CONDITIONS SUBSEQUENT TO INCORPORATION:

1. FORMALLY ORGANIZE
UNDER CONDITION OF (1) FORMALLY ORGANIZE:
A. Adoption of By-laws
B. Election of Board
C. Establishment of Principal Place of Business
2. COMMENCE OPERATIONS WITHIN 5 YEARS FROM DATE OF ITS INCORPORATION

TRI-LEVEL STRUCTURE IN A CORPORATION

*Just like any organization, a corporation is hierarchical; there is a hierarchy in a
corporation

Hierarchy
Top: Officers/Executive Officers
-the authority of officers comes from the board of
directors/trustees
-they execute the policies and rules made by the BOD/T
Officers
Mid: Board of Directors/Trustees
BOD/T
-the authority of the board of directors/trustees comes from
SH / the stockholders/members
Members -they are considered the law-making body of the corporation
-they make the policies or rules, and transact business

Base: Stockholders/Members

MANAGEMENT = (BOD/T + OFFICERS)

**

Upon incorporation, the corporation (stockholders/member) has to elect its Board

of Directors/Trustees, in order to formally organize.

3 Main Functions of the BOD/T (Section 22 RCC)

1. To exercise corporate powers (to sue, acquire properties, enter into contracts,etc)
2. To conduct all corporate business
*all transactions of the corporation must be approved and within the jurisdiction of
the BOD
3. To control and hold corporate property/ies

With regard to the function/s of the Board, which is practically to manage the
corporation, can the courts intervene in the functions of the Board? What is the
extent of judicial review when it comes to management of a corporation?
Under the Business Judgement Rule, the courts cannot intervene in the
administrative management of the corporation. As long as the Board does their
functions or perform their powers in an honest and in a manner that is considered in
good faith, and it is not unconscionable or defeating the rights of the minority, then
the courts cannot intervene.

Leave the business to the businessmen; in the end, the courts are not capacitated to
manage a business. In connection with the Theory of Laissez Faire, which provides
that the government has only a minimum or limited amount of regulation; they
(government) cannot intervene with the internal affairs of a corporation.

WHO CAN BECOME A MEMBER OF THE BOARD?

QUALIFICATIONS OF THE BOARD OF DIRECTORS (Sec 22 of RCC)

1. Must own at least 1 share in a stock corporation, or a member of the corporation

in a non-stock corporation. (In short, must be a stockholder or member of the corp)

Grace Christian High School case (1997)

In order to become a member of the Board, you must a member of the corporation.
And if ever in the internal management of a corporation, an outsider is allowed, such
outsider has no voting rights if he will sit with the board. It is as though, he is merely
an ex-officio member of the board, who is not a regular member of the board, hence
he cannot vote.

When it comes to residency, the New Corporation Code removed the requirement
that majority of the Board has to be with residence in the Philippines (last sentence
of Sec 23 of Old Corporation Code). Hence, members of the Board, or may be all of
them, can be non-residents of the Philippines because the New Corporation Code
has already adopted technology as part of the management of the corporation. (can
vote via teleconferencing)

2. Must not possess any of the disqualifications provided under Section 26 of RCC.
A person shall be disqualified from being a director, trustee or officer of any
corporation if, within five (5) years prior to the election or appointment of such, the
person was:
(a) Convicted by final judgment (there has to be certification of final judgment)
(1) Of an offense punishable by imprisonment for a period exceeding six(6) years;
(2) For violating this Code (Revised Corporation Code)
(3) For violating the RA No. 8799, otherwise known as “The Securities Regulation
Code”
(b) Found administratively liable for offense involving fraudulent acts; and
(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.

3. Under Civil Code, to become a member of the board, one must be of legal age.
(automatic).
Can the corporation prescribe other qualifications? Yes, they can, because to
become a member of the Board, it is fiduciary in character, hence you must be
trustworthy, and requires competence and expertise, for one cannot be a member of
the Board without knowing anything.

4. Must possess any other qualifications that the corporation may require with
regard to trustworthiness, competence and expertise.

**

“INDEPEDENT 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. (Section 22 of RCC) -- MEMORIZE!

Under Old Corporation Code: Always there in a corporation, but its regulation is
merely based on the issuance of the Securities and Exchange Commission (SEC).

Now, under Revised Corporation Code: Mandatory requirement on certain

corporations that are vested with public interest.
20% of the total membership of the Board of Director/Trustees must be composed
of independent directors.

“Independent” - they have autonomy, not subjected by their investment in the

corporation

PURPOSE OF 20% INDEPENDENT DIRECTORS: for check and balance within the
Board; to have the existence of an independent mind who is not part of the majority,
so that the interest of the corporation itself, the minority (shareholders who don’t
know what is happening within the corporation), and the public who is dealing with
the corporation, are protected

*** If the management is not trustworthy or competent, the corporation will

collapse. A corporation is just like a tree. It will start to be damaged from the top
down to the roots (officers-board-shareholders/members) *** HENCE, presence of
independent directors in the board is necessary, especially so, that they are vested
with public interest.

CORPORATIONS VESTED WITH PUBLIC INTEREST THAT ARE REQUIRED TO HAVE

INDEPENDENT DIRECTORS CONSTITUTING 20% OF ITS BOARD: (Section 22 RCC)
1. Corporations covered by Section 17.2 of RA No. 8799, otherwise known as “The
Securities Regulation Code”, namely those whose securities are registered with the
Commission, corporations listed with an exchange or with assets of at least Php 50M
and having 200 or more holders of shares, each holding at least 100 shares of a class
of its equity shares;
2. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money
service business, pre-need, trust and insurance companies, and other financial
intermediaries; and
3. 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 if 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.

*Under Section 22 of RCC, an independent director is also elected.

**

The members of the Board must always act as a BODY. Unlike in a partnership, the
members of the Board cannot act individually. It is the rule of the majority which will
prevail.

Separate Juridical Personality

A case where a member of the board has been issued an automobile by the
corporation. After his term, he said that he cannot return said automobile because it
was issued to him by the corporation, being a member of the board, thus he owns it.
Is he correct?

The corporation, the stockholders and the board of directors have separate juridical
personality. What is owned by the corporation is not owned by the board.
Conversely, what is owned by the member of the board of directors is not owned by
the corporation.

Since the car/automobile was procured/purchased by the corporation, it is owned by

the corporation. Although it was issued to him, as a member of the board, the
corporation will not relinquish ownership over the automobile. So the contention of
that member of the board is misplaced, under the doctrine of separate juridical
personality.