Mercantile Law
XPNs:
1. The election of officers which shall require the
vote of a majority of all the members of the
board.
2. No board approval is necessary where there is
custom, usage and practice in the corporation
not requiring prior board approval or where
subsequent approval is sufficient (Board of
Liquidators v. Kalaw, G.R. No. L-18805, August
14, 1967).
Three out of five directors of the board of directors
present in a special meeting do not constitute a
quorum to validly transact business when its by-
laws requires at least four members to constitute a
quorum. Under Section 25 of the CC, the articles of
incorporation or by-laws may fix a greater number
than the majority of the number of directors to
constitute a quorum. Any number less than the
number provided in the articles or by-laws cannot
constitute a quorum; any act therein would not bind
the corporation; all that the attending directors
could do is to adjourn (Pena vs. CA, G.R. No. 91478,
February 7, 1991, in Divina, 2014).
RULE ON ABSTENTION
Effect of Abstention
No inference can be drawn in a vote of abstention.
When a director or trustee abstains, it cannot be
said that he intended to acquiesce in the action
taken by those who voted affirmatively. Neither, for
that matter, can such inference be drawn from the
abstention that he was abstaining because he was
not then ready to make a decision (Lopez v. Ercita,
G.R. No. L-32991, June 29, 1972).
Instances when a director is required to abstain
in voting
Whenever a director believes he/she has a conflict
of interest, the director should abstain from voting
on the issue and make sure his/her abstention is
noted in the minutes (Robert's Rules, 10th ed.).
The other reason a director might abstain is that
he/she believes there was insufficient information
for making a decision. Otherwise, directors should
cast votes on all issues put before them. Failure to
do so could be deemed a breach of their fiduciary
duties.
Example where a director needs to abstain
To avoid “Insider Trading”, Insiders are obligated to corporate assets upon dissolution (CC, Sec.
abstain from trading the shares of his
corporation. This duty to abstain is based on two
factors:
241
1. The existence of a relationship giving access,
directly or indirectly, to information intended
to be available only for a corporate purpose and
not for the personal benefit of anyone; and
2. The inherent unfairness involved when a party
takes advantage of such information knowing it
is unavailable to those with whom he is dealing
(SEC v. Interport Resources Corporation, G.R.
No. 135808, October 6, 2008).
STOCKHOLDERS AND MEMBERS
A person becomes a shareholder the moment he:
1. Enters into a subscription contract with an
existing corporation (he is a stockholder upon
acceptance of the corporation of his offer to
subscribe whether the consideration is fully
paid or not);
2. Purchase treasury shares from the corporation;
or
3. Acquires shares from existing shareholders by
sale or any other contract, or acquires shares by
operation of law like succession (Sundiang Sr. &
Aquino, 2009).
RIGHTS OF A STOCKHOLDER AND MEMBER
1. Management Right
a. To attend and vote in person or by proxy at
a stockholders’ meetings (CC, Secs. 50, 58);
b. To elect and remove directors (CC, Secs. 24,
28);
c. To approve certain corporate acts (CC, Sec.
58);
d. To adopt and amend or repeal the by-laws
of adopt new by-laws (CC, Secs. 46, 48);
e. To compel the calling of the meetings (CC,
Sec. 50);
f. To enter into a voting trust agreement (CC,
Sec. 59); and
g. To have the corporation voluntarily
dissolved (CC, Secs. 118, 119).
2. Proprietary rights
a. To transfer stock in the corporate book (CC,
Sec. 63);
b. To receive dividends when declared (CC,
Sec. 43);
c. To the issuance of certificate of stock or
other evidence of stock ownership (CC, Sec.
64);
d. To participate in the distribution of
118, 119); and
e. To pre-emption in the issue of shares (CC,
Sec. 39).
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW