Business Laws and Regulations
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MODULE 8
TITLE III
BOARD OF DIRECTORS/TRUSTEE
AND OFFICERS
Sections 22-34, R.A. No. 11232
(Revised Corporation Code)
Prepared by:
Atty. Janice S. Gonzales
Atty. Leoncio B. Hernandez
Atty. Noel Alberto Omandap
Atty. April Uy-Laurio
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Module Introduction
This module primarily focuses on the Board of Directors and Officers of a
private corporation under Sections 22 to 34 of the Revised Corporation Code.
Basically, the module deals with the following sub-topics: (a) number and
qualifications of directors; (b) nomination and manner of voting in the election of
directors/trustees and officers; (c) disqualifications, removal and compensation of
directors/trustees; (d) the nature of their liabilities on corporate dealings and
transactions; and (e) specific powers of a corporation to be exercised by the Board
under the Business Judgment Rule.
Intended Learning Outcomes
At the end of the module, the students should be able to:
1)
Acquire legal knowledge as to the composition and nature of the functions
of directors/trustees and officers as well as the pertinent codal provisions
governing the same;
2)
Explain the importance or signifance of familiarizing with the specific powers
of a corporation as exercised by the Board and the liabilities incurred by the
latter; and
3)
Develop analytical skills in the application of the relevant law and
jurisprudence on daily transactions particularly in business dealings.
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TITLE III
BOARD OF DIRECTORS/TRUSTEE AND OFFICERS
Section 22. The Board of Directors or Trustees of a Corporation; Qualification
and Term. - Unless otherwise provided in this Code, the Board of Directors or
Trustees shall exercise the corporate powers, conduct all business, and control
all properties of the corporation.
Directors shall be elected for a term of one (1) year from among the holders
of stocks registered in the corporation's book while trustees shall be elected
for a term not exceeding three (3) years from among the members of the
corporation. Each director and trustee shall hold office until the successor is
elected and qualified. A director who ceases to own at least one (1) share of
stock or a trustee who ceases to be a member of the corporation shall cease
to be such.
The board of the following corporations vested with public interest shall have
independent directors constituting at least twenty percent (20%) of such
board:
(a)
Corporations covered by Section 17.2 of Republic Act 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 Fifty million pesos
(50,000,000.00) and having two hundred (200) or more holders of
shares, each holding at least one hundred (100) shares of a class of its
equity shares;
(b)
Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in
money service business, pre-need, trust and insurance companies and
other financial intermediaries; and
(c)
Other corporations engaged in businesses 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 of minority ownership, type of financial
products or securities issued or offered to investors, public interest
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involved in the nature of business operations, and other analogous
factors.
An 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.
Independent directors must be elected by the shareholders present or entitled
to vote in absentia during the election of directors. Independent directors
shall be subject to rules and regulations governing their qualifications,
disqualifications, voting requirements, duration of term and term limit,
maximum number of board membership and other requirements that the
Commission will prescribe to strengthen their independence and align with
international best practices.
Repository of Corporate Powers
Doctrine of Centralized Management
General Rule: Unless otherwise provided in this Code, the Board of Directors or Trustees
shall exercise the corporate powers, conduct all business, and control all properties of the
corporation. [Sec. 22]
It is well-established in corporation law that the corporation can act only through its Board
of Directors or Board of Trustees.
Exceptions:
1.
In case of an Executive Committee duly authorized in the by-laws;
2.
In case of a contracted manager which may be an individual, a partnership, or
another corporation;
3.
In case of close corporations, the stockholders may manage the business of the
corporation rather than by a BOD, if the Articles of Incorporation so provide.
The power to purchase real property is vested in the BOD or trustees. While a corporation
may appoint agents to negotiate for the purchase of real property needed by the
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corporation, the final say will have to be with the board, whose approval will finalize the
transaction. [Spouses Firme v. Bukal Enterprises and Devt. Corp., G.R. No. 146608 (2003)]
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. This is exercised through his vote in the election of
directors because it is the BOD that controls or manages the corporation. [Gamboa v.
Teves, G.R. No. 176579 (2011)]
Limitations on the powers of the BOD/BOT
(1)
Limitations imposed by the Constitution, statutes, articles of incorporation or bylaws;
(2)
Certain acts of the corporation that require joint action of the stockholders and
BOD:
a. Removal of director [Sec. 27]
b. Amendments of Articles of Incorporation [Sec. 15]
c. Fundamental changes [Sec. 37]
d. Declaration of stock dividends [Sec. 42]
e. Entering into management contracts [Sec. 43]
f. Fixing of consideration of no-par shares [Sec. 61]
g. Fixing of compensation of directors [Sec. 29]
(3)
Cannot exercise powers not possessed by the corporation.
Note: Under Sec. 22 of the RCC, the power and the responsibility to decide whether the
corporation should enter into a contract that will bind the corporation is lodged in the
Board, subject to the articles of incorporation, by-laws, or relevant provisions of law.
Tenure

Directors – Term of 1 year from among the holders of stocks registered in the
corporation’s books. [Sec. 22]

Trustees – Term not exceeding 3 years from among the members of the
corporation. [Sec. 22]
Holdover Principle
Each director and trustee shall hold office until the successor is elected and qualified.
[Sec. 22]
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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.
Qualifications
a.
Director: Must own at least one (1) share of stock.
Trustee: Must be a member of the corporation.
Note: In order to be eligible as a director, what is material is the legal title to,
not beneficial ownership of, the stock as appearing on the books of the
corporation. [Lee v. CA, G.R. No. 93695 (1992)]
b.
Must be a natural person, of legal age, possess full legal capacity;
c.
Must not be convicted by final judgment of an offense punishable by imprisonment
for a period exceeding 6 years; [Sec. 26]
d.
Other qualifications as may be prescribed in the by-laws of the corporation. [Sec.
46]
While additional qualifications may be prescribed, this cannot be in conflict with the
requirements as set by the RCC.
Independent Directors
An 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. [Sec. 22]
Requirement for Independent Directors
These corporations include:
(1)
Corporations covered by the Securities Regulation Code, namely:
i. Those whose securities are registered with the Commission;
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ii. Corporations listed with an exchange or with assets of at least Fifty million
pesos (P50,000,000.00); and
iii. Having two hundred (200) or more holders of shares, each holding at least
one hundred (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;
(3)
Other corporations engaged in business vested with public interest, constituting at
least 20% of the Board or as may be determined by the Commission. [Sec. 22]
Manner of Election
Independent directors must be elected by the shareholders present or entitled to vote in
absentia during the election of directors. [Sec. 22]
Section 23. Election of Directors or Trustees. - Except when the exclusive right
is reserved for holders of founders' shares under Section 7 of this Code, each
stockholder or member shall have the right to nominate any director or trustee
who possesses all of the qualifications and none of the disqualifications set
forth in this Code.
At all elections of directors or trustees, there must be present, either in person
or through a representative authorized to act by written proxy, the owners of
majority of the outstanding capital stock, or if there be no capital stock, a
majority of the members entitled to vote. When so authorized in the by-laws
or by a majority of the board of directors, the stockholders or members may
also vote through remote communication or in absentia: Provided, That the
right to vote through such modes may be exercised in corporations vested with
public interest, notwithstanding the absence of a provision in the by-laws of
such corporations.
A stockholder or member who participates through remote communication
or in absentia, shall be deemed present for purposes of quorum.
The election must be by ballot if requested by any voting stockholder or
member.
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In stock corporations, stockholders entitled to vote shall have the right to vote
the number of shares of stock standing in their own names in the stock books
of the corporation at the time fixed in the by-laws or where the by-laws are
silent, at the time of the election. The said stockholder may: (a) vote such
number of shares for as many persons as there are directors to be elected; (b)
cumulate said shares and give one (1) candidate as many votes as the number
of directors to be elected multiplied by the number of shares owned; or (c)
distribute them on the same principle among as many candidates as may be
seen fit: Provided, That the total number of votes cast shall not exceed the
number of shares owned by the stockholders 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, members
of non-stock corporations may cast as many votes as there are trustees to be
elected by may not cast more than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving the highest number of votes shall
be declared elected.
If no election is held, or the owners of majority of the outstanding capital stock
or majority of the members entitled to vote are not present in person, by
proxy, or through remote communication or not voting in absentia at the
meeting, such meeting may be adjourned and the corporation shall proceed in
accordance with Section 25 of this Code.
The directors or trustees elected shall perform their duties as prescribed by
law, rules of good corporate governance, and by-laws of the corporation.
Section 25. Report of Election of Directors, Trustees and Officers, Non-holding
of Election and Cessation from Office. - Within thirty (30) days after the
election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, the secretary, or any other
officer of the corporation, shall submit to the Commission, the names,
nationalities, shareholdings, and residence addresses of the directors, trustees
and officers elected.
The non-holding of elections and the reasons therefor shall be reported to the
Commission within thirty (30) days from the date of the scheduled election.
The report shall specify a new date for the election, which shall not be later
than sixty (60) days from the scheduled date.
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If no new date has been designated, or if the rescheduled election is likewise
not held, the Commission may, upon the application of a stockholder, member,
director or trustee, and after verification of the unjustifiable non-holding of
the election, summarily order that an election be held. The Commission shall
have the power to issue such orders as may be appropriate, including other
directing the issuance of a notice stating the time and place of the election,
designated presiding officer, and the record date or dates for the
determination of stockholders or members entitled to vote.
Notwithstanding any provision of the articles of incorporation or by laws to
the contrary, the shares of stock or membership represented at such meeting
and entitled to vote shall constitute a quorum for purposes of conducting an
election under this section.
Should a director, trustee or officer die, resign or in any manner case to hold
office, the secretary or the director, trustee or officer of the corporation, shall,
within seven (7) days form knowledge thereof, report in writing such fact to
the Commission.
Nomination
General Rule: Each stockholder or member shall have the right to nominate any director
or trustee who possesses all of the qualifications and none of the disqualifications set
forth in this Code.
Exception: When the exclusive right to nominate directors or trustees is reserved for
holders of founders’ shares under Section 7 of the RCC. [Sec. 23]
Quorum
At all elections of directors or trustees, there must be present, either in person or through
a representative authorized to act by written proxy:
(1) Stock Corporations: The owners of majority of the outstanding capital stock;
(2) Non-Stock Corporations: A majority of the members entitled to vote. [Sec. 23]
It is necessary that there be a quorum. An election without quorum is invalid.
Voting via Remote Communication/In Absentia
Notwithstanding the absence of a provision in the by-laws of the corporation, the
stockholders or members may also vote through remote communication or in absentia by
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a resolution of the majority of the Board of Directors; Provided, that the resolution
shall only be applicable for a particular meeting.
A stockholder or member who participates through remote communication or in absentia,
shall be deemed present for purposes of quorum. The election must be by ballot if
requested by any voting stockholder or member.
Methods of Voting in Stock Corporations
(1) Straight Voting
Every stockholder may vote such number of shares for as many persons as there are
directors to be elected. [Sec. 23]
(2) Cumulative Voting
a. 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. [Sec. 23]
Illustration:
If there are 5 directors to be elected and Pedro, as shareholder, has 100 shares,
Pedro can give 500 (5 x 100 shares) votes to just one candidate.
b. Cumulative Voting By Distribution
A stockholder may cumulate his shares by multiplying 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. [Sec. 23]
Illustration:
In the illustration above, Pedro instead may choose to give 100 votes to candidate
1, 100 votes to candidate 2, 100 votes to candidate 3, 150 votes to candidate 4, and
50 votes to candidate 5.
Nominees for directors receiving the highest number of votes shall be declared elected.
They shall perform their duties as prescribed by law, rules of good corporate governance,
and by-laws of the corporation. [Sec. 23]
Voting in Non-Stock Corporations
General Rule: Members of non-stock corporations may cast as many votes as there are
trustees to be elected but may not cast more than one (1) vote for one (1) candidate.
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Exception: Unless otherwise provided in the articles of incorporation or in the by-laws.
[Sec. 23]
Nominees for trustees receiving the highest number of votes shall be declared elected.
They shall perform their duties as prescribed by law, rules of good corporate governance,
and by-laws of the corporation. [Sec. 23]
Report to the SEC
Within thirty (30) days after the election, the secretary, or any other officer of the
corporation, shall submit to the Commission, the elected trustees’ and officers’ names,
nationalities, shareholdings, and residence addresses. [Sec. 25]
Adjournment of meeting
The meeting may be adjourned if:
(a) If no election is held; or
(b) The owners of majority of the outstanding capital stock or majority of the members
entitled to vote are not present in person, by proxy, or through remote
communication or not voting in absentia at the meeting.
After such adjournment, the non-holding of elections and the reasons therefor shall be
reported to the Commission within thirty (30) days from the date of the scheduled
election. [Sec. 25]
The report shall specify a new date for the election, which shall not be later than sixty
(60) days from the scheduled date.
Section 24. Corporate Officers. - Immediately after their election, the directors
of a corporation must formally organize and elect: (a) a president, who must
be a director; (b) a treasurer, who must be a resident of the Philippines; and
(c) such other officers as may be provided in the by-laws. If the corporation is
vested with public interest, the board shall also elect a compliance officer. The
same person may hold two (2) or more positions concurrently, except that no
one shall act as president and secretary or as president and treasurer at the
same time, unless otherwise allowed in this Code.
The officers shall manage the corporation and perform such duties as may be
provided in the by-laws and/or as resolved by the Board of Directors.
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Election of officers
Immediately after the election of directors, the directors must formally organize by
electing the corporate officers. They are tasked to carry out the policies laid down by the
Board, the AOI and the by- laws. [Sec. 24]
Corporate officers
a.
President – must be a director;
b.
Treasurer – may or may not be a director; must be a resident of the Philippines;
c.
Secretary – need not be a director unless required in the by-laws; must be a
citizen and resident of the Philippines; and
d.
Compliance officer – only for corporations vested with public interest.
e.
Other officers as may be provided in the by-laws. [Sec. 24]
Note: Any 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, unless otherwise allowed in the Code. [Sec 24]
Additional qualifications of officers may be provided for in the by-laws. [Sec. 46(f)]
Section 26. Disqualification of Directors, Trustees or Officers. - 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 as such, the person
was:
(a) Convicted by final judgment:
(1)
(2)
(3)
Of an offense punishable by imprisonment for a period exceeding six
(6) years;
For violating this Code; and
For violating Republic Act No. 8799, otherwise known as "The
Securities Regulation Code";
(b) Found administratively liable for any 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.
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The foregoing is without prejudice to qualifications or other disqualifications,
which the Commission, the primary regulatory agency, or Philippine
Competition Commission may impose in its promotion of good corporate
governance or as a sanction in its administrative proceedings.
Disqualification of Directors, Trustees and Officers
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 as such, the person was:
(a) Convicted by final judgment:
(1)
(2)
(3)
Of an offense punishable by imprisonment for a period exceeding six (6)
years;
For violating this Code; and
For violating Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”;
(b) Found administratively liable for any 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. [Sec. 26]
Note: The foregoing is without prejudice to the qualifications or other disqualifications,
which the Commission, the primary regulatory agency, or the Philippine Competition
Commission may impose in its promotion of good corporate governance or as a sanction
in its administrative proceedings.
Section 27. Removal of Director or Trustees. - Any director or trustee of a
corporation may be removed from office by vote of the stockholders holding
or representing at least two-thirds (2/3) of the outstanding capital stock, or
in a non-stock corporation, by a vote of at least two-thirds (2/3) of the
member entitled to vote: Provided, That such removal shall take place either
at a regular meeting of the corporation or at a special meeting called for the
purpose, and in either case, after previous notice to stockholders or members
of the corporation of the intention to propose such removal at the meeting. A
special meeting of the stockholders or members for the purpose of removing
any director or trustee must be called by the secretary on order of the
president, or upon written demand of stockholders representing or holding at
least a majority of the outstanding capital stock, or a majority of the members
entitled to vote. If there is no secretary, or the secretary, despite demand, fails
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or refuses to call the special meeting or to give notice thereof, the stockholder
or member of the corporation signing the demand may 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 representation to which they
may be entitled under Section 23 of this Code.
The Commission shall, motu propio or upon verified complaint, and after due
notice and hearing, order the removal of a director or trustee elected despite
the disqualification, or whose disqualification arose or 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.
Removal
General Rule: Any Director or Trustee of a corporation may be removed from office,
with or without cause. [Sec. 27]
Exception: If the director was elected by the minority, there must be cause for removal
because the minority may not be deprived of the right to representation to which they
may be entitled to under Sec. 23 of the Code. [Sec. 27]
Note: The right to representation refers to the right to cumulative voting for one
candidate.
Requisites for removal
(1)
It must take place either at a regular meeting or special meeting of the
stockholders or members called for the purpose;
(2)
A special meeting for the purpose of removing directors or trustees must be
called by:
a. The secretary, on order of the president; or
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b. The secretary, upon written demand of the stockholders representing or
holding at least a MAJORITY of the capital stock or a MAJORITY of the
members entitled to vote;
(3)
There must be previous notice to the stockholders or members of the intention
to remove a director; and
(4)
There must be a vote of the stockholders representing 2/3 of outstanding capital
stock or in case of a non-stock corporation, 2/3 of members entitled to vote.
New Power of the SEC under the Revised Corporation Code
The Commission shall, motu proprio or upon verified complaint, and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification, or
whose disqualification arose or 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. 27]
Section 28. Vacancies in the Office of Director or Trustee; Emergency Board. Any vacancy occurring in the board of directors or trustees other that by
removal or expiration of term may be filled by the vote of at least a majority
of the remaining directors or trustees, if still constituting a quorum; otherwise,
said vacancies must be filled by the stockholders or members in a regular or
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. In all
other cases, the election must be held no later than forty-five (45) days from
the time the vacancy arose. A director or trustee elected to fill vacancy shall
be referred to as replacement director or trustee elected to fill a vacancy shall
be referred to as replacement director or trustee and shall serve only for the
unexpired term of the predecessor in office.
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However, when the vacancy prevents the remaining directors from
constituting a quorum and 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, and the term shall cease within a reasonable time form the
termination of the emergency or upon election of the replacement director or
trustee, whichever comes earlier. The corporation must notify the Commission
within three (3) days from the creation of the emergency board, stating
therein the reason for its creation.
Any directorship or trusteeship to be filled by a 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 of stockholders or members duly called for the purpose,
or in the same meeting authorizing the increase of directors or trustees if so
stated in the notice of the meeting.
In all elections to fill vacancies under this section, the procedure set forth in
Section 23 and 25 of this Code shall apply.
Filling of Vacancies
Cause of Vacancy
Procedure
Expiration of term
The election by stockholders shall be held no
later than the day of such expiration at a
meeting called for that purpose.
Removal
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
Other grounds, but the remaining The election must be held not later than fortydirectors can constitute a quorum five (45) days from the time the vacancy occur.
Other grounds, but the remaining a. The vacancy must be filled by the
directors CANNOT constitute a stockholders or members in a regular or special
quorum
meeting for that purpose; or
b. In case of the necessity of emergency action,
the vacancy may be temporarily filled from
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among the officers of the corporation by
unanimous vote of the remaining directors or
trustees.
By reason of an increase in the Shall be filled only by an election at a regular or
number of directors or trustees
at a special meeting of stockholders duly called
for the purpose, or in the same meeting
authorizing the increase of directors or trustees
if so stated in the notice of the meeting.
Designation of director or trustee
A vacancy may be temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees when:
(1)
The vacancy prevents the remaining directors from constituting a quorum; and
(2)
Emergency action is required to prevent grave, substantial, and irreparable loss or
damage to the corporation.
The action by the designated director or trustee shall be limited to the emergency action
necessary. [Sec. 28]
Term of designated director or trustee
The term of the designated director or trustee shall cease:
(1)
Within a reasonable time from the termination of the emergency; or
(2)
Upon election of the replacement director or trustee, whichever comes earlier.
[Sec. 28]
Section 29. Compensation of Directors or Trustees. - In the absence of any
provision in the by-laws fixing their compensation, the directors or trustees
shall not receive any compensation in their capacity as such, except for
reasonable per diems: Provided, however, That the stockholders representing
at least a majority of the outstanding capital stock or majority of the members
may grant directors or trustees with compensation and approve the amount
thereof at a regular or special meeting.
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In no case shall the total yearly compensation of directors exceed ten percent
(10%) of the net income before income tax of the corporation during the
preceding year.
Directors or trustees shall not participate in the determination of their own
per diems or compensation.
Corporations vested with public interest shall submit to their shareholders
and the Commission, an annual report of the total compensation of each of
their directors or trustees.
Compensation of directors or trustees
General Rule: Directors or trustees are only entitled to reasonable per diems. They are
not entitled to compensation as directors or trustees. [Sec. 29]
Exceptions: Compensation other than per diems may also be granted to directors:
(a)
When Articles of Incorporation, by-laws, or an advance contract so provides;
(b)
By the vote of stockholders representing at least a majority of the outstanding
capital stock or majority of the members
Limitations to compensation under the RCC
(a)
The total yearly compensation of directors shall not exceed 10% of the net income
before income tax of the corporation during the preceding year.
(b)
The directors or trustees shall NOT participate in the determination of their own
per diems or compensation.
(c)
Corporations vested with public interest shall submit to their shareholders and the
Commission, an annual report of the total compensation of each of their directors
or trustees. [Sec. 29]
Section 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 or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and
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severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
A director, trustee or officer shall not attempt to acquire, or 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.
Business Judgment Rule
General Rule: Questions of policy or management are left solely to the honest decision
of officers and directors of a corporation and the courts are without authority to
substitute the judgment of the Board of Directors.
The board is the business manager of the corporation and so long as it acts in good
faith, its orders are not reviewable by the courts or the SEC. [Phil. Stock Exchange, Inc. v.
CA, G.R. No. 125469, (1997)]
Exceptions:
a. If the acts are so unconscionable and oppressive as to amount to a wanton
destruction of the rights of the minority;
b. If they violate their duties under Sec. 30 (willfully and knowingly assents to patently
unlawful acts of the corporation, or are guilty of gross negligence or bad faith); and
c. If they violate Sec. 33 (disloyalty of a director who acquires for himself business
opportunity that should have belonged to the corporation, unless his act is ratified
by a 2/3 vote of stockholders).
Consequences of the Business Judgment Rule
a.
The resolution, contracts and transactions of the board cannot be reversed or
set aside by the Courts, under the principle that the business of the corporation
has been left to the hands of the Board.
b.
Directors and duly authorized officer cannot be held personally liable for acts
done, or contracts entered under the exercise of their business judgment.
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Solidary liability for damages
(1)
(2)
(3)
(4)
(5)
(6)
Willfully and knowingly voting for and assenting to patently unlawful acts of the
corporation; [Sec. 30]
Gross negligence or bad faith in directing the affairs of the corporation; [Sec. 30]
Acquiring any personal or pecuniary interest in conflict of duty; [Sec. 30]
Consenting to the issuance of watered stocks, or, having knowledge thereof, fails
to file objections with secretary; [Sec. 64]
Agreeing or stipulating in a contract to hold himself liable with the corporation; or
By virtue of a specific provision of law.
Liability for watered stocks
Watered Stocks – stocks issued for a consideration less than its par value or for a
consideration in any form other than cash, valued in excess of its fair value.
Any director or officer of a corporation shall be solidarily liable with the stockholder
concerned to the corporation and its creditors for the difference in value for:
(1)
Consenting to the issuance of watered stocks or;
(2)
Failing express his objection in writing and file the same with the corporate
secretary despite having knowledge thereof of such issuance [Sec. 64].
Personal liabilities
General rule: Members of the Board, who acted in good faith for and on behalf of the
corporation within the lawful scope of their authority, are not liable for the consequences
of their acts. Such acts are attributed to the corporation alone and no personal liability
is incurred by the Board. [Price v. Innodata Phils., Inc., G.R. No. 178505 (2008)].
Exception: When sufficient proof exists on record that the officers acted fraudulently,
beyond his authority or when the officer agrees to be personally liable on behalf of the
corporation.
Section 31. Dealings of Directors, Trustees or Officers with the Corporation. A contract of the corporation with one (1) or more of 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, unless
all the following conditions are present:
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(a) The presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
(b) The vote of such director or trustee was not necessary for the approval of
the contract;
(c) The contract is fair and reasonable under the circumstances;
(d) In case of corporations vested with public interest, material contracts are
approved by at least a majority of the independent directors voting to
approved the material contract; and
(e) In case of an officer, the contract has been previously authorized by the
board of directors.
Where any of the first three (3) conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee, such
contract may be ratified by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made
at such meeting and the contract is fair and reasonable under the
circumstances.
Contracts of Self-Dealing Directors with the corporation
General Rule: A contract of the corporation with (1) one or more of 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. [Sec. 31]
Exception: Such contract is valid if all of the following conditions are present:
(a)
(b)
(c)
The presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
The vote of such director or trustee was not necessary for the approval of the
contract;
The contract is fair and reasonable under the circumstances; and
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(d)
(e)
In case of corporations vested with public interest: Material contracts are
approved by at least two-thirds (2/3) of the entire membership of the Board, with
at least a majority of the independent directors voting to approve the material
contract; and
In case of an officer: The contract has been previously authorized by the BOD.
[Sec. 31]
Ratification
In case of absence of the first three* conditions above, contract may be ratified:
a. By a vote of 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;
b. There is full disclosure of the adverse interest of the concerned directors or
trustees made at such meeting; AND
c. The contract is fair and reasonable under the circumstances. [Sec. 31]
Section 32. Contracts Between Corporations with Interlocking Directors. Except in cases of fraud, and provided the contract is fair and reasonable
under the circumstances a contract between two (2) or more corporations
having interlocking directors shall not be invalidated on that ground
alone: Provided, That if the interest of the interlocking director in one (1)
corporation is substantial and the interest in the other corporation or
corporations is merely nominal, the contract shall be subject to the
provisions of the preceding section insofar as the latter corporation or
corporations are concerned.
Stockholding exceeding twenty percent (20%) of the outstanding capital
stock shall be considered substantial for purposes of interlocking directors.
Interlocking directors, characterized
Interlocking directors are persons who serve as member of the Board of Directors of
two or more competing corporations or corporations engaged in practically the same
kind of business.
Contracts between corporations with interlocking directors
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General Rule: A contract between two or more corporations having interlocking
directors shall NOT be invalidated on that ground alone. [Sec. 32]
Exception: If contract is fraudulent or not fair and reasonable under the
circumstances, such contract is invalid. [Sec. 32]
Section 33. Disloyalty of a Director. - Where a director, by virtue of such
office, acquires a business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation,
the director must account for and refund to the latter all such profits, unless
the act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding capital stock. This
provision shall be applicable, notwithstanding the fact that the director
risked one's own funds in the venture.
Three-fold duties of Directors and Trustees
(1)
Duty of Obedience - shall direct the affairs of the corporation only in
accordance with the purposes for which it was organized;
(2)
Duty of Diligence - shall not willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or act in bad faith or with gross
negligence in directing the affairs of the corporation; and
(3)
Duty of Loyalty - shall not acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees. [Strategic Alliance Development Corp
v. Radstock Securities Ltd., G.R. No. 178158 (2009)]
Doctrine of Corporate Opportunity
Unless his act is ratified, a director shall refund to the corporation all the profits he
realizes on a business opportunity which:
i. The corporation is financially able to undertake;
ii. From its nature, is in line with corporation’s business and is of practical advantage
to it; and
iii. One in which the corporation has an interest or a reasonable expectancy.
The rule shall be applied notwithstanding the fact that the director risked his own funds
in the venture. [Sec. 33]
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By embracing the opportunity, the self-interest of the officer or director will be brought
into conflict with that of his corporation. Hence, the law does not permit him to seize
the opportunity even if he will use his own funds in the venture.
A 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.
[Sec. 30]
Note: Differences between Sec. 30 and Sec. 33:

First, while both involve the same subject matter (business opportunity) they
concern different personalities; Sec. 33 is applicable only to directors and not to
officers, whereas Sec. 30 applies to directors, trustees and officers.

Second, Sec. 33 allows a ratification of a transaction by a self-dealing director by
vote of stockholders representing at least 2/3 of the outstanding capital stock.
Section 34. Executive Management, and Other Special Committees. - If the
bylaws so provide, the board may create an executive committee composed
of at least three (3) directors. Said committee may act, by majority of vote
of all its members, on such specific matters within the competence of the
board, as may be delegated to it in the bylaws or by majority vote of the
board, except with respect to the: (a) approval of any action for which
shareholders' approval is also required; (b) filing of vacancies in the board;
(c) amendment or repeal of bylaws or the adoption of new bylaws; (d)
amendment or term is not amendable or repealable; and (e) distribution of
cash dividends to the shareholders.
The board of directors may create special committees of temporary or
permanent nature and determine the members' term, composition,
compensation, powers, and responsibilities.
Creation of Executive Committee
The by-laws may provide for the creation of an executive committee, composed of not
less than 3 members of the Board, to be appointed by the Board.
Said committee may act, by majority vote of all its members, on such specific matters
within the competence of the Board, as may be delegated to it in the by-laws or on a
majority vote of the Board. [Sec. 34]
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Special Committees
The Board of Directors may create special committees of temporary or permanent
nature and to determine the members’ term, composition, compensation, powers, and
responsibilities.
Limitations on Its Power
The following CANNOT be delegated to the Executive Committee:
a.
b.
c.
d.
Matters needing stockholder approval [Sec. 34];
Filling up of Board vacancies [Sec. 34];
Amendment, repeal or adoption of new by-laws [Sec. 34];
Amendment or repeal of any resolution of the Board which by its express terms
is not amendable or repealable [Sec. 34];
e. Cash dividend distribution [Sec. 34]; and
f. Acts which would render the BOD powerless and free from all responsibilities
imposed on it by law.
 END 
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