F. BOARD OF DIRECTORS (sec.

22 to 34)
1) Board of Directors (sec. 22)
 Directors shall be elected for a term of 1 year from among the holders of
stock registered in the books
 Trustees shall be elected for a term not exceeding 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.
a) Independent directors
An independent director is a person who apart from shareholdings and fees
received from any business or other relationship which could, or could
reasonable be received 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 prescribed to
strengthen their independence and align with international best practices.

2) Authority (sec. 23)

The directors or trustees elected shall perform their duties as prescribed by law,
rules of good corporate governance, and bylaws of the corporation.

3) Requirements for election of director:

a) Qualifying share (sec. 22 and 23)
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.

b) Residence (sec. 23, OCC; compare with sec. 22)

OCC SEC 23 RCC SEC 22
A majority of the directors or trustees No residency requirement (??)
of all corporations organized under
this Code must be residents of the
Philippines.

c) Nationality

Majority of directors and trustees need not be Philippine Residents

d) Disqualifications (sec. 26)
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) Of an offense punishable by imprisonment for a period exceeding six (6) years;
(2) For violating this Code; and
(3) 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.
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.

4) How elected (sec. 23)

WHO WILL INITIATE? 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 and none of the disqualifications set forth in this
Code.Except when the exclusive right is reserved for holders of founders' shares
under Section 7 of this Code

ELECTION REQUIREMENTS:
 There must be present, either in person or through a representative
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 bylaws 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 bylaws of
such corporations.
 The election must be by ballot if requested by any voting stockholder or
member.

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 bylaws or where the bylaws 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

GR: no delinquent stock shall be voted.

EXCPN: unless otherwise provided in the articles of incorporation or in the
bylaws

IN NON-STOCK CORPORATIONS:
Members of nonstock 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.

IN DEPTH NOTES:

A. NOMINATION
 GR: Board must nominate

EXCPN: Shareholders or members may nominate another shareholder

or member with the prescribed qualifications and none of the
disqualifications set by law. The Board need not recommend the
nominee
 EXCPN TO THE EXCPN: When the exclusive right is reserved for
holders of founders’ shares

Nomination process must allow an informed assessment of the abilities

and suitability of each candidate. Full disclosure of the ff:
1. Director or trustee profile
2. Attendance Report
3. Appraisals and performance reports
4. Profiles of directors nominated or seeking election or re-election

B.PRESCRIBED QUORUM
 There must be present either in person or through a representative
authorized to act by written proxy, the owners of the majority of the
outstanding capital stock, or if there be no capital stock, a majority of
the members entitled to vote. No majority = no election. (The Code
does not permit a contrary stipulation!!)
 HOWEVER, in EXCEPTIONAL CASES where there is UNJUSTIFIED
NON-HOLDING OF ELECTION and the Commission issues a summary
order calling for special election: Quorum = shares of stock or
membership represented at such meeting and entitled to vote.

MANNER OF CASTING VOTES

 In person GR: Must be authorized in the bylaws or by a majority of the
 Through a written proxy board of directors

 Through remote communication EXCPN: In corporations vested with public interest it is

 In absentia permitted notwithstanding the absence of a provision in the
bylaws of such corporation

May be by show of hands (one man one vote)*default in a Non-stock

Corporation, or if so requested by any shareholder or member: by poll or ballot
(one share one vote)*default in a Stock Corporation

PRESCRIBED VOTE
Plurality voting = highest vote. The winning party need not have the support of
the majority of the OCS or if there be no OCS, a majority of the members entitled
to vote
Majority Voting= a vote will not carry if the majority votes are withheld

DISTRIBUTION OF VOTES
a. STRAIGHT VOTING
In stock corporations: Stockholders shall have the right to vote the number of
shares of stock standing in their own names, vote such number of shares for as
many persons as there are directors to be elected and distribute them on the
same principle among as many candidates as may be seen fit.
Limitations:
- Total number of votes should not exceed 500
- Controlling bloc may cast 400 votes
- Minority bloc may cast 100 votes

In non-stock corporations
GR: As many votes as there are directors to be elected but may not
cast more than 1 vote for 1 candidate
EXCPN: Unless otherwise provided in the AOI/ By laws

b. CUMULATIVE VOTING
In stock corporations
Stockholders entitled to vote shall have the right to vote the number of shares of
stock standing in their own names, vote such number of shares for as many
persons as there are directors to be elected and cumulate said shares and give 1
candidate as many votes as the number of directors to be elected multiplied by
the number of shares owned.
(see book explanation)

ELECTION CONTESTS
 Must follow the prescribed procedure in the bylaws including the period
in instituting the same
 Take note if there is an arbitration clause in the bylaws

In the absence of these procedure and the period, the election contest must be
filed in court within 15 days from the date of election (cf with intracorporate
controversy)

5) How removed (sec. 27)

Requirements:
 vote of the stockholders holding or representing at least two-thirds (2/3)
of the outstanding capital stock, or in a nonstock corporation, by a vote
of at least two-thirds (2/3) of the member entitled to vote

 removal shall take place either at a regular meeting of the corporation or

at a special meeting called for the purpose (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 or
refuses] )

 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

AUTHORITY OF THE COMMISSION IS LIMITED

It may only remove a director or trustee on the issue of disqualification
especially when he or she is elected despite the disqualification and
whose disqualification arose or is discovered subsequent to an election
(This is a kind of special authority and it may even sanction the
members of the Board who with knowledge of the disqualification failed
to remove such director or trustee= board inaction)

6) How vacancies filled (sec. 28)

 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

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
 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.

7) Emergency Board (sec. 28)

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:
Vacancy may be temporarily filled from among the officers of the
corporation by unanimous vote of the remaining directors or
trustees. 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.

8) How compensated (sec. 29)

GR: 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.

EXCPN: provision in the bylaws fixing their compensation

PER DIEM
Reasonable per diem is not subject to tax however, an excessive per diem is
already considered as compensation thus subject to tax.

COMPENSATION OF NON-EXECUTIVE DIRECTORS OR TRUSTEES

GR: Not entitled to compensation

EXCPN: When it is authorized by the by-laws or by a majority vote of
shareholders or members.

For DIRECTORS: Total yearly compensation must not exceed 10% of the
corporation’s income before tax.
HOW COMPUTED?
Based on the net income before income tax of the year during which the
directors have served as such

For TRUSTEES: No similar limitation however, trustees could not be deemed to

be better off than directors so… under the Tax Code, the yearly administrative
costs must not exceed 30% of total expenses. Further, the yearly compensation
of all trustees must not exceed 10% of the corporation’s incidental income.
IN BOTH CASES: Director or trustee cannot participate in determining his or her
compensation. (Conflict of interest)

COMPENSATION OF EXECUTIVE DIRECTORS OR TRUSTEES

Not subject to the limitations imposed upon non-executive directors or trustees. It
is a product of negotiation between the corporation and the corporate officer for
his services and not for his appointment as a member of the board.

9) Matters requiring Board of Directors’ action

10) Liability:
a) In general (sec. 30)
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 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.

b) Business judgment rule

Under the business judgment rule, questions of policy and management are left
to the judgment of the officers and directors of a corporation, and the courts have
no authority to substitute the board’s judgment with theirs. Moreover, the board is
considered the business manager of the corporation and its orders cannot be
reviewed by the courts as long as it acts in good faith (Philippine Stock
Exchange Inc. vs. Court of Appeals, G.R. 125469, Oct. 27, 1997).

-Mere errors in judgment are not sufficient to hold board members accountable
for their business judgement.

- Not absolute, as the courts may interfere with decisions of the board when the
contracts entered into by the latter are unconscionable and oppressive to the
point it amounts to the wanton destruction of the rights of the minority

Business judgment is a defense when the act is:

 intra vires
 members of the board observed process due care
 action has a rational business purpose with no obvious
corporate waste

c) Doctrine of corporate opportunity

BASIS: SECTION 33 RCC
It rests fundamentally on the unfairness, in particular circumstances, of
an officer or director taking advantage of an opportunity for his own
personal benefit when the interest of the corporation should have been
more paramount.

-The doctrine of corporate opportunity means that if the director

acquired a business opportunity that should belong to the corporation,
he must account to the corporation for all the profits he obtained unless
his act was ratified by the stockholders representing at least two-thirds
of the outstanding capital stock.

- a director of the corporation is prohibited from competing with the

business in which the corporation is engaged in, as otherwise, he would
be guilty of disloyalty, where profits he may realize will have to go to the
corporate funds, except if the disloyal act is ratified.

d) Dealings with the corporation (sec. 31)

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:

(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.

TREATMENT OF SELF-DEALING DIRECTOR OR TRUSTEE:

If the rights of third parties are NOT IMPLICATED= annul the contract
If rights of third parties ARE IMPLICATED= demand restitution from the
self-dealing director or trustee, claim damages including profits that
could have accrued to the corporation

e) Contracts between corporations with interlocking directors

(sec. 32)
 VALID provided there is no fraud or misrepresentation and the contract
is fair and reasonable.

20% THRESHOLD when the interest is substantial or nominal

f) Disloyalty (sec. 33)

WHEN IS THERE DISLOYALTY?
A: When a director takes away for himself a business opportunity that
propery belongs to the corporation.

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, nothwithstanding the
fact that the director risked one's own funds in the venture.

g) Watered stocks (sec. 64)

Section 64. Liability of Directors for Watered Stocks. - A director or officer of a

corporation who:
(a) consents to the issuance of stocks for a consideration less than its
par or issued value:
(b) consents to the issuance of stocks for the consideration other than
cash, valued in excess of its fair value; or
(c) having knowledge of the insufficient consideration, does not file
written objection with the corporate secretary, shall be liable to the
corporation or its creditors, solidarily with the stockholder concerned for
the differnce between the value receive at the time of issuance of the
stock and the par or issued value of the same.

RATIO: Issuance of watered stocks constitutes fraud on creditors for it gives a

false impression that the corporation has a certain amount of assets equivalent
to the subscribed capital stock that creditors may rely on as buffer against
losses.

11) Executive Committee (sec. 34)

Section 34. Executive Management, and Other Special Committees. –
LIMITATION: If the bylaws so provide

The board may create an executive committee composed of at least three (3)
directors.

SCOPE OF POWER: 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, EXCEPTIONS:
(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 divendends 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.
-As to the creation of special committees, the authorization in the by-laws is not
anymore necessary