CORPORATION

R. A. No. 11232
An Act Providing for the
Revised Corporation Code of the Philippines

TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

BOARD OF DIRECTORS (BOD) OR BOARD OF TRUSTEES

(BOT) OF A CORP; QUALIFICATION AND TERM.
SEC. 22.
 The BOD or BOT
shall exercise the corporate powers,
conduct all businesses, and
control all properties of the corporation.
[unless otherwise provided by the RCCP)

 TERM:
DIRECTORS - shall be elected for a term of 1 YR
from among the holders of stock
registered in the corp.’s book.

TRUSTEES - shall be elected for a term NOT

exceeding 3 YRS from among the
members of the corp.

o Each director and trustee shall hold office

until the successor is elected and qualified.

o A director who ceases to own at least one (1)

share of stock OR a trustee who ceases to
be a member of the corp. shall cease to be
as such.

 The BOARD of the ff. corp. vested w/ public

interest shall have independent directors
constituting at least 20% of such board:

1. Corp. covered by Sec. 17.2 of RA No. 8799 (The

Securities Regulation Code), namely those ---
whose securities are registered w/ the SEC,
corp. listed w/ an exchange or w/ assets of at
least P50M & having 200 or more holders of
shares , each holding at least P100 shares of a
class of its equity shares;

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 2. Banks and quasi banks, NSSLAs, pawnshops,
corporations engaged in money service
business, pre-need, trust and insurance
companies, and other financial intermediaries;
and

3. Other corp. vested w/ public interest similar to

the above, as may be determined by the SEC.

 An INDEPENDENT DIRECTOR (ID) 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 w/c could, or could reasonably be
perceived to materially interfere w/ the exercise
of independent judgment in carrying out the
responsibilities as a director.

o INDEPENDENT DIRECTORS must be

elected by the shareholders present or in
absentia during the election of directors.

o INDEPENDENT DIRECTORS shall be

subject to rules and regulations governing
their qualifications, disqualifications, voting
requirements, duration of term & term limit,
maximum no. of board memberships and
other requirements that the SEC will
prescribe to strengthen their independence
and align w/ international best practices.

ELECTION OF DIRECTORS OR TRUSTEES.

SEC. 23.
 Each STROCKHOLDER 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
RCCP.

[EXCEPT when the exclusive right is reserved for

holders of founders’ shares under Sec. 7 of RCCP].

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 AT ALL ELECTION of directors or trustees-
o there must be present, either in person or
thru a representative authorized by a
written proxy, the owners of MAJORITY of
the OCS, or if no capital stock, MAJORITY
of the members entitled to vote.

o the stockholders or members may also vote

through remote communication or in
absentia [when so authorized in the bylaws
OR by the majority of the BOD].

o The right to vote through remote

communication or in absentia may be
exercised in corp. vested w/ public interest,
notwithstanding the absence of a provision
in the bylaws of such corp.

o A stockholder or member who participates

through remote communications or in
absentia, shall be deemed present for
purposes of quorum.

o The election must be BY BALLOT if

requested by any voting stockholder or
member.

 In STOCK CORPORATION –
stockholders are entitled to vote the NUMBER
OF SHARES OF STOCK standing in their own
names in the stock books of the corp. at the time
fixed in the bylaws OR where the bylaws are
silent, at the time of the election.

o 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; of
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 (c) Distribute them on the same principle
among as many candidates as may be
seen fit:

o 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 corp. multiplied by the whole number of
directors to be elected;

o NO delinquent stock shall be voted.

 In NONSTOCK CORPORATION –
members may cast as many votes as there are
trustees to be elected BUT may not cast more
than one (1) votefor one (1) candidate
UNLESS [otherwise provided in the AOI or in
the bylaws].

 Nominees for directors or trustees receiving the

highest number of votes shall be declared elected.

 If NO ELECTION IS HELD, or
The owners of the majority of the OCS or majority
of 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 ADJOURED
& the corp. shall proceed in accordance w/ Sec.
25 of RCC.

 The directors or trustees elected shall perform

their duties as prescribed by law, rules of good
corporate governance, any bylaws of the corp.

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CORPORATE OFFICERS.
SEC. 24.
 Immediately after their election, the DIRECTORS
must formally organize and elect a:

1) president – who must be a director;

2) treasurer – -do- resident;
3) secretary – -do- citizen & resident
ofPhil.
4) other officers as may be provided by the
bylaws.
otherwise.

 If the corp. is vested w/ public interest, the board

shall also elect a compliance officer.

o The same person may hold 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 by RCC.

 The OFFICERS shall MANAGE the corp. and

perform such duties as may be provided in the
bylaws and /or resolved by the BOD.

REPORT OF ELECTION OF DIRECTORS, TRUSTEES AND

OFFICERS, NON-HOLDING OF ELECTION AND
CESSATION FROM OFFICE.
SEC. 25.
 W/in 30 days AFTER THE ELECTION of D, T, &
O of Corp.
the secretary, or any other officer of the corp.
shall SUBMIT to the SEC, the names,
nationalities, shareholdings, and residence
addresses of the D,T, & O elected.

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  THE NON-HOLDING OF ELECTION and the
reasons therefor shall be reported to the SEC
w/in 30 days from the date of the scheduled
election.

o The report shall specify a new date for the

election, w/c shall not be later than 60 days
from the scheduled date.

 If no new date has been designated, OR if

THE RESCHEDULED ELECTION IS LIKEWISE
NOT HELD –
o The SEC, upon application of a stockholder,
member, director or trustee, & after
verification of the unjustified non-holding of
the election,
SUMMARILY ORDER THAT AN
ELECTION BE HELD.

o 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 thus
section.

 Should a D, T or O die, resign or in any manner

cease to hold office, the secretary, or the D, T, or
O of the corp. shall w/in 7 days from the
knowledge thereof, REPORT in writing such fact
to the SEC.

DISQUALIFICATION OF DIRECTORS, TRUSTEES OR OFFICERS

SEC. 26.
 A person shall be DISQUALIFIED from being a D,
T, O of any corp. if, w/in 5 years prior to the
election or appointment as such, the person was

(a) Convicted by final judgment:

(1) Of an offense punishable by imprisonment for

a period exceeding 6 years;
(2) For violation of the RCC; and

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 (3) For violating RA No. 8799 (Securities Reg.
Code).

(b)Found Administratively liable for any offense

involving fraudulent acts; and

(c) By a foreign court or equivalent foreign

regulatory authority for acts, violations or
misconduct similar to those enumerated in
paragraphs (a) & (b).

 W/o prejudice to qualifications or other

disqualifications w/c the SEC, the primary
regulatory agency, or the Phil. Competition
Commission may impose in its promotion of good
corporate governance or as a sanction in its
administrative proceedings.

REMOVAL OF DIRECTORS OR TRUSTEES.

SEC. 27.
 Requisites for REMOVAL of DIRECTORS or
TRUSTEES:
(1) The removal must “take place either at a
regular meeting of the corp. or at a special
meeting called for the purpose”;

(2) There must be a previous notice to the

stockholders or members of the corp. of the
intention to propose such removal at the
meeting; and

(3) The removal must be “by a vote of the

stockholders holding or representing 2/3 of the
OCS or if the corp. be a nonstock corp., by a
vote of 2/3 of the members entitled to vote.”

 A SPECIAL MEETING of the stockholders or

members for the purpose of removing ang
director or member must be called by the
secretary
on order of the president,
OR
upon written demand of the stockholders

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 rep. or holding at least a majority of
the OCS, or a majority of the members
entitled to vote.

o 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 signing the
demand may call for the meeting by directly
addressing the stockholders or members.

 NOTICE of the time and place of such

meeting, and the intention to propose
such removal, must be given by
publication or by written notice
prescribed in RCC.

 Removal may be W/ or W/O CAUSE.

o Removal W/O CAUSE may not be used to

deprived minority stockholders or members
of the right of representation to w/c they
may be entitled under Sec. 23 of the RCC.

 The SEC shall motu propio or upon verified

complaint and after due notice & hearing,
ORDER THE REMOVAL of a director or
trustee
elected despite the disqualification,
OR
whose disqualification arose or is
discovered subsequent to an election.

o The removal of a disqualified director shall

be w/o prejudice to other sanctions that
SEC may impose on the BOD or trustees
who, w/ knowledge of the disqualification,
failed to remove such director or trustee.

VACANCIES IN THE OFFICE OF DIRECTOR/TRUSTEES;

EMERGENCY BOARD.
SEC. 28.
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 A vacancy in the Office of the Director/Trustee
may be FILLED as follows:
i. By the members of the board –

If still constituting a quorum, at least a

majority of them are empowered to fill the
vacancy occurring in the board other than
by removal by the stockholders or members
OR expiration of the term.

ii. By the stockholders or members,

In any of the ff. cases:

(a)

(b)
(a) If the vacancy results from the removal or
expiration of term;

(b) If the vacancy occurs other than by removal

OR expiration of the term [such as death,
resignation, abandonment, disqualification],
if the remaining directors or trustees do not
constitute a quorum for the purpose of
filling the vacancy;

(c) If the vacancy may be filled by the

remaining directors or trustees but the
board refers the matter to the stockholders
or members;

(d) If the vacancy is created by reason of an

increase in the number of directors or
trustees.

 WHEN TO FILL VACANCIES?

o When vacancy is due to term expiration,

- the election shall be not later than the
day of such expiration at a meeting called
for the purpose;

o When vacancy arises as a result of removal

by the stockholders or members, -
- the election may be held on the same
day of the meeting authorizing the
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 removal [this fact must be so stated in
the agenda & notice of said meeting];

o When directorship or trusteeship to be filled

by reason of an increase on the number of
directors or trustees
- the election shall be held on the same
meeting authorizing the increase of
directors or trustees [if so stated in the
notice of meeting] OR at a regular or at
special meeting of the stockholders or
trustees duly called for the purpose.

o In all other cases,

- the election may be held NOT later than
45 days from the time the vacancy arose.

 A director or trustee elected to fill a vacancy shall

be referred to as REPLACEMENT DIRECTOR or
TRUSTEE and shall serve only for the unexpired
term of the predecessor in office.

 DESIGNATED DIRECTOR or TRUSTEE.

When the vacancy PREVENTS the remaining
directors from constituting a quorum
AND
EMERGENCY ACTION is required to prevent
grave, substantial, and irreparable loss or
damage to the corp., the vacancy may be
TEMPORARILY FILLED from among the officers of
the corp.
- by UNANIMOUS VOTE of the remaining
directors or trustees

o The action by the DESIGNATED director or

trustee shall be limited to the emergency
action necessary,
AND
The term shall cease w/in reasonable time
from the termination of the emergency or
upon election of the replacement director or
trustee, w/c ever comes earlier.

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 o The corp. must notify the SEC w/in 3 days
from the creation of the emergency board,
stating therein the reason for its creation.

 In all election to fill the vacancies under this sec.

(Sec.28) the procedure set forth in Sec. 23 & 25
shall apply.

COMPENSATION OF DIRECTORS OR TRUSTEES.

SEC. 30.
 GEN RULE: Compensation of D/T is fixed in the
bylaws

In the absence of provision in the by laws =

NO COMPENSATION
Except: reasonable PER DIEMS.

 The stockholders representing at least a

MAJORITY of the OCS/ members may GRANT
D/T w/ compensation and approved the amount
thereof at a regular or special meeting.

 In NO case shall the total yearly compensation of

D exceed 10% of the net income before income
tax of the corp. during the preceding year.

 D/T shall not participate in the determination of

their own per diems or compensation.

 Corp. vested w/ public interest shall submit to

their shareholders and the SEC, an annual report
of the total compensation of each of their D/T.

LIABILITY OF DIRECTOS, TRUSTEES OR OFFICERS.

SEC. 30.
 Liability for DAMAGES when D/T

1) willfully and knowingly vote for or assent to

patently unlawful acts of the corp.;

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 2) is guilty of gross negligence or bad faith in
directing the affairs of the corp.

3) acquires any personal or pecuniary interest in

conflict w/ their duty as such directors or
trustees

o GUILTY D/T are jointly and severally liable

for all damages resulting therefrom suffered
by the corp., its stockholders or members
and other persons.

 Liability for SECRET PROFITS

A D/T/O shall not attempt to acquire, or

acquire any interest adverse to the corporation in
respect of any matter w/c has been reposed in
them in confidence, and upon w/c, equity
imposes a disability upon themselves to deal in
their own behalf;

OTHERWISE
the said D/T/O shall be liable as a trustee for the
corporation and must account for the profits w/c
would otherwise would have accrued to the corp.

DEALINGS OF D/T/O WITH THE CORPORATION.

SEC. 31.
 A contract of the corp. w/ 1 or more of its D/T/O
or their spouse & relatives w/in the 4 th civil
degree
of consanguinity or affinity is
VOIDABLE, at the option of such corp.

UNLESS the ff. conditions are present:

(a) The presence of such D/T in the board

meeting
in w/c the contract was approved was not
necessary to constitute a quorum for such
meeting;

(b) The vote of such D/T in the board meeting

was not necessary for the approval of the
contract;
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 (c) The contract is fair and reasonable under the
circumstances;

(d) In case of corp. vested w/ public interest,

material contracts are approved by at least
2/3 of the entire membership of the board,
w/ 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 BOD.

 WHEN MAY SUCH CONTRACT BE RATIFIED?

Requisites:
1) Any of the first 3 conditions set forth above is
ABSENT, in the case of a contract w/ a D/T;

2) Stockholders representing at least 2/3 of the

OCS or of at least 2/3 of the members in a
meeting called for the purpose voted for the
ratification of the contract;

3) Full disclosure of the adverse interest of the

D/T involved is made at such meeting; and

4) The contract is fair and reasonable under the

premises.

CONTRACTS BETWEEN CORPORATION WITH

INTERLOCKING DIRECTORS.
SEC. 32.

 INTERLOCKING DIRECTORS – one, some, or all

of the directors in one corporation is/are also
director/directors in another corporation.

 Contract between 2 or more corp. w/c have

interlocking directors = VALID
as long as there is:

i. NO fraud,

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 ii. The contract is fair and reasonable under the
circumstances.

 If the interest of the interlocking D in one (1)

corp. is substantial & the interest in the other
corp./s is merely nominal, = the contract is
VALID insofar as the latter corp. is concerned.

 Stockholding exceeding 20% of the OCS shall be

considered substantial for purposes of
interlocking directors.

DISLOYALTY OF A DIRECTOR.
SEC. 33.

 Where a director, by virtue of such office,

ACQUIRES A BUSINESS OPPORTUNITY
w/c should belong to the corp., thereby
obtaining profits to the prejudice of such corp.
=
The director must ACCOUNT FOR and REFUND
to the corp., all such profits.

UNLESS
the act has been RATIFIED by a vote of the
stockholders owning or representing at least 2/3
of the OCS.

 The provision is applicable, notwithstanding the

fact that the director risked one’s own funds in
the venture.

EXECUTIVE, MANAGEMENT, AND OTHER SPECIAL

COMMITTE.
SEC. 34.

 If the bylaws so provide, the board may create an

EXECUTIVE COMMITTEE
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 composed of at least 3 directors.

 Said committee may act, by MAJORITY VOTE

of all its members, on such specific matters
w/in the competence of the board,
- as may be delegated to it in the by laws
OR
- by majority vote of the board,
EXCEPT w/ respect to the:
(a) approval of any action for w/c the
shareholder’s 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 w/c by its express terms is not
amendable or repealable; and

(e) distribution of cash dividends to the

shareholders.

 The BOD may create a special committee of

temporary or permanent nature and determine
the member’s term, composition, compensation,
powers and responsibilities.

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