Chapter III-A: Board of Directors/Trustees:

 Board – comprised of a select group of owners, controls, operates and exercises the powers of the corporation;
 Owners – periodically elect, or when demanded by circumstances, replace the board;
 Follows a stakeholder centered model:
o Owners are only one of the many corporate stakeholders; others include creditors, employees, customers,
suppliers, government and community
 What Comprises of Title III:
o Regulates the relationship between the corporation (as represented by the board) and its shareholders or
members;
o Provides the powers, duties and liabilities of the board, and the right of shareholders or members to replace
them;
o Number of independent directors must be at least 20% of board membership;
 Distinction between BoD and Corporate Officer:
o BoD: not necessarily within the day-to-day operations of the corporation; Corporate Officers: those who are
indicated in the By-Laws;
o BoD: mandatorily requirement: at least 1 shares of stock; Corporate Officers: not necessarily has a share of
stock;
o BoD: the power to appoint and dismiss corporate officers indicated in by-laws is vested with them;

Sec. 22: The Board of Directors and Trustees of a Corporation

Codal Provisions:

 Board of Directors and Trustees shall exercise the corporate powers, conduct all business and control all
properties of corporation;
 Term of Directors and Trustees:
o Directors: Term of 1 year from among the holders of stocks;
o Trustees: Term not exceeding 3 years from among the members of corporation;
o Condition: each officer shall hold office until the successor is elected and qualified; director who ceases to
own at least 1 share of stock or trustee ceases to be a member shall cease to be such;
 Corporations required to have independent directors constituting at least 20% of such board:
o Corporations covered by Sec. 17.2 of RA 8799 (SRC):
 securities registered with SEC;
 with assets of at least Php 50M;
 having 200 or more holders of shares each holding at least 100 shares;
o Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business,
preneed, trust and insurance companies and other financial intermediaries;
o Other corporations engaged in business vested with public interest similar to the above;
 Relevant factors germane to the objective and purpose of requiring election of an independent
director: (1) extent of minority ownership; (2) financial products or securities issued/offered; (3)
public interest involved; (4) other analogous factors;
 Who is an independent director?
o 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 reasonably be perceived to materially interfere
with the exercise of independent judgment in carrying out the responsibilities as a director;
o Share of Stock, Compensation and Remuneration is allowed to an independent director; but at least 1 share of
stock is not required;
o Conditions:
 Must be elected by the shareholders present or entitled to vote in absentia;
 Subject to rules and regulations governing qualifications, disqualifications, etc. by the Commission to
strengthen their independence and align with international best practices;

Annotation:

 The powers of the board are original and undelegated;

 2 Functions: (1) Monitoring and (2) Advisory;
 Aside from its ex ante authority as its power, the board also have the power to hire and fire corporate officers, with
proper mix of discretion and accountability;
 Doctrine of Centralized Management:
o This was adopted by the law, in which the board as the main decision-making authority saves on certain cases
requiring shareholders or members approval.
o Decisions are best made by a small group of persons, preferably with perceived expertise; thus the Board is a
collegial body who must take collegial rather than individual actions.
 Rule when corporation enters insolvency:
o Authority of the board is limited when the corp. enters insolvency.
 o As a rule, management of a financially distressed corporation shall remain with its existing board; however,
all disbursements, payments of sale, disposal, assignment or transfer of property shall be subject to the
approval of the rehabilitation receiver and/or the court.
o Court may assign the rehabilitation receiver to assume the powers of the board or to appoint a management
committee.
 Authority to bind the corporation:
o GR: board is the body that has authority to bind the corporation. The corporations charter may provide
specific limitation on the boards authority and prescribe the person or persons who may bind the corp.
relative to certain transactions;
o Corporate officer implements the decision of the board, thus they are not personally liable for the contracts
they entered into on behalf of the corporation unless they acted beyond the scope of their authority.
o If corporate officers acted beyond their authority, corporation is liable for their contracts if it ratifies them or
third persons acted in good faith;
 Business judgment rule:
o Members of the board must act with care, loyalty and obedience; thus, they must exercise
independent judgment for the best interest of the corporation, specifically for all stakeholders and
not just shareholders or members;
o For such rule, courts are not expected to substitute their own judgment for that of the board. The same
applies when the AoI or Bylaws incorporate an arbitration clause;
 Test of Independence for an independent director: Independence is measured considering the following parameters:
o The existence of business or other relationship
o Could or could reasonably be perceived to cause interference
o The likelihood of interference must be material

Chapter III-B: Election of Board of Directors/Trustees: Nomination of Officers and Compensation

Sec. 23: Election of Directors or Trustees

Process of the Election of Directors of Trustees:

 (1) Nomination
o Board has responsibility to nominate who will sit as directors or trustees. (Rationale: ensuring and adopting
effective succession planning program for directors and key officers to ensure growth and increase in
shareholders;
o Any shareholder or member may nominate another shareholder or member with the prescribed
qualifications and none of the disqualifications set forth by the Code;
o There must be an impartial manner of nomination and in full disclosure on the following matters:
 Director or trustee profile;
 Director or trustee attendance report;
 Appraisals and performance reports for the board and criteria and procedure for assessment;
 Profiles of directors seeking election or reelection;
 (2) Election Proper (with Quorum)
o Election is the shareholders or members meeting duly called for the purpose-nominees shall be presented in
this juncture;
o Valid election: PRESENT, either in person or through representative by written proxy.
o Who: Owners of the majority of capital stock, or if no capital stock, majority of the members entitled to vote.
 (3) Manner of Casting Votes:
o May vote in person or through a written proxy;
o Voting May through remote communication or in absentia if so permitted in by-laws; (may be exercised by
corps. Vested with public interest;
o By show of hand (one man, one vote, default on Non-stock) or, by poll or by ballot (on share one vote, default
on Stock Corp.);
 (4) Prescribed Vote
o Follows plurality voting: nominees who receive the highest number of votes shall be elected as members of
the board;
o If only one nominee, it is sufficient that the nominee shall receive one vote cast;
 (5) Distribution of Votes
o A. Straight voting:
 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 distribute them on the same principle among as many candidates as may see fit;
 Total number of votes cast should not exceed 500, wherein controlling bloc casts 400 votes while the
minority bloc may cast 100 votes; Minority bloc may not be able to select its representative in the
board;
 In non-stock corp., members may cast as many votes as there are trustees to be elected but may not
cast more than 1 vote for 1 candidate;
o B. Cumulative voting:
  Shall at all times be permitted in stock corporation;
 Stockholders entitled to vote shall have the right to vote the number of shares of stock standing in
their own name, vote such number of shares for as many persons as there are directors to be elected
and cumulate said shares and give one candidate as many votes as the number of directors to be
elected multiplied by the number of shares owned;
 In this case the minority may cumulate its vote and may cast 100 votes for its representative;
 May not be permitted in non-stock corp., except provided in the AoI or ByLaws;
 (6) Election Contests
o Refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corp.,
the validation of proxies, the manner and validity of elections, and qualifications of candidates, including
proclamation of winners to the office of director, trustee or other officer directly elected by stockholders; also
annulling the shareholders meeting (Ricafort, et.al vs. Calalang, et.al)
o Any shareholder or member who questions the election shall follow the procedure in ByLaws including
period to pursue election contest; if there is an arbitration clause.
o Absence of arbitration clause, the election contest must be filed in the court within 15 days from the date of
election;

Section 24: Corporate Officers

 The board appoints the corporate officers by the vote of majority and not simple majority of the quorum;
 No one shall act as president and secretary or president and treasurer at the same time;
 Doctrine of apparent authority: Corporate officers are the agents of the corporation, They have the apparent authority
to bind the corporation on matters that are generally within the domain of corporate business and within the scope of
their duties;
 Chairman of the Board
o Not a statutory corporate officer, in the sense that he is not among those who must be appointed by the board
in the absence of a bylaw provisions stipulating the contrary;
o Generally sets the meeting and its agenda; (Presiding Officer)
o He may be an independent director provided he must not hold an executive position and should not be
involved in the corporations day-to-day operations;
o May not be a Filipino national provided that he limit his role to that of presiding officer;
 President
o Must be a director; he is in the best position to brief members of the board on the corporations day-to-day
operations and matters needing corporate action;
o The Primary officer tasked to implement the decision of the board and the principal agent of the corporation;
o He shall manage the corporation and perform such duties as may be provided in the ByLaws;
o He may bind the corporation pursuant to the specific authority by the board or by his apparent or ostensible
authority;
o May preside meetings in the absence of Chairman; Signatory of Stock Cert. and FS;
 Treasurer
o Must be a resident of the Philippines; immediate availability being the primary custodian of the corporate
funds
o Has control over the funds and/or other assets of the corporation;
o Has authority to receive in the name and for the benefit of the corporation all subscriptions, contributions or
donations paid or given by the subscribers or members, certifies the information set forth in the seventh and
eight clauses of AoI, and the paid-up portion of the subscription in cash has been received;
o Main signatories of financial statements;
o Need not be a Filipino citizen;
 Secretary (Corp. Sec.)
o Must be a citizen and resident of the Philippines;
o Maintain corporate records, including the stock and transfer book;
o Sends notices and takes minutes of meetings; he is the corporate officer with whom a dissenting directors
must register his objection to a particular corporate resolution such as the issuance of watered stock (lower
price than the par value)
o The primary officer tasked to make the prescribed reports to the SEC and attest to corporate resolutions;
o Corp. Sec. should see to it that none of the information or statement in a report or certification is incomplete,
inaccurate, false, or misleading, otherwise he may be liable for willfully certifying a report;
o Should be a separate individual from the compliance officer and not a member of board of directors;
 Compliance Officer (Corp. is vested with public interest)
o May hold 2 or more positions concurrently;
o Tasked to ensure that the members of the board and corporate officers comply with law, the corporate
charter and ByLaws;
o Should not be a member of the board and primarily liable to the corp. and its shareholders and not to the
Chairman or President;
 Such other officers as may be provided in the ByLaws
 o Could be considered as employees or subordinate officials (Matling Industrial and Commercial
Corporation vs. Coros);

 Significance of Distinction between a Corporate and non-corporate officer:

o Corporate officer may bind the corporation, provided he acts within the scope of his authority and may site in
the board temporarily to address an emergency;
o Corporate officer may be terminated at will; Non-corporate officer may be terminated by just or authorized
cause;
o Dispute over separation of Corporate Officer: Intra-corporate dispute (regular Court or Special Commercial
Court);
o Dispute over separation of Non-Corporate Officer: NLRC;
 Tests of Distinction:
o Status or relationship of the parties:
 a person is a corporate officer when his position is especially recognized in the ByLaws and
consequently filed up by board appointment;
 If appointed by president or a key officer to a position not created by bylaws is not a corporate
officer;
o Nature of the question that is subject of controversy: (terms of separation is governed by contracts, not by
law)
 Not all conflicts between the stockholders and the corporation is an intra-corporate dispute;
 Dismissal of stockholder as an employee or subordinate officer does not necessarily make such
dismissal an intra-corporate dispute; May be removed as an employee but not necessarily as
director;
 NLRC has jurisdiction over the issue of such stockholders separation from the service of
company;
 If may dismissed as an executive director: regular courts has jurisdiction over such controversy;

Sec. 25: Report of Election of Directors, Trustees and Officers, Non-holding of Election and Cessation from Office

Codal Provisions

 Within 30 days after the election of Board of Directors and Trustees, the Corp Sec shall submit to SEC the names,
nationalities, shareholdings and residence address of DT&O elected;
 If No election was made: it shall be reported to the SEC with the reasons therefor within 30 days from the date of the
scheduled election; It must be included a new date for the election not later than 60 days from the scheduled date;
 If No new date has been assigned or re-scheduled election is not held: Upon application of a stakeholder
(Stockholder, Member, Director or Trustee) and verification, the SEC may order that an election be held stating the
time and place of election, presiding officer and record dates for the determination of stockholders or members
entitled to vote;
 If DT&O die, retired, resign or cease to hold office: Corp. Sec shall report to SEC within 7 days from knowledge
thereof;

Sec. 26: Disqualification of Directors, Trustees or Officers:

 If within 5 years prior to the election or appointment, the DT&O was:

o A. Convicted by final judgement: (1) Offense punishable by imprisonment exceeding 6 years; (2) violating
RCC; (3) violating SRC;
o B. Administratively liable for any offense involving fraudulent acts;
o C. By a foreign court or equivalent foreign regulatory authority for acts and violations similar to a and b;
(IOSCO)
 This is without prejudice to qualifications and disqualifications set forth by the PCC may impose in its
promotion of good corporate governance; Sanctions: Fines and permanent disqualification from being
elected or appointed as DT&O;

Sec. 27: Removal of Directors or Trustees:

Codal Provisions:

 Any Director of Trustee may be removed from office by:

o Stock: a vote of the stockholders at least 2/3 of the outstanding capital of the stock
 Does not apply to directors elected by the minority stockholders;
o Non Stock: vote of at least 2/3 of the members entitled to vote.
 Provided that:
o Removal shall take place either at: (1) regular meeting or (2) special meeting called for the purpose;
o Special meeting calling for the removal of D&T must be either: (Authority)
 called by the Corp. Sec on order of the president; or
 upon written demand of the stockholders holding at least a majority of outstanding capital stock or
by members entitled to vote;
 o If no Corp. Sec or the former refused to call the special meeting or give notice thereof: the stockholder or
member signing the demand may call for the meeting by directly addressing the stockholders or members;
o Notice of the time and place and purpose to call such meeting must be given by publication or by written
notice;
 Removal may be WITH OR WITHOUT CAUSE:
o Removal w/out cause may not be used to deprive minority stockholders or members of the right to
representation;
 Duty of the SEC: (Limited authority only on the basis of disqualification, not included qualifications)
o May order the removal of D&T elected despite qualification or whose disqualification arose or is discovered
subsequent to an election, by motu proprio or upon verified complaint with due notice and hearing;
o Removal of disqualified D&T shall be w/out prejudice to other sanctions that SEC may impose on the board
who with knowledge of the disqualification failed to remove such D&T

Annotation:

 Purpose of the shotgun power of shareholders & members to remove D&T: address inefficiency, failure or abuse of the
concerned D&T;
 Authority to call a special meeting: (1) President or (2) Prescribed majority of the shareholders or members;
 Various situation of disputes in a corporation: Generally, through full blown litigation or arbitration clause, or the SEC
may arbitrate the dispute
o With limited shareholdings and membership:
 In a close corporation, matter may be resolved by referring to the shareholders agreement.
o With controlling and minority shareholdings:
 Minority shareholders cannot replace the majority of the board; on the other hand, controlling
shareholders may not generally replace the directors nominated and elected by minority
shareholders;
 Cooperation of controlling to the minority shareholders is the key;
o With block but non-controlling shareholdings:
 Majority of directors are elected through consensus among block shareholders; this is common in
public corporations such as SSS and GSIS;
 Dispute relative to the composition of the board and management is resolved behind closed doors;
Reason: investors prefer stability and seek to avoid market disruption;

Sec. 28: Vacancies in the Office of Director or Trustee; Emergency Board

Codal provisions:

 Vacancy occurring other than removal or expiration of term may be filled by:
o Vote of at least majority of remaining D&T, if there is a quorum;
o Otherwise, filled by stockholders or members in a regular or special meeting called for the purpose;
o D&T elected to fill the vacancy shall be called as the REPLACEMENT D&T and shall serve only for the
unexpired term of the predecessor in office;
 Situations of Vacancy:
o If term expiration: election shall be held no later than the day of such expiration at a meeting called for the
purpose;
o If as a result of removal: election may be held on the same meeting authorizing the removal (must be stated
in agenda);
o All other cases: election must be held no more than 45 days from the time vacancy arose; must be reported
within 7 days to the SEC;
o Increase in the number of D&T: election at a regular or special meeting called for the purpose; Emergency
Board:
 Emergency Board:
o If vacancy prevent the remaining directors from constituting a quorum and emergency action is required to
prevent grave, substantial and irreparable loss or damage to the corp.: TEMPORARY FILED FROM AMONG
THE OFFICER OF THE CORP. by unanimous vote of remaining D&T;
o Action shall be limited to the emergency action necessary and shall cease within a reasonable time from
termination of emergency or upon election of replacement D&T;
o Must notify SEC within 3 days of the creation of the emergency board;

Sec. 29: Compensation of Directors or Trustees:

 Absence of provision in by-laws fixing the compensation of D&T: they shall not receive compensation in their capacity
as such except for reasonable per diems; Such compensation must be approved by the majority of stockholders
representing capital stock or members in a regular or special meeting;
 Compensation shall not exceed 10% of the net income before income tax of the corp. during the preceding year;
 D&T shall not participate in the determination of their per diems or compensation;
 Corporations vested with public interest shall submit an annual report of the total compensation of each D&T to the
SEC and shareholders;
Annotation:

 Per diem:
o D&T is only entitled to reasonable per diem, just enough to cover the costs of attending the meeting;
o not subject to tax; no income incurred;
o But excessive per diem now refers to compensation and generally subject to tax;
 Compensation of non-executive directors or trustees:
o A D&T may be appointed as Corporate Officer like the President. His compensation as a corporate officer is
not subject to the above limitations and 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
o What prohibits is the “in their capacity as such” of the directors and trustees; not as a corporate officers.
 Stock option plans and other share-based compensation schemes:
o Involve the grant to key officers and employees of the right to receive or acquire the subject shares at a fixed
price after a certain period. The concerned officer or employee acquires a vested right to receive or acquire
shares in accordance with the plan or scheme;
o Rationale: incentivize the key officers and employees into increasing the value and allow them to receive
concrete benefit in the success of the company;
 Say-on-Pay rule
o In Public Corp. the law requires an annual report on the total compensation of each of D&T which will be
provided to the shareholders so they can have a say on pay (consider the reasonableness of the yearly
compensation of a particular director and determine whether he should be re-appointed). This paved way for
the shareholders to be the ultimate judge in assessing the sufficiency of compensation;
o Such compensation must be approved by the majority of stockholders representing capital stock or members
in a regular or special meeting;

Chapter III-C: Fiduciary Duties of Directors, Trustees and Officers

 Members of the board assume special fiduciary duties to the corporation;

 Neither agents nor trustees of shareholders or members. They do not owe fidelity and exclusively serve to protect
shareholders or members interest.
 Tasked to manage the corporation and serve all corporate stakeholders;
 Presents the duties and responsibilities of DT&O, the treatment of conflict of interest transactions, and the rules on
the delegation of management responsibility;

Sec. 30: Liability of Directors, Trustees or Officers

Codal Provisions:

 D&T Shall be liable jointly and severally for all damages suffered by the corporation, its stockholders or members and
other persons if:
o They are willfully and knowingly vote for or assent to patently unlawful acts. (Obedience)
o Guilty of gross negligence or bad faith in directing the affairs of the corporation. (Care)
o Acquire any personal or pecuniary interest in conflict with their duty. (Loyalty)
 Limitations for DT&O:
o Shall not attempt to acquire or acquire any interest adverse to the corporation in respect of any
matter which has reposed in them in confidence.
o And upon which equity imposes a disability upon themselves to deal in their own behalf.
o Such DT&O will violate it shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.

Annotation:

 The provision provides consequences of breach of duties on the following:

o A. Personal joint and several liability for all damages suffered by the corporation and its stakeholders;
o B. Fiduciary liability as trustee for profits that would have accrued to the corporation;
o C. Administrative and criminal liabilities;
 Three-fold duties of D&T: Duties of (1) Obedience; (2) Care; and (3) Loyalty
o (1) Obedience: Breach of duty of obedience may arise from (a) ultra vires or (b) unlawful acts:
 Ultra vires: on
 e who has acted beyond his powers or who has been given no authority or legal representation; It
may ratify by the shareholders or members and eventually prevent its enforcement, or file a derivate
suit;
 Unlawful acts: example is the consent of the issuance of watered stocks; and other specific offenses
found in Sections 159 to 169; It cannot be ratified and may require court action or special laws
specifically provide for their personal liabilities such as PCA, GBL, IC, NIRC;
o (2) Care: members of the board must exercise great care in directing the affairs of the corporation. The board
shall (a) take steps to sufficiently perform themselves of relevant information before making a decision
(process due care); (b) act in good faith and honest belief (substantive due care);
  Process Due Care: Focuses on the procedure and considered as the safe harbor for decision-making.
Business judgment rule does not apply in oversight cases. There is gross negligence if there is
sustained and systematic failure of the board to exercise oversight;
 Substantive Due Care: Depends on the actual abilities of the concerned D&T. Business judgement
rule applies in this case and avoids hindsight bias;
 What is a corporate waste? The action amounts to waste of gift of corporate assets serving no
corporate purpose. There must also be rational purpose actuated by a legitimate business reason.
o (3) Loyalty:
 Trustees and agents have he duty to promote the interest of their respective beneficiaries as it is the
basic fiduciary duty.
 Observance of duty of loyalty is relevant when D&T enter into a contract with the corporation (or a
self-dealing contract), negotiate on their compensation and personally acquire a corporate
opportunity;

Sec. 31: Dealings of Directors, Trustees or Officers with the Corporation (Self-Dealing Contracts)

Codal Provisions:

 A contract of corp. with one or more of tis DT&O or their spouses and relatives within 4 th civil degree of consanguinity
or affinity is voidable at the option of the corporation, unless all the following conditions are present:
o Presence of such D&T in the board meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;
o Vote of D&T was not necessary for the approval of the contract;
o Contract is fair and reasonable; and
o In case of corporations vested with public interest: material contracts are approved by at least 2/3 of the
entire membership of the board; (MATERIAL RELATED PARTY TRANSACTIONS)
o In case of Officers: contract has been previously authorized by the board;
 If first 3 conditions were absent, contract may be ratified by the stockholders representing 2/3 of outstanding
capital stock or 2/3 of the members in a meeting called for the purpose;

Annotation:

 Treatment of Self-dealing Directors and Trustees:

o Self-dealing D&T is not in breach of his duty of loyalty;
o However, when the rights of third parties are implicated, the corporation may demand for restitution from
the self-dealing director or trustee. It may also claim damages including the profits which will be accrued by
the corporation.
 Treatment of Self-dealing contracts:
o Law focuses on the procedure and gives the decision to the shareholders or members;
o In order to prevent the nullity of the transaction, the law requires either:
 Approval by the disinterested board;
 Approval by the shareholders or members;
 Transaction must be fair and reasonable and must have full disclosure.
 Material related party transactions: (in cases of public corporations)
o Treated by approved at least 2/3 of the entire membership of the board with at least of majority of the
independent directors voting to approve the material contract;
o Transaction is material if its value is at least ten percent of the corporation’s total assets as provided in latest
FS;
o Related party: if such person is a DT&O or a substantial shareholder (beneficial owner of at least 10% of any
class of equity security of the company) and spouses and relatives within 4 th civil degree;
 Prior disclosure and fairness requirements:
o Contract must all times fair and reasonable and there must be prior full disclosure, otherwise contract is
voidable specifically when:
 The self-dealing DT&O fail to disclose to the board his potential interest in the transactions and the
board approves it;
 The disinterested board is aware of conflict of interest but nevertheless approves the contract that is
not fair and reasonable;
 Shareholders or members approved the contract that is not fair and reasonable;
o In situation A, the board may annul the contract upon discovery of conflict of interest within 4 years;
o In situation B and C, the shareholders or members may cause such annulment and may file a derivative suit;

Sec. 32: Contracts Between Corporations and Interlocking Directors

 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.
 Contract between 2 or more corporations having interlocking director shall not be invalidated on that ground alone
(except in cases of fraud and provided that the contract is fair and reasonable)
o Provided: if the interest of interlocking director in one corporation is SUBSTANTIAL and the interest is
merely NOMINAL (minimal), the contract shall subject to provisions of preceding section (Sec. 31)
 o What constitutes substantial: stockholdings exceeding 20% of the outstanding capital stocks;

Sec. 33: Disloyalty of a Director (Doctrine of Corporate Opportunity)

 When disloyalty takes place: Director, by virtue of such office, acquires a business opportunity which should belong to
the corporation, thereby obtaining profits to prejudice of such corporation.
 Liability: Must account for and refund to the latter all such profits unless the act has been ratified by a vote of
stockholders holding at least 2/3 of the outstanding capital stock.
 Scope: still applicable even the director risked one’s own funds in the venture;
 Corporate Opportunity:
o developed by a director making use of corporate information and/or properties;
o developed by a director who has been tasked to precisely develop such opportunity;
o came to the director because of his position in the corporation; and
o within the corporation’s existing line of business.
 Treatment of Corporate Opportunity: (2 forms)
o Delaware Standard: director may not be disloyal if he previously offered the opportunity to the corporation
(Safe Harbor).
o American Law Institute approach: (1) line of business test; (2) interest test: and (3) financial or technical
inability test)

Sec. 34: Executive, Management and Other Special Committees (shall be provided in the Bylaws)

Codal Provisions:

 The board may create an executive committee: composed of at least 3 directors;

 Power of the executive committees:
o Act on specific matters within the competence of the board as may be delegated to it in the bylaws or by
majority vote of the board;
o Except: (1) Approval of any action which requires shareholders approval; (2) filing of vacancies in the board;
(3) amendment, repeal and adoption of bylaws and resolutions by which its express terms are not amendable
or repealable; (4) distribution of dividend to the shareholders;

Annotations:

 Rationale: for operation efficiency; support for effective performance if the boards functions, particularly with audit,
risk management and other key corporate concerns;

 Special Committees:
o Board may create special committees even not explicitly authorized by the bylaws. Need not be comprised of
directors and may be temporary or permanent.
o Board may assign to perform tasks for consideration of the board.