Topic No. 7: Revised Corporation Code of
Tenure, Qualifications, and
the Philippines (RA 11232)
I. BOARD OF DIRECTORS AND TRUSTEES
A. Repository of Corporate Powers
Doctrine of Centralized Management
BOARD IS SEAT OF CORPORATE POWERS
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]
Exceptions:
1. In case of an Executive Committee duly
authorized in the by-laws; [Sec. 34]
Exception to Exception: The following
may not be delegated to the executive
committee:
(1) Approval of any action for which
shareholders' approval is also required;
(2) The filing of vacancies in the board;
(3) The amendment or repeal of by-laws
or the adoption of new by-laws;
(4) The amendment or repeal of any
resolution of the board which by its
express terms is not so amendable or
repealable; and
(5) A distribution of cash dividends to
the shareholders. [Sec. 34]
2. In case of a contracted manager which
may be an individual, a partnership, or
another corporation.
Note: In case the contracted manager is
another corporation, the special rule in
Sec. 43 applies.
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
[Sec. 96]
B.
Disqualifications of Directors or
Trustees
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
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. Each director and trustee
shall hold office until the successor is elected
and qualified. [Sec. 22]
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.
 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. [Sec. 22]
 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.
Note: The RCC removed the requirement that
majority of the directors or trustees must be
residents of the Philippines.
Disqualifications
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:
 Convicted by final judgment:
 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”;
 Found administratively liable for any offense
involving fraud acts; and
 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]
C. Requirement of Independent
Directors
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]
- Independent director acts as a guide,
coach, and mentor to the Company.
Requirement for Independent Directors
Corporations vested with public interest are
now required to have independent directors
constituting at least twenty percent (20%) of
the board. [Sec. 22] This is in order to promote
good governance.
These corporations include:
(1) Corporations covered by the Securities
Regulation Code, namely:
a. one whose securities are
registered with the Commission;
b. Corporations listed with an
exchange or with assets of at
least Fifty million pesos
(P50,000,000.00); and
c. 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
similar to the above, 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]
D. Elections [Sec. 23]
Number of Directors and Trustees
Directors: Not more than fifteen (15)
Trustees: May be more than fifteen (15) [Sec.
13 and 91]
The RCC removed the minimum number of
directors which stood at five (5) under the old
code. [Sec. 14, Old Corporation Code]
Election of Directors or Trustees
i. Cumulative Voting
Methods of Voting
(1) Straight voting
(2) Cumulative voting for one candidate
(3) Cumulative voting by distribution
Rules Governing all Methods of Voting
a) 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
b) No delinquent stock shall be voted.
[Sec. 23]

Straight Voting
Every stockholder may vote such number of
shares for as many persons as there are
directors to be elected. [Sec. 23]
Cumulative Voting
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.
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 candidate3, 150 votes to candidate
4, and 50 votes to candidate 5.
ii. 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:
 Stock Corporations: The owners of majority
of the outstanding capital stock
 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.
If 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. [Sec. 23]
Election Contests
All matters affecting the manner and conduct of
the election of directors are properly cognizable
by the regular courts. Otherwise, these matters
may be brought before the SEC for resolution
based on the regulatory powers it exercises
over corporations, partnerships, and
associations. [SEC v. CA, 739 SCRA 99
(2014)]
E. 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 removals, see Sec. 27
New Power of the SEC under the Revised
Corporation Code [Sec. 27]
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]
F. Filling of Vacancies [Sec. 28]
Ways which the filling of a vacancy may
occur:
 Expiration of term;
 Removal;
 Grounds other than the above, but the
remaining directors can constitute a
quorum.
 Grounds other than the above, but the
remaining directors cannot constitute a
quorum for the purpose of filling the
vacancy;
 By reason of an increase in the number of
directors or trustees.
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:
 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 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:
 Within a reasonable time from the
termination of the emergency; or
 Upon election of the replacement director or
trustee, whichever comes earlier. [Sec. 28]
G. Compensation
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:
a. When Articles of Incorporation, by-laws, or
an advance contract provides for
compensation.
b. Compensation other than per diems may
also be granted to directors by the vote of
the stockholders representing at least a
majority of the Outstanding Capital Stock or
a majority of the members at a regular or
special stockholders’ meeting.
Note: The total yearly compensation of
directors shall not exceed 10% of the net
income before income tax of the corporation
during the preceding year. [Sec. 29]
Added in the RCC
 The 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 as Corporate
Officers
The position of being Chairman and Vice-
Chairman, like that of treasurer and secretary,
are not considered directorship positions, but
officership positions that would entitle the
occupants to compensation.
Likewise, the limitation placed under Sec. 30
(now Sec. 29, RCC) of the Corporation Code
that directors cannot receive compensation
exceeding 10% of the net income of the
corporation would not apply to the
compensation given to such positions since it is
being given in their capacity as officers of the
corporation and not as board members.
[Western Institute of Technology v. Salas, G.R.
No. 113032 (1997)]
H. Disloyalty
i. Duties of Directors and Trustees
THREE-FOLD DUTY
In this jurisdiction, the members of the BOD
have a three-fold duty: duty of obedience, duty
of diligence, and duty of loyalty.
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)]
I. 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 their judgment for 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. [Montelibano v. Bacolod-Murica
Milling Co., G.R. No. L-15092 (1962); Phil.
Stock Exchange, Inc. v. CA, G.R. No. 125469,
(1997)]
Exceptions:
 If the contracts are so unconscionable and
oppressive as to amount to a wanton
destruction of the rights of the minority
[Ingersoll v. Malabon Sugar, G.R. No. L-
27770 (1927)];
 If they violate their duties under Sec. 30
(director willfully and knowingly assents to
patently unlawful acts of the corporation, or
are guilty of gross negligence or bad faith);
 If they violate Sec. 33 (disloyalty of a
director who acquires for himself a 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
 The resolution, contracts and transactions
of the board cannot be reversed or set
aside by the Courts even on the behest of
stockholders or members, under the
principle that the business of the
corporation has been left to the hands of
the board.
 Directors and duly authorized officers
cannot be held personally liable for acts or
contracts done with the exercise of their
business judgment.
J. Solidary Liabilities for Damages
Solidary Liability For Damages
 The directors and trustees are solidarily
liable for damages arising from the ff.:
 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, failing
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 — Shares issued as fully paid
when in truth no consideration is paid, or the
consideration received is known to be less than
the par value or issued value of the shares.
[Sec. 64]
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:
 Consenting to the issuance of
watered stocks or;
 Failing express his objection in
writing and file the same with the
corporate secretary despite having
knowledge thereof of such issuance
[Sec. 64].
K. Personal Liabilities
General rule: Members of the Board, who
purport to act 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. When the acts are of such nature
and done under those circumstances, they are
attributed to the corporation alone and no
personal liability is incurred. [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.
Note:
 Members of the BOD who are also officers
are held to a more stringent liability because
they are in-charge of day-to-day activities.
[Campos]
 The provisions on seizing corporate
opportunity and disloyalty [Secs. 30 and 33]
shall also apply to corporate officers. [Price
v. Innodata Phils., Inc., G.R. No. 178505
(2008)]

L. Responsibility for Crimes

Since a corporation is a person by mere legal
fiction, it cannot be proceeded against
criminally because it cannot commit a crime in
which personal violence or malicious intent is
required.
Note: However, violations of the Code, if it is
committed by a corporation, the same may,
after notice and hearing, be dissolved in
appropriate proceedings before the
Commission. [Sec. 170]
If the offender is a corporation, the penalty
may, at the discretion of the court, be imposed
upon:
 Such corporation and/or upon its
directors, trustees, stockholders,
members, officers, or employees
responsible for the violation or
indispensable to its commission; or
 Anyone who shall aid, abet, counsel,
command, induce, or procure any
violation of this Code, or any rule,
regulation, or order of the Commission.
[Sec. 171-172]
Criminal Liability of Corporate Agents
Criminal action is limited to the corporate
agents guilty of an act amounting to a crime
and never against the corporation itself.
Since the BOD is the repository of corporate
powers and acts as the agent of the
corporation, the directors may be held
criminally liable. [Time Inc. v. Reyes, G.R. No.
L-28882 (1971)]
Corporations, partnerships, associations and
other juridical entities cannot be put to jail.
Hence, the criminal liability falls on the human
agent responsible for the violation of the Trust
Receipts Law. [Ong v. CA, G.R. No. 119858
(2003); see also Sec. 13, P.D. 115]