Term of Board of Directors/Trustees

Under the Business Judgment Rule, courts cannot intervene with the internal affairs
or management of a corporation. The Board has the prerogative over the

management, as long as the Board does their functions or perform their powers in
an honest and in a manner that is considered in good faith, and it is not
unconscionable or defeating the rights of the minority,
Does it mean that the corporation has unlimited prerogative? Can they just do
whatever they want? No. Nobody can do just whatever they want. There are
limitations. The Board, as a body, is not exempted from the limitations. The following
are the possible limitations in the exercise of the powers of the Board:
1. Those that are provided under the Constitution, especially with regard to those
enterprises that nationality is indicated (100%, 60/40)
2. Those that are imposed of by the Articles of Incorporation (acting capacity of the
Board; stating the purpose of the corporation in AoI is actually setting the limitations
of the Board)
*ULTRA VIRES ACTS - if the Board acts in this manner and it is not authorized by the
law or articles of incorporation, such act is considered an ultra vires act, or an act
beyond the authority, thus invalid.
3. The Board cannot act alone, especially on material matters affecting the
corporation (merger, consolidation, amendments of AOI, declaration of stock
dividends, etc.); these material acts/matters need the approval of the stockholders
TERM OF BOARD OF DIRECTORS/TRUSTEES
Under OLD LAW, term of BOD/T for both stock and non-stock corporations is the
same. 1 year or they can extend until their successors are fully qualified or duly
elected.
Under the NEW LAW, Section 22 RCC

For the directors, term of office upon election is 1 year
For the trustees, term of office upon election is 3 years
Term vs. Tenure
HOW CAN A PERSON BECOME A MEMBER OF THE BOARD?

The law, particularly under Section 23 of RCC, expressly/explicitly stated the only
manner, which is through an ELECTION. Even an independent director has to be
elected as well.
If the by-laws provide that there is an automatic member of the board, without
going through election, is it possible?
NO, it is not valid for being contrary to the provision of the law on how to be a
member of the Board. No such thing as automatic (except owners of founders’
shares). There is only one way, which is an election.
REQUIREMENTS OF A VALID ELECTION OF THE BOARD
1. There must be a meeting that is called for the purpose of election.
* In order to have a valid meeting, there must be a notice. Before the meeting, it is
mandatory to have notice to all the stockholders.
2. There must be a quorum; in that meeting there must be the presence of the
owners of the majority of the capital stock (same with old rule)
“quorum” - majority; 50% of the outstanding capital stock + 1 (G.R)
*the corporation can set a higher quorum*
2 ways to “muster” the quorum:

1. Presence of owners of the majority of the outstanding capital stock in person or
their authorized representative via a valid written proxy
“proxy” - an agent representing his principal; the act of the agent is the act of the
principal
*in order for the proxy to vote, the proxy must be registered also with the corporate
secretary for the purposes of recording that this vote is for proxy
If in the meeting, those people that are present does not compose the majority
ownership, then that meeting is invalid. Any election that will happen during said
meeting is invalid.
2. Remote communication or in absentia, as allowed by the new law (RCC)

“remote” - away, not physically present
*for as long as it is authorized by the by-laws or approved by the majority of the
board, then, even if the stockholder is not present therein, he can use or avail
remote communication, to cast his vote.
Out of necessity, last March 20,2020, SEC issued Memorandum Circular No. 6 Series
of 2020, setting guidelines on the use of remote communication.
For as long as it is authorized by the by-laws or approved by the majority of the

board, meetings held via teleconferencing, video conferencing, etc, a stockholder
can cast his vote via email or electronic messaging, or any other way, for as long as it
is recorded by the Corporate Secretary. The Board must also be informed of the
availment of such remote communication.
Aligned with the International Standards of “Ease of Doing Business”
3. Casting of Vote - by ballot?

In Business, no, it is an exception. Par (3) of Section 23 RCC provides “The election
will only be by ballot if requested by any voting stockholder or member”.
4. No delinquent stocks will be voted (under Par (4) of Section 23 RCC)

“upon due date of subscription, and after demand, failed to pay, considered
delinquent”.
During the election, how many members of the board should be elected?
Section 13, item F, RCC, provides that the members of the board must exceed 15.
Old Law: 5 to 15
New Law: not more than 15 (existence of One Person Corporation)
METHODS OF VOTING
Stock Corporation (number of shares) Non-stock Corporation (person)
1. Straight Voting
- as many as the number of directors - as many as the number of member
to be elected (not nominees) to be elected (not nominees)
Ex. 1000 shares x 7directors = 7000 votes 1 person x 7 trustees = 7 votes; cannot
1000 to each 7 give more than 1 vote per candidate
2. Cumulative Voting
-concentrate number of votes to 1
candidate in order to have more chances
of winning (person or distribution)
Ex. 1 person - give all 7000
Distribution - 5000 to 1; 2000 to 1
Previously, not expressly stated. Now, under par (4) Section 23 RCC, cumulative
voting is expressly provided as a matter of right to stockholders; it is a statutory right
that cannot be taken away by the corporation from a stockholders who opt to
cumulative voting (to give chance to minority stockholders to become a member of
the Board)
ELECTION OF AN INDEPENDENT DIRECTOR - last paragraph of Section 22 RCC
What if the stockholders did not muster the quorum?

There is no valid election. But on the part of the corporation, they still have the
obligation, under Section 25, to report within 30 days to the SEC and for them to set
the election within 60 days after that election.
If the corporation will not set the election, by the initiative of any stockholder, the
SEC can now order the date of the election. SEC is given the power to order an
election, in case election did not happen due to invalid election.

Term of Board of Directors/Trustees

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Under the Business Judgment Rule, courts cannot intervene with the internal affairs

or management of a corporation. The Board has the prerogative over the

TERM OF BOARD OF DIRECTORS/TRUSTEES

Under the NEW LAW, Section 22 RCC

Term vs. Tenure

HOW CAN A PERSON BECOME A MEMBER OF THE BOARD?

2 ways to “muster” the quorum:

2. Remote communication or in absentia, as allowed by the new law (RCC)

For as long as it is authorized by the by-laws or approved by the majority of the

Aligned with the International Standards of “Ease of Doing Business”

3. Casting of Vote - by ballot?

4. No delinquent stocks will be voted (under Par (4) of Section 23 RCC)

ELECTION OF AN INDEPENDENT DIRECTOR - last paragraph of Section 22 RCC

What if the stockholders did not muster the quorum?

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