Stockholders/members elect the BOD/BOT. The Board, in turn, elects officers.

Board – acts of management

Stockholders/members – ownership

Once the directors are elected, the stockholders/members relinquish corporate powers to the board in
accordance with law.

Contracts intra vires entered into the BOD are binding upon the corporation and courts will not interfere
unless unconscionable/oppressive to want destruction to the rights of the minority

Sec. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term.

Directors - elected for a term of 1 year.

Trustees – elected for a term not exceeding 3 years

Corporations vested with public interest - Board shall have independent directors constituting at least
20%

a. Corporations covered under “The Securities Regulation Code” namely”

 Those whose securities are registered with the Commission
 Listed with an exchange
 Assets of at least 50 million pesos
 Have 200 or more holders of shares, each holding at least 100 shares of a class of its
equity shares
b. Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations
engaged in money service business, preneed trust and insurance companies and other financial
intermediaries
c. Other corporations engaged in businesses vested with public interest similar to the above

Derivative suit – right of a stockholder to sue on behalf of a corporation whenever officials of the
corporation refuse to sue or are the ones to be sued; effective remedy of the minority against the
abuses of management.

 Nominal party – the suing stockholder

 Party in interest – corporation

A corporation exercises its powers through its BOD.

A corporation’s BOD is the body which:

1. Exercises all powers provided for under the Corporation Code

2. Conducts all business of the corporation
3. Controls and holds all property of the corporation – is not the property of its stockholders and
may not be sold without express authorization from the BOD.

A treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.

3 levels of control
 1. BOD – responsible for corporate policies and the general management of the business affairs of
a corporation; may validly delegate some of its functions to individual officers/agents appointed
by it.
2. Officers – execute policies laid down by the board; have wide latitude in determining the course
of business operations
3. Stockholders – have residual power over fundamental corporate changes

General rule: In the absence of authority from BOD, no person can validly bind a corporation.

Corporate powers may be directly conferred upon corporate officers and they may also appoint other
agents by statute, the articles of incorporation, and the by-laws or by resolution of the BOD. (Express
powers)

There are also powers incidental to express powers conferred. – Every delegation of authority carries
with it implied authority to do acts which are necessary in order to carry into effect the main authority
conferred.

Qualifications of a BOD/BOT

1. For stock, ownership of at least 1 share of capital stock in his own name. For non-stock, only
members can be elected.
2. Must be capacitated
3. Must be of legal age
4. Other qualifications as may be prescribed in the by-laws.

Independent directors – independent of management and free from any business which could
materially interfere with the exercise of independent judgment; must be elected by the shareholders
present or entitled to vote in absentia during the election of directors.

Sec. 23

Requirements for the election of directors/trustees:

1. Owners of majority of outstanding capital stock/majority of members entitled to vote must be

present either in person/through a representative
2. When authorized in the by-laws/majority of BOD, the stockholders/members may vote through
remote communication or in absentia.
3. Election must be by ballot.
4. In stock corporations, the total number of votes cast shall not exceed the number of shares
owned by the stockholder multiplied by the number of directors to be elected. Provided, that no
delinquent stock shall be voted.
5. In nonstock, members cast as many votes as there are trustees but may not cast as more than 1
vote for 1 candidate.

If no election is held/owners of majority of outstanding capital stock/majority of members are not

present, such meeting may be adjourned.

Sec. 24. Corporate officers – immediately after their election, the directors must formally organize and
elect:
 Officer Requirement Citizenship Residency
President Must be a director and Need not be a Filipino Need not be a resident
stockholder of at least Citizen of the Philippines
1 share
Secretary Need not be a director Must Must
Treasurer Need not be a director Need not be Must
Compliance officer If the corporation is
vested with public
interest
Other officers Qualification may be
provided for in the by-
laws

NOTE:

Any 2 or more positions may be held concurrently by the same person except that no one shall act:

 President and secretary

 President and treasurer

At the same time

A majority (50% + 1) of directors shall constitute a quorum for the transaction of corporate business

SEC. 25. Report of Election of Directors, Trustees and Officers, Non-holding of Election and Cessation
from Office. –

After the election of the directors/trustees/officers of the corporation, the secretary/any other officer of
the corporation, shall submit the:

 Names
 Nationalities
 Shareholdings
 Residence addresses

To the Commission within 30 days

The non-holding of elections and the reasons therefor shall be reported to the Commission within 30
days from the date of the scheduled election. The report shall specify a new date for the election not
later than 60 days from the scheduled date.

The Commission shall have the power to:

 Summarily order that an election be held if no new date has been designated, or if the
rescheduled election is likewise not held
 Direct the issuance of a notice stating the:
o Time and place of the election
o Designated presiding officer
o Record date/s for the determination of stockholders or members entitled to vote
Should a director/trustee/officer die, resign or in any manner cease to hold office, the
secretary/director/trustee/officer of the corporation, shall, within 7 days from knowledge thereof,
report in writing such fact to the Commission.

The objective is to give the public information of:

 Nature of business
 Financial condition
 Operational status
 Information on its key officers/managers

SEC. 26. Disqualification of Directors, Trustees or Officers. –

A person shall be disqualified from being a director/trustee/officer of any corporation if, within 5 years
prior to the election or appointment as such, the person was:

a. Convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6

years
1. For violating this Code
2. For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”
b. Found administratively liable for any offense involving fraudulent acts
c. By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct
similar to those enumerated in paragraphs (a) and (b) above.

SEC. 27. Removal of Directors or Trustees. –

Requisites for removal:

1. A vote of the stockholders holding or representing at least 2/3 of the outstanding capital stock/
at least 2/3 of the members entitled to vote
2. The removal shall take place either:
 At a regular meeting
 At a special meeting called for the purpose
3. There’s a previous notice to stockholders/members of the corporation of the intention to
propose such removal at the meeting.
4. A special meeting of the stockholders/members for the purpose of removing any
director/trustee must be called by the:
 Secretary on order of the president, or
 Upon written demand of the stockholders representing/holding at least a majority of the
outstanding capital stock, or a majority of the members entitled to vote

If there is no secretary/if the secretary, despite demand, fails/refuses to call the special meeting or to
give notice thereof, the stockholder or member of the corporation signing the demand may call for the
meeting by directly addressing the stockholders or members.

Notice of the time and place of such meeting, as well as of the intention to propose such removal, must
be given by publication or by written notice prescribed in this Code.
Removal may be with or without cause: Provided, that removal without cause may not be used to
deprive minority stockholders or members of the right of representation to which they may be entitled
under Section 23 of this Code

Motu proprio or upon verified complaint and after due notice and hearing, the Commission shall:

 Order the removal of a director/trustee elected despite the disqualification, or whose

disqualification arose/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.

SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. –

Any vacancy occurring in the BOD/BOT other than by removal or by expiration of term may be filled by:

 The vote of at least a majority of the remaining directors/trustees, if still constituting a quorum;
or
 Filled by the stockholders/members in a regular/special meeting called for that purpose.

When the vacancy is due to term expiration, the election shall be held no later than the day of such
expiration at a meeting called for that purpose.

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 fact must be so stated in the
agenda and notice of said meeting.

Election must be held no later than 45 days from the time the vacancy arose.

A director/trustee elected to fill a vacancy shall be referred to as replacement director/trustee and shall
serve only for the unexpired term of the predecessor in office.

When:

 Vacancy prevents the remaining directors from constituting a quorum

 Emergency action is required to prevent grave, substantial, and irreparable 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. 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 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, or
 In the same meeting authorizing the increase of directors/trustees if so stated in the notice of
the meeting

SEC. 29. Compensation of Directors or Trustees. –

The directors/trustees shall not receive any compensation in their capacity as such, except for
reasonable per diems.

Exception:

 When it is fixed by the corporation’s by-laws

 When the stockholders representing at least a majority of the outstanding capital stock or
majority of the members grant directors/trustees with compensation and approve the amount
thereof at a regular/special meeting.

In no case shall the total yearly compensation of directors exceed 10% of the net income before income
tax of the corporation during the preceding year.

Directors/trustees shall not participate in the determination of their own compensation.

Corporations vested with public interest shall submit an annual report of the total compensation of each
of their directors/trustees to:

 Their shareholders
 Commission

SEC. 30. Liability of Directors, Trustees or Officers. –

Directors or trustees who:

 Willfully and knowingly vote for or assent to patently unlawful acts of the corporation
 Who are guilty of gross negligence (absence/failure to exercise slight care or entire absence of
care) or bad faith (conscious doing of wrong) in directing the affairs of the corporation
 Acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees

Shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons. (Doctrine of corporate opportunity)

A director, trustee, or officer shall not attempt to acquire/acquire any interest adverse to the
corporation in respect of any matter which has been reposed in them in confidence, and upon which,
equity imposes a disability upon themselves to deal in their own behalf; otherwise the said director,
trustee, or officer shall be liable as a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation.

NOTES:

General rule: Obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities, and vice versa.
Exceptional circumstances warranting disregard of a separate personality are summarized as follows:

1. 1st paragraph
2. When director/officer has consented to the issuance of watered down stocks/having knowledge
thereof did not file his written objection
3. When director/officer has contractually agreed to hold himself solidarily liable with the
corporation.
4. When director/officer is made by specific provision of law personally liable for his corporate
action.

If the cause of losses is merely error in business judgment, directors/trustees are not liable.

Questions of policy/management are left solely to the honest decision of the board. The court is without
authority as long as it acts in good faith.

SEC. 31. Dealings of Directors, Trustees or Officers with the Corporation. –

A contract of the corporation with its directors/trustees/officers or their spouses and relatives within
the fourth civil degree of consanguinity or affinity is voidable, at the option of such corporation.

Exceptions:

1. The presence of such director/trustee in the board meeting in which the contract was approved
was not necessary to constitute a quorum for such meeting;
2. The vote of such director/trustee was not necessary for the approval of the contract;
3. The contract is fair and reasonable under the circumstances;

Where any of the first 3 conditions is absent, in the case of a contract with a director/trustee, such
contract may be ratified by:

 The vote of the stockholders representing at least 2/3 of the outstanding capital stock or
 At least 2/3 of the members in a meeting called for the purpose

Provided, that full disclosure of the adverse interest of the directors/trustees involved is made at such
meeting and the contract is fair and reasonable under the circumstances.

4. In case of corporations vested with public interest, material contracts are approved by at least
2/3 of the entire membership of the board, with at least a majority of the independent directors
voting to approve the material contract;
5. In case of an officer, the contract has been previously authorized by the board of directors.

SEC. 32. Contracts Between Corporations with Interlocking Directors. –

Interlocking directors – members of the BOD in a certain corporation who are also directors in another
corporation

General rule: A contract between 2 or more corporations having interlocking directors shall not be
invalidated on that ground alone.

Requisites:
 1. The contract is not fraudulent
2. The contract is fair and reasonable under the circumstances

Exception:

If the interest of the interlocking director in 1 corporation is substantial and the interest in the other
corporation/s is merely nominal, the contract shall be subject to the provisions of the preceding section
insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding 20% of the outstanding capital stock shall be considered substantial for
purposes of interlocking directors.

SEC. 33. Disloyalty of a Director. –

Doctrine of Corporate Opportunity

A director, by virtue of his office, acquires a business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation, he must account for and
refund to the latter all such profits by refunding the same.

Note: This doctrine shall be applicable, notwithstanding the fact that the director risked one’s own funds
in the venture

The act of a director violating the doctrine of corporate opportunity can be ratified by a vote of the
stockholders owning or representing at least 2/3 of the outstanding capital stock.

SEC. 34. Executive, Management, and Other Special Committees. –

Executive committee – body created by the by-laws and composed of not less than 3 members of the
board which is subject to statutory limitations, has all the authority of the BOD to the extent provided in
the by-laws.

Limitations on the powers of the executive committee:

1. Approval of any action for which shareholders’ approval is also required;

2. Filing of vacancies in the board;
3. Amendment/repeal of bylaws or the adoption of new bylaws;
4. Amendment/repeal of any resolution of the board which is not amendable/repealable; and
5. Distribution of cash dividends to the shareholders

The BOD may create special committees of temporary/permanent nature and determine the members’
term, composition, compensation, powers, and responsibilities.