Doctrine of centralized management states that the corporate

powers of the corporation shall be exercised and all business

conducted and all the property of such corporations shall be
controlled or held by the board of directors or trustees to be
elected from among the members of the stockholders from
among the members of the corporation who hold office for one
year and until their successors are elected in qualified. The
doctrine of centralized management means that the powers
of the corporation and the conduct of its business and the
holding of the property of the corporation is to be done by
the its board of directors.

The centralized management are first to the board as the body

politic, which conducts or transact business of the corporate on a
daily basis, all of the powers that are granted to the corporation
say for example, the power to acquire under its name shall be
exercised and all business conducted all properties held by the
board of directors.

Now the board of directors has a term in the meetings of the

stockholders you will see 1 yr that’s why have the annual
meeting. Have you wondered why the stockholders have annual
meetings? That is for the purpose of electing the board, the
board of directors are elected on an annual or a yearly basis,
because again, he board of directors shall hold office for one
year and until their successors are elected and qualified.
If a particular stock holder, will find that the decision of the
board of directors in investing in another business is too risky
when it comes to financial matters, can the stock holder go to
court and question that decision or action of the board of
directors.

Thus the stock holder posses the right to question or to raise the
wisdom of the decision of the board of directors, respecting
investment in another business?

No, the stock holder cannot go to court to question the wisdom

of the decision of the board of directors. The basis is the
business judgment rule because the court cannot substitute
its judgment to the judgment of the board of directors, as
long as the judgment or the decision or the particular act or acts
committed by the board pertains to legitimate power of the
corporation or that the contract was entered in through into
within the powers of the board. Then this administrative matter
may not be interfered with by the courts.

The court cannot under take to control the discretion or to

substitute its judgment with a judgment of the board of directors.

Because the board of directors will have to exercise the powers

in accordance with their better judgment . So all contracts
entered into by the board of directors are binding upon the
corporation because the powers again are exercise by the board.
Now the courts will not interfere in any contract entered into by
the board. Unless the contract and this are now the grounds for
the court to intervene, not in any matters, taken up by the board
of directors unless the contracts are unconscionable and
oppressive as to amount of wanton destruction of the rights of
the minority.
Meaning to say it is shocking to the conscience of man.It is
apparently unfair or illegal. Then this will now entitle a
particular stockholder to question the decision of the board of
director, but unless and that this act will qualify as an
unconscionable and oppressive, amounting to a wanton
destruction of the rights of the minority that courts cannot
entertain any question with respect to the decision or the
business judgment of the board of directors.

Now, there are certain exceptions, which I want you to

remember. No under these exceptions, the court may step into or
the courts may interfere and invalidate.

What are those exceptions?

1. The corporation could provide. For example, this
stockholder has the right to inspect the corporate books. If
this right of the stockholder is violated, then the stockholder
can go to court and seek relief. And the court can order the
board of directors to allow inspection of the corporate
books. Because again, this right is provided for under the
corporation. If I'm not mistaken, that is under section 79 of
the corporation.

2. When the directors or officers acted with fraud gross

negligence and in bad faith, if the board of director is in bad
faith.That the negligence must be gross in character so as to
warrant the exercise of the exception to the business judgment
rule

3. When the directors or officers act against the corporation in

conflict of interest situation.
Now again, the term of the board of director is one year, but
if after one year without putting election by the stockholders the
election has not been conducted. This elected board of directors
have the capacity to extend called in hold over capacity.
Elected board of directors, the successors have not been elected
and qualified. Then the existing board of directors can still
extend their term in a hold over capacity upon failure of a
quorum at any meeting of the stockholders called for an
election that the directorate naturally holds over and continues to
function until another director is chosen and qualify.

Qualification:
Now it is required for a board of director to own, at least one
share.

If you are not a stock holder of a corporation, you cannot be

elected in the election of the board of directors. Now in non
stock corporation, since there no the there is no authorized
capitals stock the requirement is that the board of trustee or the,
the person to be elected in the board of trustee must be a
member in good standing of the non stock corporation.

Now the second distinction is that the stock must be registered

in his name.

The beneficial owner is the real owner. And that the person
under whose name, the shares of stock was registered is the
naked owner. Now the person, in whose name, the shares of
stock are registered in the one qualified to run in theelection of
the board of directors, not the beneficial owner.
On the other hand, only majority of the board is required to
be residing in the Philippines.

Now, if you cease to own, at least one share, it goes without

saying that you are now disqualified, or you can be removed as a
board of Director.

Only natural persons can be elected as member of the board or a

member of the board of trustees.

However, a corporation can choose its representative to sit in the

board. This is the exception, not that only a natural person can
be elected as board of director.

Voting trust agreement.

For example, you are a stock holder and obtain a loan from
another person you can transfer your shares of stocks in favor
of your creditor as a security for the payment of the loan.
And tawag sayo is stockholder trustor and the person whom u
obtain loan is the creditor trustee, the creditor trustee in voting
trust agreement can be elected as a member of the board.

Because if you execute a voting trust agreement, what the

corporation will do is to cancel the shares under your name and
transfer it in favor of the trustee or creditor of stockholder. Then
that creditor trustee is now qualified to be elected in the election
of the board of directors or the board of trustees. That is the
concept of a VTA or voting trust agreement.
Nevertheless, there are certain qualifications meaning to say if
the circumstances would exist, then you cannot run in the
election of board. What are those?

1. The disqualification will apply only if the imprisonment

exceeds six years or the imprisonment impose is more than six
years. If it is six years or below, then you are not disqualified
for the election of the board of directors.

2. Convicted of an offense of the violation of the corporation

code. If you have violated any provision of the corporation code,
then you can be disqualified to run in the election of the board.

3. Five years prior to his election or appointment. That even if

you have been sentenced for an offense with imprisonment
exceeding six years, or if you have violated a provision of the
corporation code, but the imprisonment or the violation of the
corporation code has not been committed or have not been
committed Five years prior to your, your election or the election
of the board, then you are qualified.

Just because you suffered a sentence of an imprisonment

more than six years does not mean, or does not
automatically disqualify you from from the election of the
board only when the imprisonment no has been imposed to
you five years prior to the election that you are now
disqualified.

It is important that there is a presence of the quorum which

refers to majority of the capital stock or the members 51% that is
the quorum.
A owns 100 shares of stock in a corporation and five directors
are to be elected. A is entitled to vote 500 votes or number of
shares times the number of directors to be elected. So 500 votes.
You can vote as much as the number of shares that you own.

You have subscription of 100 share but you paid 25 shares can
you vote the entire 100 shares?

So the question is, can you still vote for the entire shares or only
for the paid shares
Answer for the entire share, unless you are declared as
delinquent.

You can vote for the entirety of your subscription and not
only will respect to your paid up shares Unless again, you are
declared delinquent. In which case we cannot vote or be
voted upon in the election of the board. There are several types
or kinds or manners, which you can vote .

straight voting- 100 shares 5 directors you can distribute 100

shares equally 20-20 shares That is what you mean by straight
voting you are voting for as many persons as there are directors
or vacancies.

Commutative voting- for example, you have 100 shares to 1

candidate.
You can put all your eggs in one basket. That is what they mean
by cumulative voting for one candidate.
cumulative voting by distribution- you distribute among the
candidates as you see fit.

The corporation states that that'll the number of votes cast by

stockholders shall not exceed the number of shares owned by
him no delinquent staff shall be vote, shall vote, or be voted
upon.

Quorum shall be the majority of the number of the board of

directors majority meaning 51%.

Majority vote of all directors or trustees meaning absolute

majority if there are 5 directors the majority is 3 if there are 3
present and they cast vote the majority is 2.
A majority of all, it need that even there are 3 present this 3
present must casts vote in order to qualify the transaction or to
make the, the action taken upon or taken up as a valid.

How do you remove a director?

By a vote of stockholders representing two-thirds of the

outstanding capital stock or two thirds of the members.

You will take note that the board of directors has no power to
remove move one of its members as director or trustees.

A corporate director also has a fiduciary duty. When you say

fiduciary duty, the power of a director is a power of trust,
tyust and confidence, not the director cannot manipulate the
affairs of the corporation to the detriment and in this regard of
the standards of common decency.
This is what you mean by the principle of fiduciary duties and
liability.

Duty of obedience.
The board of director must adhere to the bylaws of the
corporation. Any director violating the duty of obedience shall
be liable for ultra vires is a Latin term, which means excessive
power.

What is duty of diligence?

Director or trustees who willfully and knowingly vote or assent
a patently the unlawful acts of the corporation or who is guilty
of gross negligence or bad faith.

Now, if you are also guilty of gross negligence or bad faith, you
will be jointly and severally liable for all the damages. You
relate the section 31 to the law on obligation and contracts.
When you say jointly and severally liable for all damage. What
is the nature of the obligation? Is it a joint obligation or its
solidary obligation? What is the answer?

Solidary Liable.

Water stocks - you are making it appear that you are selling the
shares far more than it's par value watered stock.

Now, if you are consented to the issuance of water stock then

you can be held personally liable for damages. And the liability
again is a solidary liability.
Now, if you have agreed to hold yourself personally liable, you
will be personally liable.

And when there is a law that makes a director personally liable

for a corporate action duty of loyalty.
Generic definition or genetic sense of loyalty. That means that
you cannot take any adverse interests against the corpo.

If a contract entered into, by a corporation, the parties a contract

is the corporation and one or more of its directors or trustees.

What is the status of the of the contract? Rather the status of the
contract is voidable at the option of the corporation, which
means that the only part who can ratify this voidable contract is
the corporation and not the board of directors, trustees, or
officers.

Now the, the status of the contract is voidable exempt under the
following conditions.

1. The presence of the director is not necessarily the constitute

quorum or for example, the vote of the director is not
necessarily for the approval of the contract or
2. contract is fair and reasonable under the circumstances.
3. The contract with the officer has been previously authorized
or approved by the board of directors

In any of these instances the contract will not be voidable.

as a general rule the contract is voidable except under the
following conditions, which means to say that, this four
requirements must all concur
 With in the absence of the first two conditions, ratification
may be made by a vote of staff holders representing at least
two thirds vote of the members.

As a general rule, a contract between two or more corporations

with interlocking directors shall not be invalidated on the
ground alone, except if there's fraud or the contract is not fair
and reasonable under the circumstances.

Now this requirement under section two must be complied with

the made the contract between the corporation and interlocking
directors valid.

When you say substantial interest, that means stock holdings

exceeding 20% of the outstanding capital stock.

Management contract class is where you delegate some matters

where in the corporation will enter into a contract to another
corporation or an individual person for the management of the
corporation.

Management contract cannot delegate and enire supervision and

control over the officers and business of the corporation to
another corporation. For this will contravene the fundamental
rule that the corporate powers are exercised by the board.

The majority of the members of the board, of the managing

corporation also constitute a majority of the member of the
board of the managed corporation. The vote required the
management contract must be approved by the managed
corporation owning at least two thirds of the outstanding
capital stock.

If the management contract is entered into between two

corporations management contract applies.

The executive committee.

The bylaws of a corporation may create an executive committee

in , exe-come, which is composed of not less than in by the
board. to be appointed by the board itself.

Executive committee, so that certain matters within the

competence of the board can be delegated to a small number of
persons instead of five, become 3. The purpose of which is to
take off part of the work of the board during the periods when
the board does not meet, there are several matters, which the
executive committee may not act on for sample approval of any
action, which requires the shareholders approval, or filling of
vacancies in the board.

The executive committee cannot overturn or cannot amend or

cannot repeal any resolution of the board Which is expressed
term is not so amenable or repeatable and distribution of cash
dividends. These are the matters, which are not within the
competence of the executive committee.