Title III: BOD/BOT/OFFICERS

1. Correlation among the BOD/BOT/Officers and 5. Who has the power to manage the corporation?
stockholders Sec.22:
Corporation Code: Unless otherwise provided, BOD/BOT
shall:
 BOD/BOT(s) are elected by stockholders  EXERCISE CORPORATE POWERS
or members periodically to be in-  CONDUCT ALL BUSINESS
charged with the management of the  CONTROL ALL PROPERTIES OF
corporation. CORPORATION
 Officers are then elected by the board to
Directors Trustees
carry out management functions on a
day-to-day basis. -elected for 1 yr. -not exceeding 3 yrs.
 Stockholders as owners or members
have residual powers over fundamental  EACH SHALL HOLD OFFICE UNTIL THE
and major corporate changes. SUCCESSOR IS ELECTED AND QUALIFIED.

 A director who ceases to own at least 1

2. Act of Management vs Ownership share of stock or as member shall cease
to be such.
Management Ownership
-pertains to BOD/BOT -pertains to The following corporations shall have independent
STOCKHOLDERS directors (with at least 20% share):
or MEMBERS
-management and -entitled to 1. Corporations covered by THE
direction of receive profits SECURITIES REGULATION CODE” or Sec
corporation 17.2 RA 8799:
-cannot act alone; seek a. Securities are registered with
approval of owners the commission or
b. Listed with an exchange or
c. With at least P50M and having
3. Business Judgment Rule 200 or more holders each
holding at least 100 shares.
Contra Intra Vires entered into by the BOD are
binding upon the corporation and courts will not
interfere unless such contracts are 2. The following:
a. Banks and quasi-banks
unconscionable and oppressive as to amount to
b. non-stock savings and loan
WANTON DESTRUCTION to the rights of the
associations
minority, as when plaintiffs aver that the
c. pawnshops
defendants (members) have concluded a
d. corporations engaged in money
transaction among themselves as will result in
service business
serious injury to the plaintiff stockholders.
e. pre-need
f. trust and insurance companies
g. other financial intermediaries

4. Where do corporate powers reside? 3. other engaged in business vested with

public interest
RIGHT TO VOTE- by qualified shareholder or
member:

 Personally INDEPENDENT DIRECTOR- is a person who apart from

 Proxy
RIGHT TO CHOOSE THE BOD/BOT – is the main
way in which the stockholders or members can
have a voice in the management or have a say
how the purposes or goals can be achieved.
Once they are elected- stockholders or
members relinquish corporate powers to the
board.
shareholdings and fees received from the corporation, is
independent of management and free from any
relationship that could materially interfere with the
exercise of independent judgment in carrying out the
responsibilities as director.
-must be elected by shareholders to vote in absentia
during election of directors.
 Title III: BOD/BOT/OFFICERS
6. What is meant by apparent/ostensible
authority?
Board of Directors is the governing body of the
corporation. The concentration of power of
control of corporate business and appointment
is necessary for efficiency in any large
organization.
The board shall exercise good faith- since they
are the creation of stockholders. Since it
occupies a position of trusteeship in
relationship to the minority of the stock.
Shall exercise: in the administration and
protect not only the interest of majority &
minorities.
 Good faith
 Care
 Diligence
WHERE CORPORATE DIRECTORS ARE GUILTY OF
A BREACH OF TRUST- (not of mere error or
abuse of discretion and intracorporate remedy
is useless) a stockholder may institute a suit in
behalf of himself and other stockholders and for
the benefit of the corporation TO BRING A
REDRESS OF THE WRONG INFLICTED:
 DIRECTLY UPON THE CORPORATION
 INDIRECTLY UPON STOCKHOLDERS
7. Derivative Suit
Right of stockholder/member to sue on behalf
of a corporation in case of mismanagement due
to wrongful acts committed by directors or
trustees.
Such that a stockholder/member has no redress
because directors or trustees have the right to
decide whether or not the corporation should
sue and they will never be willing to sue
themselves.
Effective remedy of minority against the j of the
management.
Suing Stockholder as NOMINAL PARTY
Corporation as PARTY IN INTEREST.ll
STOCKHOLDERS
8. Authority of BOD/BOT
With exception of some powers to stockholder
or members, such has the SOLE AUTHORITY TO:
 Determine policies
 Enter into contracts
 Conduct ordinary business within
the scope of its charter
Authority is restricted to the management of
regular conduct of business affairs unless more
extensive power is expressly conferred.
Understood to be that body which:
 Exercises all powers provided
 Conducts all business
 Control and holds all property
Its members have been characterized as trustees
or directors with a FIDUCIARY CHARACTER. More
over directors may appoint and discharge agents
and officers as incident.
!!!
 Property of corporation is not the
property of stockholders or members.
 Cannot be sold by stockholders or
members without express authorization
from the. Board
 Unless duly authorized, treasurer cannot
bind the corporation in a sale of its
assets.
9. 3 Levels of Control - BOS
BOD Responsible for corporate policies and
general management of business
affairs.
Validly delegate some functions to
officers and agents.
OFFICERS
Execute the policies laid down by the
board and often have wide latitude
in determining the course of
business operations.
Residual power over
fundamental corporate changes.
 Title III: BOD/BOT/OFFICERS
10. Who has the power to decide whether a
corporation can enter into a binding contract?
General Rule:
In the absence of authority from BOD, no person
or officers can validly bind a corporation.
Thus, BOD has the power.
11. May the corporate powers be directly
conferred upon corporate officers?
Yes, by:
 Statute
 Articles of incorporation
 By-laws or resolution
 Other act of the board of directors
(EXPRESS POWER) Any officer who is not a
director may also appoint other agents when
authorized by by-laws or bod.
Another is (Power Incidental to express power)
which is a fundamental principle in the LAW OF
AGENCY that every delegation of authority,
whether general or special, carries with it, unless
the contrary is expressed.
(Implied Power) do all acts naturally and
ordinarily in such cases which are reasonably
necessary and proper to be done in order to
carry into effect the main authority conferred.
12. Qualifications of a BOD/BOT
STOCK NON-STOCK
 Ownership of at  Only members
least 1 share of can be elected
capital in his
own name.
 capacitated  capacitated
 legal age  legal age
13. Independent Director
-a person 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.
-must be elected by shareholders present or
entitled to vote in absentia during election of
directors.
14. Requirements for election
i. Major shareholders or major members
entitled to vote must be present either in
person or through a representative
authorized to act by written proxy.
ii. Can also vote through remote
communication or in “absentia” when so
authorized in by-laws or majority of the
board of directors, stockholders, or
members.
iii. Election must be by ballot, if requested
by any voting stockholder or member.
iv. (stock corporations) total number of
votes must not exceed the number of
shares owned by stockholder as shown
in the books corporation multiplied by
whole number of directors to be elected.
NO DELINQUENT STATUS SHALL BE
VOTED.
v. (non-stock)members may cast as many
votes as there are trustees to be elected
but may not cast more than 1 vote for
one candidate.
vi. Nominees receiving the highest number
of votes shall be declared elected.
15. Define corporate officer
-position is expressly mentioned in the by-laws in
order to be considered as a corporate officer.
16. Are the acts of corporate officers bind the
corporation?
General rule: the acts of corporate officers within
the scope of their authority.
But when the officers exceed their authority-
actions cannot bind the corporation unless it has
ratified such acts or is estopped from disclaiming
them.
 Title III: BOD/BOT/OFFICERS
17. Who are the Corporate Officers?  The non-holding of elections and the reasons
Officer Requirement Citizenship Residency therefore shall be reported to commission
President  Director Not Not within 30 days from the date of the
 Stockholder necessary necessary scheduled election. And shall specify a new
w/ at least 1 to be a a PH
share. filipino. resident
date for the election which shall NOT BE
LATER THAN 60 DAYS FROM THE
Secretary  Director Must A must SCHEDULED DATE.
or not be a Ph
filipino resident  If no new date has been designated or not
held, the commission summarily order than
Treasurer  Director Not Must be an election be held. Such have the power to
or not need a PH issue order as may be appropriate including
resident orders:
o directing the issuance of a notice stating the
time and place of election
Compliance If corporation is vested with public o designated presiding officer
Officer interest. o record date for the determination of
stockholders/members entitled to vote.

Others Provided for in the by-laws.  Notwithstanding any provision, the shares of
shareholders/members represented at such
meeting and entitled to vote shall constitute
Note: any 2 or more positions may be held concurrently
a quorum for purposes conducting an
by the same person except that NO ONE SHALL ACT AT election.
THE SAME TIME:
 If resign or cease to hold office, within 7
 President & secretary days from knowledge thereof must be
 President & treasurer reported in writing to the commission

18. Corporate Employee

21. Grounds for Disqualification
- Employed by the action of the managing
officer of the corporation.
-Disqualified from being a D/T/O if within 5 years
prior to the election the person was:

19. What is the Quorum at the meeting of directors
or trustees?
- Majority of the directors or trustees, as fixed
in the articles shall constitute a QUORUM for
the transaction of corporate business unless
the articles or the by-laws provide for a
greater majority which means (50% + 1).
- General rule: 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 corporate act, except for the
election of officers which requires the vote
of a majority of all the members of the
board.
20. Requirement regarding Report of Election of
D/T/O
 CONVICTED BY FINAL JUDGMENT
o Of an offense punishable by imprisonment for a period
exceeding 6 years.
o For violating the Revised Corporation Code
o Violating RA 8799 “Securities Regulation Code”
 Found administratively liable for any offense
involving fraudulent acts.
 By a foreign court or foreign similar authority for acts,
violations or misconduct.
22. Can a D/T be removed with or without a cause?
General Rule: Yes. Except, removal without a cause
may not be used to deprive minority stockholders or
members of the right of representation entitled
under section 23.
23. How are D/T removed?

 After the election, within 30 days the  Can be ousted by a vote of stockholders holding
report shall be submitted to the at least 2/3 of the outstanding capital stock or
commission the:
o Names  2/3 of the members entitled to vote.
o Nationalities
o Shareholdings  Removal shall take place at a regular meeting or
o Residence addresses special meeting called for the purpose.
 Title III: BOD/BOT/OFFICERS
24. Who has the power to removed D/T? 31. How are vacancies in the office of D/T to be filled?

-Stockholders or members exclusively. Sec 28. Vacancies in the office of D/T/O

Filled by Stockholders/members By directors or

-However, SEC shall MOTU PROPIO or “order of
trustees
removal” upon verified complaint and after due  removal  If still
notice and hearing despite disqualification or whose  expiration of term constituting
disqualification discovered subsequent to an election.  increase in number a quorum,
 death, resignation etc. at least a
-shall be without prejudice to other sanctions that the and the remaining do majority…
commission may impose on the BOD/T who with not constitute a
knowledge of disqualification, failed to remove such quorum.
D/T.

25. Requisites for Removal

-Removal shall take place at a regular meeting or
special meeting called for the purpose.
-ousted by a vote of stockholders holding at least 2/3
of the outstanding capital stock or 2/3 of the members
entitled to vote.
-There must be a previous notice to stockholders
or members of the intention to propose such
removal at the meeting and
-Special meeting must be called by the
SECRETARY on order of the PRESIDENT or on the
written demand of the stockholders representing
at least a majority of the outstanding capital
stock or majority of members entitled to vote.
32. Rules in the filling of vacancies
 Emergency Board
- vacancy occurring other than removal or
expiration if term may be filled by the vote
of at least a majority of the remaining
directors or trustees
If do not constitute a quorum- it must be
filled by the stockholder or members in a
regular or special meeting called for the
purpose.
 Due to expiration
Election shall be held no later than the day
of such expiration at a meeting called for the
purpose.

 Due to removal
26. In case of SPECIAL meeting, who shall call the Election may be held the same day of the
meeting? meeting authorizing the removal and this
-Secretary upon order of the president fact must be stated in the agenda and notice
of meeting.
27. If the president does not order the special meeting
to be called, who may call?
-written demand of stockholders holding at least
 In all other cases, election must be held no later than
majority of the outstanding capital stock or majority
45 days from the time the vacancy arose.
members entitled to vote.
 Replacement Director/ Trustee – refer to a director
28. Who may call if secretary fails or refuses to call?
or trustee elected to fill the vacancy. Shall serve for
the unexpired term of the predecessor.
-stockholder or member signing the demand by
directly addressing the stockholders or members.
 Due to increase in number of directors or trustees-
shall be filled only by an election at a regular or special
29. In what matter shall the notice of time and place and
meeting of stockholders or members duly called for
intention be made?
the purpose or same meeting.
-Notice of the time and place of such meeting and
intention to propose such removal must be given by
publication or written notice.
33. How shall the vacancy resulting from removal be
30. What vote is required for removal? filled?

Filled by stockholders or members. Election may be held

- vote of stockholders holding at least 2/3 of the the same day of the meeting authorizing the removal and
outstanding capital stock or 2/3 of the members this fact must be stated in the agenda and notice of
entitled to vote. meeting.

34. When may vacancies in the board be filled up by the

remaining members of the board?
 Title III: BOD/BOT/OFFICERS
When vacancy prevents the remaining directors from
constituting a quorum and emergency action is required
to prevent grave, substantial, and irreparable loss to the 38. & 40. May directors be granted compensation other
corporation – vacancy may be temporarily filled from than per diem?
among the officers of corporation by unanimous vote of - Yes, provided that the two requisites must be
remaining DT. present:
 There is a provision in the by-laws fixing
The action by the designated d/t shall be limited to the
their compensation
emergency action necessary, and term shall cease within
 When stockholders representing at
a reasonable time from the termination of emergency or
least a majority of the outstanding
upon election if replacement d/t.
capital stock or majority of the members
Must notify the commission within 3 days from the at a regular or special meeting grant d/t
creation of emergency board stating the reason of its to be compensated.
creation. 39. Is there a limit as to the compensation granted to do
so?

-No total yearly compensation must exceed 10% of

35. In case of amendment of AoI increasing # of d/t, how pre-tax income.
shall such d/t be filled?

-shall be filled only by an election at a regular or special

meeting of stockholders or members duly called for the 41. When are d/t jointly and severally liable to
purpose or same meeting. corporation?
Sec 30. Liability of D/T/O

Shall be liable jointly and severally for all damages

36. Give instances where vacancies on the board are resulting therefrom suffered by corporation, stockholders, or
filled by stockholders. members:

 Removal  Willfully and knowingly vote for or assent to patently

 expiration of term unlawful acts or
 increase in number  Guilty of gross negligence or
 death, resignation etc. and the remaining do not  Has bad faith in directing the affairs of corporation or
constitute a quorum.  Acquire any personal or pecuniary interest in conflict
with their duties.

42. DOCTRINE OF CORPORATE OPPORTUNITY (sec.31)

37. Do directors receive compensation as such
directors? -a director by virtue of his office acquires for himself a business
opportunity which should belong to the corporation thereby
SEC 29. Compensation of Directors or Trustees obtaining profits to the prejudice of such corporation.
General rule: No compensation for Directors or 43. When is a director accountable for secret profit obtained
trustees except for reasonable per diems. by him?
Exceptions: - those found guilty of gross negligence or bad faith.
 fixed by the corporation’s by-laws and  Bad FAITH- implies breach of faith and willful failure
 stockholders with at least majority of to respond to plain and well understood obligation.
outstanding capital stock or members vote
to grant the same.  Gross Negligence- want if even slight care or omitting
to act in a situation where there is duty to act, not
Note:
inadvertently but willfully and intentionally with a
 provision on compensation does not include officers conscious indifference to consequences.
who are not directors.
Requisites before a D/T can be held personally liable for
corporate obligations:
 D/T shall not participate in the determination of their
own per diems of compensation. i. Complainant must allege in the complaint
ii. Complainant must clearly and convincingly prove
 Those vested with public interest shall submit such accusations.
shareholders and commission the annual report of
total compensation if any. Error in Business Judgment

-if the cause of the losses is merely error not amounting to bad
faith or gross negligence:

 D/T are not liable

 Title III: BOD/BOT/OFFICERS
44.-46 May a d/t enter into a contract with the corporation if
he is such a director?
Sec.31 Dealings of D/T/O with Corporation
General Rule:
(SELF-DEALING) A contract of corporation with one or
more of its directors or trustees, officers or their spouses and
relatives within the fourth civil degree of consanguinity or
affinity is VOIDABLE at the option of corporation.
Except:
 The presence of such d/t in the board meeting in
which contract was approved was not necessary to
constitute a quorum.
 Vote was not necessary for the approval of contract.
 Contract is fair and reasonable
 If such corporation is vested with public interest,
material contracts are approved by at least 2/3 of the
entire membership with independent directors.
 In case of an officer, the contract has been previously
authorized by bod.
47. RATIFICATION BY STOCKHOLDERS ON SELF-DEALING
D/T/O
-may be ratified by the vote of stockholders(2/3 of
ocs) or at least 2/3 of members called for the purpose of
meeting. The requisites are:
o Any of the first 3 conditions in sec.31 is
absent.
o Full disclosure of the adverse interest of
d/T/o involves is made at such meeting
o Contract is fair and reasonable.
RATIFICATION- act of director violating the doctrine of
corporate opportunity can be ratified.
48. Who are considered interlocking directors?
- members of the board of directors in a corporation who are
also directors in another corporation.
49. What percentage of stock ownership is considered
substantial for purposes of interlocking directors?
- stockholding exceeding 20% of outstanding capital stock of
interlocking directors.
50. Status of contract
Sec.32 Contracts between corporations with Interlocking
Directors
General Rule: Contract between two or more corporations
having interlocking directors shall not be invalidated in that
ground alone.
Requisites: to be not invalidated alone
 Contract is not fraudulent
 Contract is fair and reasonable
51. Unless:
If the interlocking director in one corporation is
substantial and his interest in other corporation is merely
nominal, HE SHALL BE SUBJECT TO RATIFICATION.
 Interlocking Directors
-members of bod who are the same directors to both corporation.
 Substantial Interest
-stockholding exceeding 20% of ocs of interlocking directors.
52. What condition should be met in the event the
interlocking director’s interest is nominal?
-stockholding exceeding 20% of the outstanding capital stock
shall be considered substantial for purposes of interlocking
directors.
53. If the interest of such interlocking director is substantial,
what 2 basic conditions are required so that the contract be
valid?
 Contract is not fraudulent
 Contract is fair and reasonable under
circumstances.
54. Who may appoint an executive committee and what are
its functions?
-BOD.
Sec 34. Executive, Management, and Other Special Committee
-if provided by by-laws, executive committee can be created
which composed of at least 3 directors.
-Executive committee may act by majority vote of all its
members on such specific matters
55. except to:
 Approval of any action for which shareholders’
approval is also required
 Filling of vacancies
 Amendment or repeal of by-laws or adoption of new
laws
 Amendment or repeal of any resolution of board
which by its express term is not amendable.
 Distribution of cash dividends
Executive Committee- a body created by the by-laws and
composed of not less than 3 members which is subject to
statutory limitations has all the authority of bod.
56. How much vote of the members of executive committee
is required to approve any act within its competency?
-majority vote of all of its members .
Note:
Bod may create special committee of temporary or
permanent nature and determine the member’s term,
composition, compensation, powers, and responsibilities.