Board of Directors, Trustees, and Officers

Question 1

What are the functions of the board of directors or trustees?

Answer 1

Unless otherwise provided, the board of directors or trustees shall exercise the corporate powers, conduct all business, and control all properties of the corporation.

Question 2

How long are the terms of the directors and trustees? How about the number of directors and trustees?

Answer 2

Directors are elected for a term of one year, while trustees are elected for a term of not exceeding three years.

Directors must be not more than fifteen, and trustees may be more than fifteen.

Question 3

What is the doctrine of minimum qualification?

Answer 3

Under the doctrine of minimum qualification, a director must own at least one share of stock, and a trustee must be a member of the corporation.

If they cease to be as such, they also cease to be a director or a trustee.

Question 4

What are independent directors?

Answer 4

Independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.

Question 5

How are independent directors elected?

Answer 5

Independent directors are elected by the shareholders present or entitled to vote in absentia during the election of directors.

Question 6

What is the doctrine of centralized management?

Answer 6

All businesses of the corporation shall be conducted and all its properties shall be controlled and held by the board of directors or trustees. A corporation can only act through its directors and officers.

Question 7

What is the business judgement rule?

Answer 7

The will of the majority of the board members controls in corporate affairs, and contracts intra vires entered into by the board of directors are binding on the corporation and courts will not interfere unless such contracts are unconscionable and oppressive.

Question 8

What is the doctrine of apparent authority?

Answer 8

If a corporation knowingly permits one of its officers or any of its agents to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do these acts, and thus, the corporation will, as against anyone who is in good faith, dealt with it through such agent, be estopped from denying the agent’s authority.

Question 9

What is the doctrine of corporate opportunity?

Answer 9

The director, trustees, and officers, shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation refunding the same to the corporation.

There is corporate opportunity when the business opportunity is one which pertains to the primary business of the corporation and the corporation is in a financial position to exploit and profit from such opportunity.

Question 10

Who may vote for directors and trustees?

Answer 10

Generally, each stockholder or member have the right to nominate any director or trustees who possesses all the qualifications and none of the disqualifications.

Except, if such exclusive right is reserved for holders of founders shares.

Question 11

How can a stockholder or member vote in an election for directors or trustees?

Answer 11

Owners of majority of the outstanding capital stock, or majority of the members may vote:
(a) Personally
(b) Through a representative authorized to act by written proxy
(c) Through remote communication or absentia, if authorized by the bylaws or by a majority of the board of directors

In a corporation vested with public interest, it may exercise voting through remote communication or absentia even without a provision in the bylaws.

Question 12

How can a stockholder entitled to vote distribute his vote?

Answer 12

A stockholder entitled to vote shall have the right to vote the number of shares of stock standing in their own names, as provided in the stock books of the corporation at the time fixed by the bylaws or at the time of the election. He mayL
(a) Vote such number of shares for as many persons as there are directors to be elected
(b) Cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of the shares owned
(c) Distribute them in the same principle among as many candidates as may be seen fit.

Question 13

How can a member distribute his vote?

Answer 13

Members of non-stock corporations may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate.

Question 14

Who are considered as corporate officers?

Answer 14

After election, directors of a corporation must formally organize and elect:
(a) President, who must be a director
(b) A treasurer, must be a resident
(c) A secretary, who must be a citizen and resident of the Philippines
(d) Other officers as may be provided by the bylaws.
(e) If the corporation is vested with public interest, it shall elect a compliance officer.

Question 15

What is the rule regarding the holding of concurrent positions as corporate officers?

Answer 15

The same person may hold two or more positions concurrently, except:
(a) President and secretary
(b) President and treasurer

Question 16

After the election of the directors, trustees, and officers, what should the corporation do?

Answer 16

Within 30 days after the election of directors, trustees, and officers, the secretary or any other officer of the corporation shall submit to the Securities and Exchange Commission, the names, nationalities, shareholdings, and residence addresses of the directors, trustees, and officers elected.

Question 17

What if the elections are not held?

Answer 17

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

Question 18

What if no new date for the election has not been designated, or the rescheduled election is not held, what is the rule?

Answer 18

If no new date of the election has been designated, or the rescheduled election is not held, upon the application of a stockholder, member, director, or trustee, and after verification of the unjustified non-holding of the election, the Securities and Exchange Commission may order that an election be held.

Under this election, the shares of stock or membership represented at such meeting and entitled to vote constitutes a quorum.

Question 19

What if a director, trustee, or officers dies or resigns?

Answer 19

Should a director, trustee, or officer die, resign or in any manner cease to hold office, the secretary, or the director, trustee, or officer shall report it in writing to the Securities and Exchange Commission within 7 days from knowledge.

Question 20

How can a director, trustee, or officers be disqualified?

Answer 20

A person shall be disqualified from being a director, trustee, or officer of any corporation if, within five years prior to his election or appointment, he was:

(a) Convicted by final judgment of (1) offense punishable by imprisonment of more than six years, (2) violating the Revised Corporation Code, and (3) violating 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 the preceding provision.

Question 21

How may a director or trustee be removed from office? When should such removal be held?

Answer 21

A director or trustee may be removed from office by a vote of stockholders or members representing at least:
(a) 2/3 of the outstanding capital stocks
(b) 2/3 of the members entitled to vote.

Such removal shall take place either at a regular meeting of the corporation, or at a special meeting called for that purpose.

Question 22

If a special meeting is held for a removal of a director or trustee from office, how is it done?

Answer 22

It is called by a secretary on order of the president, or upon written demand of the stockholder representing at least a majority of the capital stock or majority of the members entitled to vote.

If there is no secretary, or the secretary refuses to call such meeting, the stockholder or member of the corporation signing the demand may call for the meeting by directly addressing the stockholder or members.

Notice of the time and place of such meeting and the intention to propose such removal must be given by publication or by written notice.

Question 23

How are vacancies in the board of director or trustees filled?

Answer 23

Any vacancy, except removal or expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees if they are still constituting a quorum.

Otherwise, the vacancies must be filled by the stockholders or members in a regular or special meeting called for that purpose.

Question 24

If the vacancy is because of the expiration of a director or trustee’s term, when should the vacancy be filled?

Answer 24

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.

Question 25

If the vacancy is because of the removal by the stockholders or members, when should the vacancy be filled?

Answer 25

If the vacancy arose from the removal by the stockholders or members, the election may be held on the same day of the meeting authorizing the removal, and such must be so stated in the agenda and notice of the said meeting.

Question 26

On all other vacancies, when should the election be held?

Answer 26

In all other cases, the election must be held no later than 45 days from the time the vacation arose.

Question 27

What is a replacement director or trustee?

Answer 27

A director or trustee elected to fill a vacancy shall be referred to as a replacement director or trustee, and shall serve only for the unexpired term of the previous director or trustee.

Question 28

When is an emergency board be constituted? When does their term end?

Answer 28

When by reason of a vacancy, it prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave 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 director or trustees.

The action by the designated director or trustee shall be limited to the emergency action necessary, and his term shall cease after the termination of the emergency, or election of a replacement director or trustee.

Question 29

What if there is a vacancy by reason of the increase in the number of directors or trustees? When is it filled?

Answer 29

Any director or trustee to be filled by reason of an increase in number of directors or trustees shall be filled only by an election at a regular or at a special meeting of stockholder or members called for that purpose, or in the same meeting authorizing the increase of directors or trustees if stated in the notice of the meeting.

Question 30

What are the three-fold fiduciary duties of directors, trustees, and officers?

Answer 30

(a) Obedience - A director, trustee, or officer should not willfully and knowingly vote for patently unlawful acts of the corporation.

(b) Loyalty - A director, trustee, or officer, should not acquire or acquire any personal or pecuniary interest in conflict with their duty as directors or trustee.

(c) Diligence - A director, trustee, or officers shall not be guilty of gross negligence or bad faith in directing the affairs of the corporation.

Question 31

What are the consequences if a director, trustee, or officer breach his fiduciary duties?

Answer 31

(a) Personal joint and several liability for all resulting damages suffered by the corporation, its shareholders or members and other concerned stakeholders

(b) Fiduciary liability as trustees or profits that would have accrued to the corporation

(c) Administrative and civil liabilities

Question 32

What contracts of the corporation are voidable?

Answer 32

Contracts between the corporation and the following are voidable:
(a) Directors, officers
(b) Spouses of directors or officers
(c) Relatives of directors or officers within the 4th degree of consanguinity or affinity

However, such contract may be valid if all of the following are present:
(a) Presence of the director was not necessary to constitute a quorum
(b) Vote of the director was not necessary for the approval of the contract
(c) Contract is fair and reasonable
(d) In case of officers, contract was previously authorized by the board

Question 33

How is a contract with self-dealing director or trustee is ratified?

Answer 33

Contract with self-dealing director or trustee may be ratified by the vote of stockholders representing at least 2/3 of the outstanding capital stocks, or by the vote of at least 2/3 of the members in a meeting called for the purpose. Provided:
(a) There must be full disclosure
(b) The contract was fair and reasonable

Question 34

With regards to the creation of executive committee, what is the rule?

Answer 34

Executive committee is a body created if the bylaws provides, composed of not less than three appointed members of the board, and subject to statutory limitations, and has all the authority of the board to the extent provided in the board resolution.

Question 35

How many is the quorum of the executive committee? What are its statutory limitations?

Answer 35

Executive committee has a quorum of majority of all the members of the committee.

Its statutory limitations are the following:
(a) Filling up of board vacancies
(b) Amendment, repeal, or adoption of bylaws
(c) Approval of any action for which shareholders’ approval is required
(d) Amendment or repeal of any board resolution
(e) Distribution of cash dividends to shareholders