the removal and this Instances when the Board can fill in the vacancies? (2)
fact must be so stated in the agenda and notice of said meeting. 1. Death, resignation, abandonment if the remaining board still constitutes a quorum
2. When the vacancy prevents the remaining directors from constituting a quorum and
In all other cases, the election must be held no later than forty-five (45) days from the emergency action is required to prevent grave, substantial, and irreparable loss or damage
time the vacancy arose. A director or trustee elected to fill a vacancy shall be referred to the corporation (the vacancy may be temporarily filled from among the officers of the
to as replacement director or trustee and shall serve only for the unexpired term of the corporation by unanimous vote of the remaining directors or trustees)
predecessor in office.
What is the term of the temporary director?
However, when the vacancy prevents the remaining directors from constituting a The term shall cease within a reasonable time from the termination of the emergency or upon election
quorum and emergency action is required to prevent grave, substantial, and irreparable of the replacement director or trustee, whichever comes earlier.
loss or damage to the corporation, the vacancy may be temporarily filled from among
the officers of the corporation by unanimous vote of the remaining directors or
trustees.

The action by the designated director or trustee shall be limited to the emergency
action necessary, and the term shall cease within a reasonable time from the
termination of the emergency or upon election of the replacement director or trustee,
whichever comes earlier. The corporation must notify the Commission within three (3)
days from the creation of the emergency board, stating therein the reason for its
creation.

Any directorship or trusteeship to be filled by reason of an increase in the number of

directors or trustees shall be filled only by an election at a regular or at a special
meeting of stockholders or members duly called for the purpose, or in the same
meeting authorizing the increase of directors or trustees if so stated in the notice of the
meeting.

In all elections to fill vacancies under this section, the procedure set forth in Sections 23
and 25 of this Code shall apply.

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