TITLE III

BOARD OF DIRECTORS/TRUSTEES/OFFICERS
Sec. 23. The board of directors or trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is
no stock, from among the members of the
corporation, who shall hold office for one (1)
year until their successors are elected and
qualified.

law to stockholders or members. The directors

or trustees have sole authority to determine
policy, enter into contracts, and conduct the
ordinary business of the corporation (in all
matters which do not require the consent or
approval of the stockholders) within the scope
of its charter.
3) Extent of judicial review- as long as the
directors act honestly, and their acts or
contracts do not disregard the rights of the
minority, the courts will not interfere. They are
not liable for losses if the cause is merely error
in business judgment, not amounting to bad
faith or negligence.

Every director must own at least one (1)

share of the capital stock of the corporation of
which he is a director, which share shall stand in
his name on the books of the corporation. Any
director who ceases to be the owner of at least
one (1) share of the capital stock of the
corporation of which he is a director shall
thereby cease to be a director. Trustees of nonstock corporations must be members thereof. a
majority of the directors or trustees of all
corporations organized under this Code must be
residents of the Philippines.

Business judgment ruleGR: Courts will not interfere in the decisions made by
the BOD as regards the internal affairs of the
corporation
exception:
Unless
such
contracts
are
so
unconscionable and oppressive as to amount to a
wanton destruction of rights of the minority.

Structure of corporate organization:

1) Binding effects of acts or contracts- action
proposed to be taken by by a corp. involves 2
basic questions;
1st- in order to bind a corporation, who within the
organization must act on its behalf?
2nd- what is the result if the statutory requirements are
not complied with and proper parties do not act?

Nature of power of the board of directors or

trustees
1) Their powers are original and undelegated.
The stockholders or members do not confer,
nor revoke those powers. They are derivative
only in the sense of being received from the
state in the act of incorporation.
2) Other view is the DELEGATION THEORYwhich holds that the directors are the officers
and agents of the corporation, representing the
interest of that abstract legal entity and those
who own shares of stock and as such, they can
bind the corporation provided that they act
within the scope of their authority.
3) Actually, the powers of the BoD or trustees are
directly conferred by statute and as,
general rule, the stockholders or members
cannot control their actions or exercise of
judgment vested in them by virtue of their
office. Except in cases where certain corporate
acts, the approval or authorization of the
stockholders or members is necessary for their
validity.

2)tri-level structure- standard operating procedure.

1st- at the base are shareholders whose vote is
required to elect BoD or trustees and to pass other
major corporate actions.
2nd- directors who constitute the policy making body of
the corp. and select the officers annually as a rule.
3rd- finally, at the top are officers who execute the
policies.
3)Respective powers and functions- corporate
powers my be directly conferred upon corporate
officers or agents by statute, the articles of
incorporation, or by resolution or other act of the BoD.
Corporate powers exercised by board of
directors
1) Governing body of the corporation- corp.
can only act thru its BoD in case of stock corp.,
and board of trustees in case of non-stock corp.
The general rule, therefore, is that in the
absence of authority or valid delegation from
the BoD or trustees, no person, not even its
officers, can validly bind a corp.
2) Binding effect of stockholders action- the
stockholders or member elect the BoD to
oversee the management and operation of a
corp. they are not agents of the corporation
and cannot bind it through their acts. With the
exceptions only of some powers reserved by

Note: in a close corporation the art. of incorporation

may provide that the business of the corporation shall
be managed by the stockholders rather than by the
BoD.

Limitations on the powers of the board of

directors or trustees
1) Limitations or restrictions imposed by the
constitution, statutes, art. of incorporation, or
by-laws of the corp.
2) It cannot perform constituent acts, that is
acts involving the fundamental or major
changes in the corp. (i.e. amend the Art. of
incorp.) which require the approval or
ratification of the stockholders or members.
3) It cannot exercised powers not possessed by
the corp.
Powers exercised by the Board of directors or
trustees as a board

-The BoD or trustees must act together as a body in a

lawful meeting, not individually or separately, in order
to bind the corp. for their acts. There must be quorum.
Reasons for the rule:
1) A meeting is necessary in order that any action
may be deliberately adopted, after opportunity
for discussion and interchange of views; and
2) As agents of the corporation managing its
affairs, directors or trustees have power to act
other than as a board.
Unlike its officers, directors are not agents of
the corp. per se and they have no power acting
individually to bind the corp.
Exceptions to the rule: where there are
extraordinary situations or conditions to justify the
act of the stockholders or corporate officers as to
make a board action as nothing more than a mere
of formality.
1) It has been held that a contract entered in to
by the directors without a meeting of the board
is binding upon the corp. where the directors
happen to be the sole stockholders.
2) Contract entered into by corporate officer such
as the general manager, authorized by the BoD
either expressly or impliedly, to bind it by
contract.
3) Transaction ratified in a subsequent meeting.
4) Acts of one of its directors or agents held out
by the corp. to the public as possessing power
to do those acts.
5) Where the stockholders, by acquiescence,
invest the executive officers of the corp. with
powers of the directors as the usual method of
doing business, the board being inactive, the
acts of such officers will bind the corporation.
6) The stockholders may waive the necessity for a
meeting of the BoD, and without such meeting
may authorized acts to be done by agents of
the corp. or ratify acts already done and bind
the corp.
7) Under exceptional situations, stockholders
agreement though it provides for the exercise
of management ordinarily delegated to the
board, is valid and enforceable, where no
creditors minority stockholders, or other
persons of the public are affected.
8) The by-laws of the corp. may create an
executive committee with authority to act on
such specific matters within the competence of
the board.
9) A corp. is expressly allowed to enter into
management contract under which it delegates
the management of its affairs to another corp
.for certain period of time.
10) In a close corp. any action by the directors
without a meeting or at a meeting improperly
held, shall, unless the by-laws otherwise
provide, de deemed valid or ratified in the
cases mentioned in section 101.
Powers of directors or trustees to delegate
authority
GR: The directors or trustees have the power to
delegate authority.

- In the absence of authority from the BoD, no

persons, not even its officers, can validly bind a
corp.
Exceptions:
1) Discretionary powers exclusively vested or
especially delegated to the BoD.
2) They cannot delegate entire supervision and
control of the corporation.
3) Special powers vested to them.

Term of office of directors or trustees

1) One year- term expires 1 year after election to
the office and after their successors are elected
and qualified, as expressly provided by this
Code.
2) Hold-over: upon failure of a quorum at any
meeting of the stockholders or members called
for an election, the directorate naturally holds
over and continues to function until another
directorate is chosen and qualified. The failure
to elect does not terminate the terms of
incumbent
officers
nor
dissolve
the
corporation.
To hold-over when applied to an office
implies that the office has a fixed term which
has expired, and the incumbent is holding the
succeeding term.
3) Modification of term- unlike in the case of
non-stock
corporation
and
educational
corporations, stock corporations are not
authorized to divide the members of its BoD
into groups with each group having a different
term of office. Their term of office being fixed
by law.
Number of directors or trustees to be elected
1) Stock corporation- must not be less than 5
nor more than 15.
2) Ordinary non-stock corp.- may be more
than 15 but must not be less than 5.
3) Close corporation- the art. of incorp. may
provide that the business of the corp. shall be
managed by its stockholders rather than by
BoD in which case no meeting of the
stockholders need be held to elect directors.
4) Trustees
of
non-stock
educational
institution- not less than 5, nor more than 15.
Provide that, the number shall be in multiples
of 5.
5) Corporation sole-none. One member or
corporator only.
6) Trustees of religious societies- not less
than 5, nor more than 15.
Note: Election of less than the number required does
not invalidate the title of those elected as long they
constitute a quorum.
Qualifications of directors or trustees
1) stock corporationa) every director must own atleast 1 share of
the capital stock;
b) the share of stock held by the director
must be registered in his name on the
books of the corp.;

c)

every director must continuously own at

least 1 share of stock during his term,
otherwise he shall be automatically cease
to be director; and
d) a majority of the directors must be resident
of the Philippines.
2) Non-stock corp- must be members of good
standing thereof and like in stock corp, a
majority of them must be residents of the
Philippines.
A person who has a disqualification
mentioned in section 27 is not qualified to hold
the position as director or trustee.
Note: The BSP, SEC, and Insurance Commission issued
circulars/memoranda requiring all covered corp. to
have at least 2 independent directors.

6) Transferee of shares he previously sold- a

director who makes a valid transfer of his
shares and subsequently reacquires the same
will not entitle him to his former position.
7) Transferee at the time of assumption of
office- qualified even if not the legal owner of
the stock at the time of election.
8) Co-owners of shares- the husband or wife
who desires to be elected as member of the
board must secure standing by having their
shares recorded in the corporate book as coowned by them, in which case, either of them
and not both of them may be voted as director.
Reason for the requirement of stock ownership: a
man with financial interest at stake will devote more
attention to the business.

Independent directors- refers to a person

other than an officer or employee of the corp., its
parent or subsidiaries, or any other individual having
any relationship with the corp. which would interfere
with the exercise of independent judgment in carrying
out the responsibilities of the directors.

Additional qualifications in the by-laws

1) The qualifications may be prescribed in the by-laws,
but it should not be in conflict with the requirements
under the corporation law.
2) additional qualifications cannot be enforced unless
approved by the stockholders or members and
contained in the by-laws of the corporation.

Natural persons contemplated by law

Only natural persons can be elected as
directors or trustees and they must be elected
from among the stockholders or members.
However, a corp. which owns shares of stock or
is a corporate member in another corporation
can designate by board resolution its officer or
representative to sit in the latters board and
thus qualifying him to be elected as director of
trustee.

Effect of want of eligibility:

Votes cast for the person who is not eligible as
a director cannot elect him.
It does not follow, however, that ineligibility of
a person who has been elected as an officer will
invalidate his acts as such. Persons dealing with a corp
are not required to ascertain their qualifications.
Therefore, their acts are valid in so far as 3 rd persons
are concerned.

Citizenship requirement: there is no citizenship

requirement demanded of the members of the BoD
under the code. However, under the Constitution,
aliens may not be elected as directors or officers of a
corporations engaged in business or industries which
are totally or partially nationalized.

Sec. 24. Election of directors or trustees. - At all

elections of directors or trustees, there must be
present, either in person or by representative
authorized to act by written proxy, the owners of
a majority of the outstanding capital stock, or if
there be no capital stock, a majority of the
members entitled to vote. The election must be
by ballot if requested by any voting stockholder
or member. In stock corporations, every
stockholder entitled to vote shall have the right
to vote in person or by proxy the number of
shares of stock standing, at the time fixed in the
by-laws, in his own name on the stock books of
the corporation, or where the by-laws are silent,
at the time of the election; and said stockholder
may vote such number of shares for as many
persons as there are directors to be elected or
he may cumulate said shares and give one
candidate as many votes as the number of
directors to be elected multiplied by the number
of his shares shall equal, or he may distribute
them on the same principle among as many
candidates as he shall see fit: Provided, That the
total number of votes cast by him shall not
exceed the number of shares owned by him as
shown in the books of the corporation multiplied
by the whole number of directors to be elected:
Provided, however, That no delinquent stock
shall be voted. Unless otherwise provided in the
articles of incorporation or in the by-laws,

Stock ownership requirement

1) Holder of legal title- the general rule is that
the person who holds the legal title to the stock
as shown by the books of the corporation is
qualified although some other person may be
the beneficial owner of the stock recorded in
his name.
2) Voting trusteeconsidered as the legal
owner of the shares transferred to him by
virtue of a voting trust agreement and,
therefore, eligible to office of director.
3) Transferee of qualifying shares- eligible to
office of director.
4) Pledgee/pledgor of shares- pledgee is not
qualified to be a director because he holds the
shares as a security and not as a owner. While,
a director is not disqualified when he merely
pledged his share.
5) Subscriber of shares in escrow- not eligible
because the holder is not an owner.

members of corporations which have no capital

stock may cast as many votes as there are
trustees to be elected but may not cast more
than one vote for one candidate. Candidates
receiving the highest number of votes shall be
declared
elected.
Any
meeting
of
the
stockholders or members called for an election
may adjourn from day to day or from time to
time but not sine die or indefinitely if, for any
reason, no election is held, or if there not
present or represented by proxy, at the meeting,
the owners of a majority of the outstanding
capital stock, or if there be no capital stock, a
majority of the members entitled to vote.
Election of directors or trustees
The following are the limitations or
conditions on the election of directors/ trustees:
1.) At a meeting of stockholders or members called for
the election of directors or trustees, there must be
present either in person or by representative
authorized to act by written proxy, the owners of the
majority of the outstanding capital stock or majority of
the members entitled to vote.
2.) The election must be by ballot if requested;
3.) A stockholder cannot be deprived in the articles of
incorporation or in the bylaws of his statutory right to
use any of the methods of voting in the election of
directors;
4.) No delinquent stock shall be voted;
5.) The candidates receiving the highest number of
votes shall be declared elected.
6.) the meeting may be adjourned if there is failure to
hold an election, but it cannot be adjourned sine die or
indefinitely.
7.) The requisite notice must be given.
Note: mere designation of directors or trustees
without election will not be sufficient. They must be
elected. Their election must be held substantially
once in each year. Postponement is only allowed if
there is a justifiable cause.
Methods of voting
1) Straight voting- every stockholder may vote
such number of shares for as many persons as
there are directors to be elected.
2) Cumulative voting for one candidate- a
stockholder is allowed to concentrate his votes
and give one candidate as many votes as the
number of directors to be elected multiplied by
the number of his shares shall equal.
3) Cumulative voting by distribution- a
stockholder may cumulate his shares by
multiplying also the number of his shares by
the number of directors to be elected and
distribute the same among as many candidates
as he shall see fit. (please read the illustrations
in the book.)
Right of the stockholder to use cumulative
voting
Cumulative voting is a statutory right, hence, a
corp. is without power to deprive the stockholders of its
use or even restrict the right to vote in only 1 way or
method.

Situations of cumulative voting

1) Cases growing out conspicuous management
or board failures.
2) Situations grounded in conflicts of important
business interests among stockholders, or
between stockholders and management.
3) Where the stockholders became convinced on
rather general grounds that the BoD was
unrepresentative of, and generally insensitive
to, stockholders interest.
4) Instances
involving
clashes
of
strong
personalities.
5) Struggles for control of the corp. in which
representation through cumulative voting was
an intermediate objective; and
6)
Cases of anglers- opposition leaders who
have selfish interests.
Voting in a non-stock corporation
Members of non-stock corporations may cast
as many votes as there are trustees to be elected but
may not cast more than 1 vote for one candidate.
ILLUSTRATION:
If A is a member of a non-stock corp. and there
are 5 directors to be elected, he is entitled to only 5
votes. He may give 1 vote to each of the 5 candidates
he wants to be elected.
If he has only 1 candidate, he can cast only 1
vote for said candidate unless cumulative voting is
authorized in the articles of incorp. or in the by-laws.
Thus, where cumulative voting exists, and there are 9
trustees to be elected, a member is entitled to cast 9
votes for 1 candidate or to distribute the same among
as many candidates as he shall see fit.
Note: in the election of trustees of a non-stock corp.
separate voting by zones or regions is not allowed. It is
necessary that at least a majority of the members
entitled to vote must be present at the meeting held
for that purpose.
However, a segregation of votes for regular
and independent directors is allowed.
Sec.
25.
Corporate
officers,
quorum.
Immediately after their election, the directors of
a corporation must formally organize by the
election of a president, who shall be a director, a
treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of
the Philippines, and such other officers as may
be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the
same person, except that no one shall act as
president and secretary or as president and
treasurer at the same time.
The directors or trustees and officers to be
elected shall perform the duties enjoined on
them by law and the by-laws of the corporation.
Unless the articles of incorporation or the bylaws provide for a greater majority, a majority of
the number of directors or trustees as fixed in
the articles of incorporation shall constitute a
quorum for the transaction of corporate
business, and every decision of at least a

majority of the directors or trustees present at a

meeting at which there is a quorum shall be
valid as a corporate act, except for the election
of officers which shall require the vote of a
majority of all the members of the board.
Directors or trustees cannot attend or vote by
proxy at board meetings.

Corporate officers
The BoD or trustees formulates the broad
policy of the corporation and directs the conduct of its
business operations. But the task of actual
management and carrying on the details of business
operations and corporate policy are delegate to the
officers elected by it and over whom it exercises
supervision.

The corporate officers are:

1. President Must be a director at the time he
assumes office, not at the time of appointment;
2. Treasurer May or may not be a director; as a
matter of sound corporate practice, must be a resident.
3. Secretary Need not be a director unless required
by the bylaws; must be a resident and citizen of the
Philippines; and
4. Such other officers as may be provided in the by
laws.
Note: the only officers are those elected or
appointed by the board of directors.
On the other hand, Corporate employees are
those whose duties are of a clerical or manual nature.