lOMoARcPSD|18066457

Corporation Title 3 Notes

Accountancy (Western Mindanao State University)

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
 lOMoARcPSD|18066457
CORPORATION
TITLE 3
BOARD OF DIRECTORS/TRUSTEES 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.
Each director and trustee shall hold office until the successor is elected and qualified.
Directors shall be elected for a term of one (1) year from among the holders of stocks
registered in the corporation’s books. A director must own at least one (1) share of stock.
Trustees shall be elected for a term not exceeding three (3) years from among the
members of the corporation. A trustee who ceases to be a member of the corporation.
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 (P50,000,000.00) 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 business 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
involved in the nature of business operations, and other analogous factors.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
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 memberships and other
requirements that the Commission will prescribe to strengthen their independence and
align with international best practices.
SALIENT POINTS/REMARKS
Inclusion of a provision that at least 20% of the entire board should be independent
directors for companies vested with public interest as follows:
1) Corporations covered by Section 17.2 of Republic Act No. 8799 ((those with assets
of at least P50 million and having 200 or more shareholders, each holding at least
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
INNOVATIONS
❖ Corporations vested with public interest shall have independent directors
constituting 20% of such board. They must be elected by the shareholders present
or entitled to vote in absentia during the election of directors. (Section 22)
CORPORATE POWERS EXERCISED BY BOARD OF DIRECTORS OR TRUSTEES
1) Governing body of the corporation. — It is well established in corporation law
that the corporation can act only through its board of directors in the case of stock
corporations, or board of trustees in the case of non-stock corporations. (Note:
within the scope of its charter, i.e., its articles of incorporation, by-laws, and
relevant provisions of law.)
 lOMoARcPSD|18066457
The general rule is that in the absence of authority or valid delegation from the
board of directors or trustees, no person, not even its officers, can validly bind a
corporation.
2) Binding effect of stockholders' action. — They are not the agents of the
corporation and cannot bind it by their acts. They have only indirect control of the
corporation through their votes.
3) Extent of judicial review. — As long as the directors (or trustees) act honestly
and their acts or contracts do not disregard the rights of the minority, the courts
will not interfere. They are not liable for losses if the cause is merely error in
business judgment, not amounting to bad faith or negligence.
Any corporate act which does not fall under any of the transactions requiring
stockholders' or members' approval, can be carried out by mere board resolution
although the activities or transactions involved may span beyond the term of the
directors or trustees and entail obligations to be borne by succeeding boards as
long as the action was done in good faith and for the best interest of the
corporation.
Reason for the rule kung bakit nasa exclusive control ang BOD/BOT
The theory of every corporate organization is that the stockholders may have all
the profits but shall turn over to a small and compact body — the board of directors —
the exclusive authority to manage and control the transaction of its business and the use
of its assets, the power of the stockholders being limited to a few specified matters
concerning its internal affairs.
Why? Necessary for Efficiency.
Pero, in a close corporation, however, the articles of incorporation may provide
that the business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors.
Nature of powers of board of directors or trustees
1) The powers of the board of directors or trustees are, in a very important sense,
original and undelegated. The stockholders or members do not confer, nor can
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
they revoke, those powers. They are derivative only in the sense of being received
from the State in the act of incorporation.
In other words, acts of management pertain to the board, and those of ownership
to the stockholders or members. In the latter case, the board cannot act alone, but
must seek approval of the stockholders or members.
2) The other view favors the delegation theory, which holds that the directors are the
officers and agents of the corporation, representing the interests of that abstract
legal entity and of those who own shares of stock and as such, they can bind the
corporation provided they act within the scope of their authority.
3) Actually, the powers of the board of directors or trustees are directly conferred by
statute and, as a general rule, the stockholders or members cannot control their
actions or exercise of judgment vested in them by virtue of their office. Once the
directors or trustees are elected, the stockholders or members relinquish
corporate powers to the board as provided by law.
Take note, in certain corporate acts, however, the approval or authorization of the
stockholders or members is necessary for their validity.
Limitations on powers of board of directors or trustees
1) Limitations or restrictions imposed by the Constitution, statutes, articles of
incorporation, or by-laws of the corporation;
2) It cannot perform constituent acts, that is, acts involving fundamental or major
changes in the corporation (such as amendment of the articles of incorporation
under the Code), which require the approval or ratification of the stockholders or
members; and
3) It cannot exercise powers not possessed by the corporation.
Fiduciary Duty of the BOD/BOT. Required to discharge duties in good faith and with
diligence, care, and skill. Hence, liable if they breach their fiduciary duty.
 lOMoARcPSD|18066457
Powers exercised by board of directors or trustees as a board
The board of directors or trustees must act together as a body in a lawful meeting, not
individually or separately, in order to bind the corporation by their acts. In other words,
to exercise their powers, they must meet as directors or trustees and act "at a meeting at
which there is quorum. (Kapag dili legal ang meeting, not valid mga pinaggagawa nila
dun)
There are recognized exceptions to the rule that a corporation cannot act except by
authority of the board of directors or trustees in a meeting duly convened.
Reasons for the rule
The general rule that the directors or trustees can bind the corporation only by action
taken at a board meeting seems to rest upon two reasons:
1) A meeting is necessary in order that any action may be deliberately adopted, after
opportunity for discussion and an interchange of views; and
2) As agents of the corporation managing its affairs, directors (or trustees) have no
power to act other than as a board. (Ballantine, p. 124.)
Unlike its officers, directors are not the agents of the corporation per se and they have no
power acting individually to bind the corporation.
Exceptions to the rule
The requirement that the directors or trustees must act as a body and personally to bind
the corporation is not without any exception. (Extraordinary Situations)
1) It has been held that a contract entered into by the directors without a meeting of
the board is binding upon the corporation where the directors happen to be the
sole stockholder.
2) The corporation is similarly bound by a contract entered into by a corporate
officer such as the general manager, authorized by the board of directors either
expressly or impliedly, to bind it by contract.
3) The corporation is also bound by a particular transaction ratified (expressed or
implied) in a subsequent board meeting.
4) The corporation is likewise bound by the acts of one of its directors or agents held
out by the corporation to the public as possessing power to do those acts.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
5) Where the stockholders, by acquiescence, invest the executive officers of the
corporation with powers of the directors as the usual method of doing business,
the board being inactive.
6) The stockholders may waive the necessity for a meeting of the board of directors,
and without such meeting may authorize acts to be done by agents of the
corporation or ratify acts already done and bind the corporation.
7) Under exceptional situations, stockholders' agreement though it provides for the
exercise of management ordinarily delegated to the board, is valid and
enforceable, where no creditors, minority stockholders, or other persons of the
public are affected.
8) The by-laws of a corporation may create an executive committee with authority to
act on such specific matters within the competence of the board.
9) A corporation is expressly allowed, subject to certain limitations provided in this
code, to enter into a management contract under which it delegates the
management of its affairs to another corporation for a certain period of time.
10)In a close corporation, any action by the directors without a meeting or at a
meeting improperly held, shall, unless the by-laws otherwise provide, be deemed
valid or ratified in the cases mentioned in this code.
Power of directors or trustees to delegate authority
General Rule - The general rule is that, in the absence of authority from the board of
directors, no persons, not even its officers, can validly bind a corporation. (i.e.
discretionary powers
Exception - The power to bind the corporation by contracts rests in its board of directors
or trustees, but the power may be delegated either expressly or impliedly to other officers
or agents of the corporation appointed by it. (i.e. ministerial duties)
Number of Directors or Trustees (According to Section 13)
o For BOD, not more than 15
o For BOT, can be more than 15
 lOMoARcPSD|18066457
Qualifications of directors or trustees
1) Stock corporations. — The qualifications of directors of stock corporations are as
follows:
a. Every director (including an incorporating director) must own at least one
share of the capital stock.
b. Every director (including an incorporating director) must own at least one
share of the capital stock.
c. Every director must continuously own at least a share of stock during his
term; otherwise, he shall automatically cease to be a director; and
d. A majority of the directors must be residents of the Philippines. (Dejoke,
wala na to sa new code)
2) Non-stock corporations. — Trustees of non-stock corporations must be members
in good standing thereof and like in stock corporations.
The Board may provide for additional qualifications of a director such as, but not limited
to, the following:
❖ Educational attainment
❖ Adequate competency and understanding of business
❖ Age requirement
❖ Integrity/probity
❖ Assiduousness
Please note that SEC MEMO 16s2002 provides that Independent director means a
person who, apart from his fees and shareholdings, is independent of management and
free from any business or other relationship which could, or could reasonably be
perceived to, materially interfere with his exercise of independent judgment in carrying
out his responsibilities as a director in any corporation that meets the requirements of
Section 17.2 of the Securities Regulation Code and includes, among others, any person
who:
❖ Is not a director or officer or substantial stockholder of the corporation or of its
related companies or any of its substantial shareholders.
❖ Is not a relative of any director, officer or substantial shareholder of the
corporation, any of its related companies or any of its substantial shareholders.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
❖ Is not acting as a nominee or representative of a substantial shareholder of the
corporation, any of its related companies or any of its substantial shareholders.
❖ Has not been employed in any executive capacity by that public company, any of
its related companies or by any of its substantial shareholders within the last five
(5) years;
❖ Is not retained as professional adviser by that public company, any of its related
companies or any of its substantial shareholders within the last five (5) years,
either personally of through his firm;
❖ Has not engaged and does not engage in any transaction with the corporation or
with any of its related companies or with any of its substantial shareholders,
whether by himself or with other persons or through a firm of which he is a
partner or a company of which he is a director or substantial shareholder, other
than transactions which are conducted at arm’s length and are immaterial or
insignificant.
Reason for the requirement
The reason for requiring a director to own stock in the corporation is simple
enough. It is commonly felt that a man with a financial interest at stake will devote more
attention to the business. Today, however, management is chosen for its professional
competence rather than its financial contribution.
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 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.
 lOMoARcPSD|18066457
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.
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 the 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 bylaws, members of nonstock 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. 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 bylaws of the corporation.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
Salient Points/ Remarks
❖ The new RCC allows to vote via remote communication, in absentia or through the
traditional proxy if authorized in the bylaws or by a MAJORITY VOTE of the
stockholders. Thus, physically absent stockholders and company officers would
be allowed to join and vote in meetings through videoconferences and
teleconferences.
Innovation
❖ Stockholders and members may vote through remote communication or in
absentia, if authorized in the bylaws or by a majority of the board. Such modes are
available to corporations vested with public interest, even in the absence of a
provision in the bylaws. Stockholders or members who participate through
remote communication or in absentia shall be deemed present for purposes of
quorum. (Section 23)
❖ Directors and trustees elected are now required to observe the rules of good
corporate governance. (Section 23)
Election of directors or trustees
The following limitations or conditions are imposed in the election of directors or
trustees:
a) At any meeting of stockholders or members called for the election of directors or
trustees, there must be present in person or by representative authorized to act
by written proxy (or absentia voting hehe), 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.
b) The election must be by ballot if requested by any voting stockholder or member.
This means that voting by ballot is the exception rather than the rule. Hence,
voting by viva voce or roll call (raising of hands) is valid except when there is a
request that the election be by ballot in which case such voting is mandatory;
c) A stockholder cannot be deprived in the articles of incorporation or in the by-laws
of his statutory right to use any of the methods of voting in the election of
directors;
d) No stock delinquent for unpaid subscription shall be voted. A delinquent stock is
not entitled to vote or be represented for any corporate purpose whatsoever;
e) If a quorum is present, the candidates receiving the highest number of votes shall
be declared elected. The law requires only plurality, and not majority of the votes
 lOMoARcPSD|18066457
cast at the election. Delinquent stock is not included in determining the existence
of the required quorum;
f) In case of failure to hold an election for any reason, the meeting may be adjourned
from day to day or time to time, but it cannot be adjourned sine die or definitely
(proceed to Sec 25); and
g) The requisite notice must be given. For one to be elected as director/trustee or
officer, it is not required that he must be physically present at the meeting at the
time of his nomination and election, unless it is otherwise provided by the by-laws.
But a director or trustee cannot attend or vote by proxy at board meetings.
Methods of voting
Every stockholder entitled to vote shall have the right to vote in person, by proxy,
or absentia the numbers of shares of stock standing, at the time fixed in the by-laws (e.g.,
as of 10 days before the election), in his own name on the stock books of the corporation
or, where the by-laws are silent, at the time of the election, and said stockholders may
vote his shares in any of the ways mentioned below.
1) Straight voting. — By this voting method, every stockholder "may vote such
number of shares for as many persons as there are directors" to be elected.
ILLUSTRATION: A owns 100 shares of stock in a corporation. If there are five
directors to be chosen, A is entitled to 500 votes obtained by multiplying 100 by
5. He may give to the five candidates he wants to be elected 100 votes each.
Under this method, the votes are distributed equally among the five candidates
without preference.
2) Cumulative voting for one candidate. — By this method, 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." Needless to say, straight voting does not benefit minority stockholders for
they would not be able to elect any director over the objection of the stockholder
or stockholders who own at least 51% of the capital stock.
a. The privilege of cumulative voting is accorded for the purpose of giving
minority stockholders representation in the board of directors by electing
one or more directors but such a provision has been held not to insure
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
minority stockholders of proportional representation or of representation
in that board of directors under all circumstances.
b. A director elected because of the vote of minority stockholders who united
in cumulative voting cannot be removed without cause
ILLUSTRATIONS:
(1) If A owns 200 shares of stock and there are five directors to be elected, he is
entitled to 1,000 votes all of which he may cast in favor of any one candidate.
(2) Suppose that out of a total of 1,000 shares, A and B (representing a group of
stockholders) own 800 shares while C, D, E and F (representing another group
of stockholders) own 200 shares.
If there are five directors to be elected, A and B are entitled to 4,000 votes and C,
D, E and F, to 1,000 votes. The highest number of votes that A and B can give each of their
four candidates is 1,000. Hence, by cumulating their 1,000 votes in favor of a candidate,
C, stockholders D, E and F would be able to secure representation in the board of
directors.
3) Cumulative voting by distribution. — By this method, a stockholder may
cumulate his shares by multiplying also 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.
In electing directors by cumulative voting, "the total number of votes cast by a
[stockholder] shall not exceed the number of shares owned by him as shown in
the books of the corporation multiplied by the whole number of directors to be
elected."
Voting in a non-stock corporation
Members of non-stock corporations may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one candidate. This is the manner of
voting in non-stock corporations unless otherwise provided in the articles of
incorporation or in the by-laws.
 lOMoARcPSD|18066457
ILLUSTRATION:
If A is a member of a non-stock corporation and there are five directors to be elected, he
is entitled only to five votes. He may give one vote to each of the five candidates he wants
to be elected. If he has only one candidate, he can cast only one vote for said candidate
unless cumulative voting is authorized in the articles of incorporation or in the by-laws.
Thus, where cumulative voting exists, and there are nine trustees to be elected, a member
is entitled to cast nine votes for one candidate or to distribute the same among as many
candidates as he shall see fit.
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;
(c) a secretary, who must be a citizen and resident of the Philippines; and
(d) such other officers as may be provided in the bylaws. 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.
Salient Points/ Remarks
❖ The new law requires the treasurer to be a resident of the Philippines
❖ Specific provision on the election of COMPLIANCE OFFICER for corporation vested
with public interest.
CHANGES: revision
❖ A treasurer to be elected must be a resident of the Philippines
❖ The duties of elected officers may be provided not only in the bylaws, but also as
resolved by the board of directors
Innovation:
❖ Corporations vested with public interest are required to elect a compliance officer.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
Corporate officers and agents
1) The board of directors or trustees, as we have seen, formulates the broad policy of
the corporation and directs the conduct of its business operations. But the task of
actual management and carrying on the details of business operations and
corporate policy are delegated to the officers elected by it and over whom it
exercises supervision. The only officers of a corporation are those who are given
that character either by the Code or the charter or by-laws; the rest can be
considered merely as employees or subordinate officials.
2) The president, vice-president, treasurer and secretary are commonly regarded as
the principal or executive officers of a corporation.
3) However, if the by-laws enumerate the officers to be elected by the board, the
provision is conclusive, and the board is without power to create new offices
without amending the bylaws except where it is empowered by the by-laws to
create additional officers as may be necessary.
Corporate employees
Actually, all officers of the corporation are its employees, although in common
usage the term "officers" is meant to refer to those elected by the board or
stockholders/members, occupying positions involving the exercise of authority and
power in the management of corporate affairs, while the term "employees," to those
whose duties are of a clerical or manual nature.
Election of officers by the board
The election of the administrative officers, such as the president, treasurer, secretary, and
"such other officers as may be provided for in the by-laws" is, in turn, entrusted to the
board of directors or trustees." Thus, pursuant to the by-laws, the board by a vote of
majority of all or entire number of its members may elect a vice-president, a general
manager, an auditor, and such other officers as the needs and nature of the business may
demand.
Compensation, terms of office, and removal
1) It is within the power of the board to fix the salaries of corporate officers whom it
appoints, for the power to employ must necessarily include the power to grant
compensation. It may likewise grant bonuses to them subject to the test of
reasonableness.
 lOMoARcPSD|18066457
2) The terms of office of these officers may be fixed in the by-laws; otherwise, they
shall be deemed for one (1) year and until their successors shall have been elected
by the board.
Positions concurrently held by same person
Any two (2) or more positions may be held concurrently by the same person
except as provided in Section 24. The positions of president and secretary or treasurer
are considered by law as incompatible with each other due to the very nature
appertaining to each office. The rationale behind the provision is to ensure the effective
monitoring of each officer's separate functions.
Sources of powers or authority of corporate officers
1) some provision of statute or
2) the articles or incorporation
3) a by-law
4) a resolution of the board of directors or trustees
Extent of authority of particular officers
1) Chairman of the Board — The concept of board chairman and his functions as
an executive vary so widely in different companies as to be indefinable. There is
no settled practice.
2) President — The president of a corporation must be a director or trustee (cannot
be treasurer or sec. at the same time). Required to be board member.) By law, the
president shall preside at all meetings of the directors or trustees as well as of the
stockholders or members, unless the by-laws provide otherwise or in the absence
of the chairman or vice-chairman. Powers is conferred by the board and the by-
laws.
3) Vice-President — The vice-president has always been considered as an officer
next-in-rank to the president. Alter-ego of the Pres.
4) Secretary — The secretary must be a resident and a citizen of the Philippines. The
assumption is that the secretary, being the custodian of corporate records, should
at all times be available in the regular conduct and operations of the corporation.
As custodian of corporate records, corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein. He issues notices
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
of meetings and has custody of the corporate seal which he uses when attesting
the signatures of the officers to important documents.
5) Treasurer — Should be resident and citizen of the Pilipins. The treasurer of the
corporation is the proper officer entrusted with the authority to receive and keep
the money of the corporation and to disburse them as he may be authorized. The
view is taken that he has no inherent power to bind the corporation by contracts
or to borrow money in behalf of the corporation.
A comptroller is different from a treasurer. The former is said to be an
officer appointed to control accounts and to check expenditures. By virtue of his
office, the authority of a comptroller is restricted to doing those things which are
usual and necessary in the performance of his duties.
6) General Manager. — At the present time, the general business of corporations is
frequently entrusted to the management of a general manager or managing officer
who has power to bind the corporation by acts within the scope of his apparent
authority. Accordingly, the general manager or managing officer has very broad
powers, especially as far as third persons are concerned.
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, 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.
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 unjustified 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 orders 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.
 lOMoARcPSD|18066457
Notwithstanding any provision of the articles of incorporation or bylaws 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 cease to hold
office, the secretary, or the director, trustee or officer of the corporation, shall, within
seven (7) days from knowledge thereof, report in writing such fact to the Commission.
Salient Points/ Remarks
❖ Inclusion of shareholding in the report (GIS maybe) to be submitted to SEC within
30 days after the election.
❖ RCC provides that the corporation should notify within 30 days from the date of
the scheduled election if no election was held. The report shall specify a new date
for the election, which shall not be later than sixty (60) days from the scheduled
date.
❖ The Corporation should notify the SEC if an officers ceases to hold office within 7
days from knowledge of death, resignation or any manner that the offer cease to
hold office.
CHANGES: revision
❖ The death, resignation, or cessation to hold office of any director, trustee, or officer
shall be reported in writing to the SEC within 7 days from knowledge thereof.
Innovations:
❖ Non-holding of elections and the reasons therefor shall be reported to the SEC
within 30 days from date of the scheduled election. The new date of the election
must not be later than 60 days from the scheduled date. If no new date has been
designed or if the rescheduled date is not held, the SEC may summarily order the
holding of an election upon application of a stockholder, member, director, or
trustee.
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:
1) Convicted by final judgment:
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
a. Of an offense punishable by imprisonment for a period exceeding six (6)
years;
b. For violating this Code; and
c. For violating Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”;
2) Found administratively liable for any offense involving fraudulent acts; and
3) 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 the Philippine Competition
Commission may impose in its promotion of good corporate governance or as a sanction
in its administrative proceedings.
Salient Points/ Remarks
The new RCC provides new criteria in disqualification of a of Directors, Trustees
or Officers such as
a) Conviction of final judgment for violating RA 8799
b) Found administratively liable for any offense involving fraud 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) of sec 26 of the
RCC.
CHANGES: revision
Disqualification of directors, trustees, or officers for violations of the RCC and Securities
Regulation Code or RA 8799, now clearly requires conviction by final judgment. It also
adds two additional disqualifications: finding of administrative liability for any offense
involving fraudulent acts and judgment or finding of a foreign court or equivalent foreign
regulatory for acts similar to the aforementioned grounds. The SEC and the Philippine
Competition Commission or PCC may impose additional qualifications or other
disqualifications.
SECTION 27. Removal of Directors or Trustees. – Any director or trustee of a corporation
may be removed from office by a 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 members entitled to vote: Provided, That such removal
shall take place either at a regular meeting of the corporation or at a special meeting
 lOMoARcPSD|18066457
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 the 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 if
the secretary, despite demand, fails or refuses to 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 of representation to which they may be entitled
under Section 23 of this 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.
Salient Points/ Remarks
The RCC empowers the SEC to unilaterally, upon a verified complaint, and after
due notice and hearing, to remove members of the BOD or BOT who are determined to be
disqualified to be elected to or to hold such position.
Innovation:
The SEC has now the authority to order the removal of a disqualified director or trustee
motu proprio or upon verified complaint, without prejudice to the sanctions that the SEC
may impose on directors or trustees who knew of the disqualification but failed to remove
such director or trustee.
Power of stockholders or members to remove directors or trustees
1) Generally; limitation – Removal does not necessarily need a sufficient cause or
reason. Subject only to the limitation na such removal will not cause the effect to
deprive minority stockholders/members who united in cumulatively voted to
elect such director (right of representation)
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
2) Filling of vacancy created – kahit on the same meeting ng removal, pwedebells.
(The rule does not apply where the removal is initiated by the minority
stockholders or members themselves.)
Power of court to remove directors or trustees
The Corporation Code does not confer expressly upon the courts the power to
remove a director or trustee or any appointed officer of a corporation on the ground of
mismanagement of its affairs, neglect, or other cause. The power of removal is in the
corporation itself. Indirectly, through appointment of Receiver (kapag may
mismanagement)
Requisites for removal of directors or trustees.
1) The removal must "take place either at a regular meeting of the corporation or at
a special meeting called for the purpose";
2) There must be "previous notice to the stockholders or members of the corporation
of the intention to propose such removal at the"; and
3) The removal must be "by a vote of the stockholders holding representing two-
thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of two-thirds (2/ 3) of the members entitled to vote."
While a director or trustee can be removed from office as provided in this section, he
cannot be removed as stockholder of the corporation, depriving him of his ownership of
shares of stock therein, without due process of law.
Resignation of directors or trustees
Generally, pwede anytime.
Quasi-exception, by reason, however, of the fiduciary nature of the position they occupy,
a director cannot resign, as part of fraudulent scheme to prejudice the corporation or its
stockholders and make profit to his own advantage or at an unreasonable time if the
immediate consequence would be to leave the interest of the corporation without proper
care and protection. (Ballantine, p. 217.) If a director quits under circumstances which
occasioned a deprivation of profits to the corporation, it is but right that he should repair
and make good such loss.
 lOMoARcPSD|18066457

Abandonment of office and failure to attend meetings of stockholders or members duly called for the purpose, or in the same meeting
1) Acceptance of incompatible office. — Where a director (or trustee) in a authorizing the increase of directors or trustees if so stated in the notice of the meeting.
corporation accepts a position in which his duties are incompatible with those as
such director (or trustee), it is presumed that he has abandoned his office as In all elections to fill vacancies under this section, the procedure set forth in Sections 23
director (or trustee) of the corporation. and 25 of this Code shall apply.
2) Absence for an unreasonable length of time. — Similarly, where a director
absented himself from all meetings for nearly a year and announced his refusal to Reason for vacancy Election date Where
act as an officer and stockholder, there is an abandonment of his position as When the vacancy is due to Shall be held no later thanAt a meeting called for that
director. term expiration the day of such expiration purpose
When the vacancy arises as May be on the same day of At the meeting authorizing
SECTION 28. Vacancies in the Office of Director or Trustee; Emergency Board. – Any a result of removal by the the meeting authorizing the removal and this fact
vacancy occurring in the board of directors or trustees other than by removal or by stockholders or members the removal must be so stated in the
expiration of term may be filled by the vote of at least a majority of the remaining agenda and notice of said
directors or trustees, if still constituting a quorum; otherwise, said vacancies must be meeting
filled by the stockholders or members in a regular or special meeting called for that In all other cases Must be held no later than At the meeting called for
purpose. forty-five (45) days from that purpose
the time the vacancy arose
When the vacancy is due to term expiration, the election shall be held no later than the Any directorship or Pursuant to in Sections 23 Shall be filled only by an
day of such expiration at a meeting called for that purpose. When the vacancy arises as a trusteeship to be filled by and 25 of this Code election at a regular or at a
result of removal by the stockholders or members, the election may be held on the same reason of an increase in the special meeting of
day of the meeting authorizing the removal and this fact must be so stated in the agenda number of directors or stockholders or members
and notice of said meeting. In all other cases, the election must be held no later than forty- trustees duly called for the purpose
five (45) days from the time the vacancy arose. A director or trustee elected to fill a
vacancy shall be referred to as placement director or trustee and shall serve only for the Salient Points/ Remarks
unexpired term of the predecessor in office. ❖ Sec 28 of the RCC allows the creation of an EMERGENCY BOARD if ever the vacancy
in the board prevents the remaining directors from constituting a quorum and
However, when the vacancy prevents the remaining directors from constituting a quorum emergency action is required to prevent grave, substantial, and irreparable loss or
and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation. During an emergency, the remaining directors or
damage to the corporation, the vacancy may be temporarily filled from among the officers trustees may fill the vacancy temporarily from among the officers of the
of the corporation by unanimous vote of the remaining directors or trustees. The action corporation to pass the necessary emergency action.
by the designated director or trustee shall be limited to the emergency action necessary,
and the term shall cease within a reasonable time from the termination of the emergency CHANGES: revision
or upon election of the replacement director or trustee, whichever comes earlier. The ❖ Elections to fill vacancies in directorships and trusteeships due to term expiration
corporation must notify the Commission within three (3) days from the creation of the must be held no later than the day of such expiration. In case of removal, vacancy
emergency board, stating therein the reason for its creation. may be filled during the same meeting. In all other cases, it must be filled no later
than 45 days from the time the vacancy arose
Any directorship or trusteeship to be filled by 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

Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)

 lOMoARcPSD|18066457
Innovation:
❖ Elections to fill vacancies in directorships and trusteeships due to term expiration
must be held no later than the day of such expiration. In case of removal, vacancy
may be filled during the same meeting. In all other cases, it must be filled no later
than 45 days from the time the vacancy arose
SECTION 29. Compensation of Directors or Trustees. – In the absence of any provision in
the bylaws 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.
In no case shall the total yearly compensation of directors exceed ten (10%)
percent 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.
Salient Points/ Remarks
❖ The new RCC now provides trustees as those not to receive compensation other
than per diem in case not specified in the by-laws. Note however than if the by-
laws provide compensation to the director or trustees then such compensation
should not exceed 10% of the net income before income tax of the PY.
❖ The RCC provides that directors or trustees should not be part of the
determination of the per diems given.
❖ 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.
Innovation:
❖ Directors or trustees shall not participate in the determination of their own per
diems or compensation.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
❖ Corporations vested with public interest shall submit to their shareholders and
the SEC an annual report of the total compensation of each of the directors or
trustees
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 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 acquire 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.
Nature of directors'/trustees' position
1) Agents or trustees for the corporation. — The directors of a corporation are its
agents. They also occupy a fiduciary relation to the corporation. By numerous
authorities they have been called "trustees", with certain powers and subject to
certain duties in the management of its property, and each stockholder a cestui
que trust according to his interest and shares. In the performance of their official
duties, they are under obligations of trust and confidence to the corporation and
its stockholders and must act in good faith and for the interest of the corporation
or its stockholders with due care and diligence and within the scope of their
authority. It is settled that in the absence of malice, bad faith, or specific provision
of law, a director or officer of a corporation cannot be made personally liable for
corporate liabilities.
2) Agents or trustees for the stockholders or members/creditors. — So long as
a purely private corporation remain solvent, its directors are agents or trustees for
the stockholders or members. They owe no duties to others. But the moment such
a corporation becomes insolvent, its directors are trustees of all the creditors,
whether they are members of the corporation or not, and must manage its
 lOMoARcPSD|18066457
property and assets with strict regard to their interest and if they are themselves
creditors while the insolvent corporation is under their management, they will not
be permitted to secure to themselves by purchasing the corporate property or
otherwise acquiring any personal advantage over other creditors.
Cases when directors/trustees or officers liable for damages
The general rule is that officers of a corporation are not personally liable for their official
acts unless it is shown that the exceeded their authority. This section enumerates the
occasions when a director or trustee may be held liable for damages and thus, the veil of
corporate fiction may be pierced, as follows
1) He willfully and knowingly votes or assents to patently unlawful acts of the
corporation
2) He is guilty of gross negligence (not mere "want of ordinary prudence" as held in
Steinberg vs. Veloso, supra.) or bad faith in directing the affairs of the corporation;
and
3) He acquires any personal or pecuniary interest in conflict with his duty as such
director or trustee.
In the above instances, the erring board members or officers shall be held jointly and
severally (or solidarily) liable for all damages resulting therefrom suffered by the
corporation, its stockholders or members, or other persons.
Liability of directors/trustees or officers for secret profits
Director /trustee or officer guilty of violation of duty shall be held accountable for
the profits which otherwise would have accrued to the corporation.
Ultra Vires pa rin. Private or secret profits obtained must be accounted for, even
though the transaction on which they are made is advantageous or is not harmful to the
corporation, or even though the director/trustee or officer acted without intent to injure
the corporation. The fact that the agreement whereby a person is to receive a secret profit
is made prior to the time he becomes an officer does not change the rule. And the fact that
the profits were derived from transactions. (does not relieve the director/trustee or
officer from liability)
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
Similarly, a director guilty of disloyal act against the corporation is required by
Section 33 to account to the corporation for the profits obtained by him from a business
opportunity which should belong to the corporation.
SECTION 31. Dealings of Directors, Trustees or Officers with the Corporation. – 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, 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 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
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.
Salient Points/ Remarks
❖ Now covers 4th degree of consanguinity in determining voidable contract dealing
of the corporation with the directors, trustees, or officers of the corporation.
CHANGES: revision
❖ Dealings of directors, trustees, or officers now include their spouses and relatives
within the 4th civil degree of consanguinity or affinity.
 lOMoARcPSD|18066457
Innovation:
❖ Validity of dealings of directors, trustees, or officers with corporations vested with
public interest require approval by at least 2/3 of the entire membership of the
board, with at least a majority of the independent directors voting to approve the
material contract.
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.
Stockholdings exceeding twenty percent (20%) of the outstanding capital stock
shall be considered substantial for purposes of interlocking directors.
ILLUSTRATION:
X Corporation sold a parcel of land worth P500,000.00 to Y Corporation for only
P300,000.00. Z is a board member of both corporations.
Evidently, the contract is not fair and reasonable and is, therefore, voidable on that
ground. But if the contract is fair and reasonable under the circumstances and Z's interest
in X Corporation is merely nominal and in Y Corporation substantial, the conditions in
Section 32 must be present insofar as X Corporation is concerned, on the theory that the
contract of X Corporation is with Z.
However, if Z's interest in both corporations is nominal or is substantial, the provisions
of Section 32 do not apply but the contract shall be valid only if there is no fraud and the
contract is fair and reasonable under the circumstances. The corporation which seeks to
uphold the contract has the burden to show that it is fair and reasonable.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
Evils of interlocking directorates
1) Validity of by-laws prohibiting interlocking directorates. — By-laws which
prohibit a director of a corporation from serving at the same time as a director of
a competing corporation, have been upheld as valid and reasonable.
2) No absolute prohibition of interlocking directorates. — Be it noted that under
Section 32, contracts between corporations having directors in common are not
rendered void or voidable on that ground alone. The law recognizes that
interlocking directorates are very common in today's business world and to
absolutely prohibit such contracts would be impractical and unwise. But
transactions between such corporations should be "subjected to close judicial
scrutiny to determine the absence or presence of fraud or unfairness."
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.
Doctrine of "corporate opportunity."
Under this doctrine, a director who, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, thereby obtaining profits
to the prejudice of such corporation, is guilty of disloyalty and should, therefore, account
to the latter for all such profits by refunding the same, notwithstanding that he risked his
funds in the venture.
When doctrine not applicable
1) The doctrine which is but one phase of the rule of undivided loyalty on the part of
corporate fiduciaries does not preclude a director from engaging in a distinct
enterprise of the same general class of business as that which his corporation is
engaged in, so long as he acts in good faith.
2) Neither is the doctrine applicable where the opportunity is one which is not
essential to the corporation's business
 lOMoARcPSD|18066457
3) This property or business opportunity ceases to be a "corporate opportunity" and
transforms into a "personal opportunity" where the corporation is definitely no
longer able to avail itself of the opportunity.
Ratification by stockholders of disloyal act
Under Section 33, the guilty director will only be exempt from liability to the
corporation to account for the profits he realized if his disloyal act is ratified by the vote
of the stockholders owning or representing at least 2/ 3 of the outstanding capital stock.
There is no similar provision in Section 30.
Section 33 is silent on whether the disloyal director shall be allowed to vote his
shares in ratification of his act.
ILLUSTRATIONS:
1) A is a director of both X Corporation and Y Corporation which have similar lines
of business. If A delivers a "corporate opportunity" to X and not to Y, considering
that Y's chances of gain from said business opportunity are dim, A cannot be said
guilty of disloyalty to Y. (Ibid.)
2) In the same illustration above, suppose that a business opportunity is presented
to A, to whom does it belong? It belongs to both X and Y, and if A takes advantage
of that business opportunity to the prejudice of either X or Y or to both, then, he
has to account to either one or both for the profits that have been obtained by him
to the prejudice of the corporation. If A presents to X, he would be disloyal as far
as Y is concerned and vice versa. However, if A did not profit because he gave it to
either X or Y, he does not come under one or both for the profits that have been
obtained by him to the prejudice of the corporation of which he is a director. Of
course, A will ultimately profit from the opportunity, being a director and
stockholder of the corporation to which it was given. But in such case, it is not a
profit that accrues to A as an individual person who happens to be a director of
both corporations. It is a profit that accrues to the entire corporation.
Section 33 applies only where a business opportunity belongs to the corporation
and the director takes advantage of that business opportunity for his own profit.
Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)
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 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) filling of vacancies in the board;
c) amendment or repeal of bylaws or the adoption of new bylaws;
d) amendment or repeal of any resolution of the board which by its express terms
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.
Salient Points/ Remarks
❖ Sec 34 of the RCC broaden executive committee to include Management, and Other
Special Committees.
Innovation:
❖ The board is now empowered to create special committees of temporary or
permanent nature and determine the members’ term, composition,
compensation, powers, and responsibilities.
Executive committee
1) Need for an executive committee – the board of directors delegates to an
executive committee composed of some members of the board corporate powers
to assure prompt and speedy action and solution to important matters without the
need for a board meeting, especially where such meetings cannot readily be held.
Thus, the committee directly manages the operations of the corporation between
meetings of the board, thereby reducing the work load of the latter.
2) Express provision in the by-laws. — Under Section 34, the executive,
management, and other special committees must be provided for in the by-laws
and composed of not less than three (3) members of the board. The board cannot
 lOMoARcPSD|18066457

create or appoint an "executive committee" to perform some of its functions in the

absence of authority in the by-laws
3) Committee contemplated. — It is as powerful as the board, as it actually
performs certain duties of the board, and, in effect, it is acting for the board itself.
4) Matters excepted from delegation by board. — the board cannot validly
delegate to the executive committee blanket or general authority to act for the
board if the delegation constitutes in effect an abdication of the corporate powers
and duties vested in it by law.
5) Enlargement by board of restrictions. — The restrictions on the power of the
executive committee as provided in Section 34 may be enlarged by the board to
cover other matters
6) Authority to function as the board itself — As a matter of business practice, the
use of an executive committee in many companies may reduce the directors to
little more than a supervising and ratifying body.
7) Membership. — Non-members of the board may be appointed as members of the
executive committee provided that there are at least three (3) members of the
board who are members of the committee.
8) Ultimate control by the board. — Where the committee is made up of, or
includes persons who are not directors, such committee shall be subject to the
normal restrictions and requirements relating to undue abdication of authority by
the board.
9) Quorum and voting. — The general rule for quorum requirements is the same as
that for board of directors. A majority of the committee members (regardless of
the classification of membership into directors/members or non-directors/
members) constitute a quorum.
10)Membership of a foreigner. — While "foreigners" are disqualified from being
elected /appointed as "corporate officers" in wholly or partially nationalized
business activities, they are allowed representation in the "board of directors" or
"governing body" of said entities in proportion to their shareholdings.

Downloaded by Barbie Joy Calabria (cbarbiejoyce29@gmail.com)