RECITATION NOTES

Corporate actions may only be undertaken following the collective decision of the concerned
body, in a properly convened meeting. All members of such body must be given sufficient notice
and reasonable opportunity to prepare, attend, and actively participate in the meeting. The
meeting permits shareholders or members to actively participate during the deliberation.

The law classifies meetings into regular or special.

Regular meetings are those set in the bylaws.

Special meetings are held when the exigencies of the situation so require.

Section 49. Regular and Special Meetings of Stockholders or Members

The law requires the holding of an annual meeting of shareholders or members.

The annual meeting is normally the occasion where the election of directors or trustees is held,
and corporate performance is reported for evaluation by the shareholders or members. It is an
important element of corporate governance. It provides a certain discipline and an occasion for
interaction and participation of a kind.

Interval of meetings

A regular meeting of shareholders or members must be held at least once a year. The date of
meeting may be fixed in the bylaws. Otherwise, it will be held after April 15, when a corporation
using calendar year is expected to have prepared and submitted annual tax returns and financial
statements with government authorities.

The Code does not limit the meeting to be held in the month of April. It should be a particular
day of a particular month after April 15. The provision in the bylaws should qualify that where
the particular date falls on a Saturday, Sunday or holiday, the meeting is to be held at the next
working day.

Regular meetings may be held at shorter intervals, if so provided in the bylaws.

Notice

Non-compliance or defect in the notice requirements may be a ground for absent shareholders or
members to petition the Commission to nullify and enjoin the implementation of the action taken
during the meeting.

Requirements for an effective waiver:

a. all shareholders or members are present or duly represented at the meeting, and
b. not one of them expressly states at the beginning of the meeting that the purpose of their
attendance is to object to the transaction of any business because the meeting is not lawfully
called or convened.

Agenda

The meeting is an avenue for shareholders or members to be apprised of and be heard on

important matters affecting the corporation.

The Code provides a list of items that directors or trustees may use as guide in setting the agenda
for the meeting.

The issues or matters in the agenda should be described and their rationale made clear to enable
them to make a sound judgment on all matters brought to their attention for consideration and
approval.

Election of directors or trustees

Practicality demands this. The corporation can easily muster during such meeting the prescribed
quorum for election.

Closing of stock and transfer book

The stock and transfer book must be closed immediately following the release of notice to
shareholders or members of record.

This will avoid confusion on who may attend and cast vote in the meeting. These rights are given
to shareholders or members of record as of the release of notice.

Virtual attendance

In case of public interest companies, recognition of virtual presence is mandatory for purposes of
election of directors or trustees.

Section 52. Regular and Special Meetings of Directors or Trustees; Quorum

The law requires presence of majority of directors or trustees to have quorum for board meetings.
However, the articles or bylaws may provide for a greater majority. This will afford protection to
minority shareholders or members. Higher quorum will likely require presence of their
nominated directors or trustees to have a valid meeting.

Voting Requirement

As a rule, the vote of "majority of the quorum" is sufficient to pass a valid resolution. However,
the vote of the "majority of all the members" of the board is necessary to appoint corporate
officers. This means 1/2 plus one of the total number of directors or trustees, as fixed in the
articles of incorporation. The same is true even when there is vacancy in the board. (SEC-OGC
Opinion No. 16-07, dated April 4, 2016) The majority of the quorum rule does not apply.

The articles or bylaws may provide for a greater majority in any of the above cases.

Meeting interval; notice; place and mode of meeting

Regular meetings must be held monthly. However, bylaws may provide a different interval
depending on the corporation's business requirements. The Commission has taken the view that
"the Corporation may specify in its bylaws that the regular meeting of its board of directors shall
be held quarterly instead of monthly." (SEC-OGC Opinion No. 07-01, dated January 26, 2007)

Special meetings may be held at anytime.

The notice must be sent at least two days prior to the scheduled meeting, regular or special.
However, the bylaws may provide a longer period for the protection of shareholders or members.
A director or trustee may waive the notice requirement.

The meeting may be held anywhere. It may be held outside of the country. Directors or trustees
cannot attend or vote by proxy at board meetings. Despite the silence of bylaws, directors or
trustees who cannot physically attend or vote at board meetings can participate and vote through
remote communication such as videoconferencing, teleconferencing, or other alternative modes
of communication that allow them reasonable opportunities to participate. There is now less
reason to excuse the absence of directors or trustees who cannot physically attend or vote at
board meetings. The board is mandated to present during the regular meeting of shareholders or
members. (Section 49(g))

It is expected more qualified persons who reside abroad may be amenable to becoming directors,
regular or independent, of domestic corporations.

Conflict of interest

In case of possible conflict of interest, the conflicted director or trustee must recuse from voting
on the approval of the conflicted transaction. Failure to recuse may render the conflicted director
or trustee liable for a fine or sanction. However, as to the validity of the related party transaction,
the requirements under Section 31 must be complied with.

Section 57. Manner of Voting; Proxies

Shareholders and members ordinarily cast their vote personally in a meeting. However, in certain
cases, they do not have the incentive to attend meetings. There is a problem of shareholder
passivity. This is particularly true when they have minimal shareholdings in a big corporation
with numerous shareholders.
Proxy is a form of agency, which permits the nominee to specifically attend and vote the shares
in the name its grantor. It aids in mustering quorum, and facilitate continuity in the management,
especially if granted in favor of controlling shareholders.

The bylaws may not deny the right of a shareholder to attend and vote through a proxy (SEC-
OGC Opinion No. 5-12, dated October 24, 2005). However, by specific provision of law, the
same is permitted in a non-stock corporation (SEC-OGC Opinion No. 14-25, dated September 4,
2014).

Limitations

To prevent abuse, the law limits the validity of proxy for a specific meeting. However, a
shareholder may authorize its use for meetings over a certain period. The law limits its effectivity
to such period, but no longer than five years at any one time.

Section 58. Voting Trusts

Voting trusts permit shareholders to authorize another person or persons to exercise such
shareholders' political rights over a limited period of time. The same includes not only the right
to vote and attend meetings (similar to the rights granted in a proxy), but also the right to inspect
corporate records, to be named and registered as shareholder of record in the stock and transfer
books and to be elected as directors. The voting trustee may vote by proxy, or in any manner
authorized under by the bylaws, unless restricted in the voting trust agreement.

Similarity between proxy and voting trust

In both proxy and voting trust, the shareholders insofar as the corporation is concerned retain
their economic rights. They continue to be entitled to dividends and capital gains upon sales of
shares. However, the shareholders and proxy or trustee may further stipulate on the latter's right
over the economic benefits (for example by creating a security over such benefits in favor of the
trustee or trustees pursuant to a loan agreement). Such stipulations are generally not binding to
the corporation.

In both cases, the proxy or trustee assumes certain fiduciary obligations, primarily as defined in
their contract and supplemented by the law on agency or trust. Their arrangement must not
exceed five years, except in the case of a voting trust that may last for a longer period if executed
pursuant to a loan agreement. However, it shall automatically expire upon full payment of the
loan. The law does not explicitly grant such extended term in a proxy, even in the form of an
agency coupled with interest.

Further, the purpose of creating both arrangements must be legitimate and not meant to
circumvent laws, including the Philippine Competition Act.

Form
The law prescribes certain formal requirements in creating a voting trust. The agreement must be
filed with the corporation and the Commission. The corporation must issue new shares, with the
statement that they are being issued pursuant to the trust agreement. Any shareholder may
inspect the agreement, like any other corporate books or records.

The trustee or trustees must issue voting trust certificates, which confirm the shareholders'
economic rights over the shares. Such certificates are transferable, like ordinary stock
certificates.

Upon expiration of the term, both the voting trust certificates and the certificates issued in the
name of the trustee shall be cancelled. The corporation shall reissue regular certificates in favor
of the shareholders.