encouraged to have independent directors on their board. (2) TENURE, QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS Q: What is the term of office of BOD/BOT? A: GR: The regular director shall hold office for 1 year. XPN: If no election is held, the directors and officers shall hold position under a hold‐over capacity until their successors are elected and qualified. This is applicable to a going concern where there is no break in the exercise of the duties of the officers and directors. (SEC Opinion, Dec. 15, 1989). Q: What are the qualifications of a director? A: 1. Must own at least 1 share of the capital stock; Note: Ownership of stock shall stand in his name on the books of the corporation. A person who does not own a stock at the time of his election or appointment does not disqualify him as director if he becomes a shareholder before assuming the duties of his office. (SEC Opinions,
Nov. 9, 1987 & Apr. 5, 1990)
2. Must be a natural person;
Note: What is material is the legal title,
not beneficial ownership of the stock as appearing on the books of the corporation.
Q: What are the additional qualifications provided by the Revised Code of Corporate Governance?
A: A director should have the following:
1. College education or equivalent academic degree
2. Practical understanding of the business of the corporation
3. Membership in good standing in relevant industry, business or professional organizations
4. Previous business experience (Art 3. [D],
RCCG)
Q: What are the common qualifications of a director and trustee?
A:
1. Majority of the directors/trustees must be residents of the Philippines (Sec. 23) 2. He must not have been convicted by
final judgment of an offense punishable by imprisonment for period exceeding 6 years or a violation of the Corporation Code, committed within 5 years prior to the date of his election (Sec. 27) 3. He must be of legal age
4. Other qualifications as may be prescribed in special laws or regulations or in the by‐laws of the corporation Q: What are the grounds for disqualification of a director? A:
1. Conviction by final judgment of an offense punishable by imprisonment exceeding 6 years
2. Violation of the Corporation Code committed within 5 years prior to his election or appointment (Sec 27) Note: Please read Art 3. [E] of the Revised Code of Corporate Governance. (3) ELECTIONS Q: What are the different method of voting? A: 1. Straight voting – every stockholder may vote such number of shares for as many persons as there are directors to be elected.
2. Cumulative voting for one candidate – 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.
3. Cumulative voting by distribution – a stockholder may cumulate his shares by multiplying 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.
Note: Cumulative voting in case of non‐stock
corporations only if it is provided in the AOI. The members of non‐stock corporations may cast as many votes as there are trustees to be
elected but may cast not more than one vote for one candidate.
Q: What is the quorum required in a stock or non‐stock corporation?
A: Majority of the outstanding capital stock as
stated in the articles of incorporation. (4) REMOVAL Q: Who may remove directors or trustees?
A: The power to remove belongs to the
stockholders exclusively. (Sec. 28)
Q: What are the requisites for removal of directors or trustees?
A:
1. It must take place either at a regular meeting or special meeting of the stockholders or members called for the purpose
2. Previous notice to the stockholders or members of the intention to remove a director
3. A vote of the stockholders representing 2/3 of outstanding capital stock or 2/3 of members
4. Generally, removal may be with or without cause
However, if the director was elected by the minority, there must be cause for removal because the minority may not be deprived of the right to representation to which they may be entitled under Sec. 24 of the Code.(Sec.
28)
Q: In 1999, Corporation A passed a board resolution removing X from his position as manager of said corporation. The by‐laws of A corporation provide that the officers are the president, vice‐president, treasurer and secretary. Upon complaint filed with the SEC, it held that a manager could be removed by mere resolution of the board of directors. On motion for reconsideration, X alleged that he could only be removed by the affirmative vote of the stockholders representing 2/3 of the outstanding capital stock. Is X's contention legally tenable. Why?
A: No. Stockholders' approval is necessary only
for the removal of the members of the Board. For the removal of a corporate officer or employee,
the vote of the Board of Directors is sufficient for the purpose. (2001 Bar Question) (5) FILLING OF VACANCIES Q: What are the ways of filling up the vacancies in the board? A:
1. Vacancies filled up by stockholders or members, if it is due to
a. Removal
b. Expiration of term
c. Grounds other than removal or expiration of term, e.g. death, resignation, abandonment, or disqualification where the remaining directors do not constitute a quorum for the purpose of filling the vacancy d. If the vacancy may be filled by the
remaining directors or trustees but the board refers the matter to stockholders or members; or e. increase in the number of directors
2. Vacancies filled up by the remaining
directors constituting a quorum or by the members of the board if still constituting a quorum, at least a majority of them are empowered to fill any vacancy occurring in the board other than by removal by the stockholders or members, expiration of term or increase in the number of board seats. (Sec. 29)
Note: A director elected to fill vacancy shall serve
the unexpired term. (Sec. 29) (6) COMPENSATION Q: How are directors compensated? A:
GR: Directors, in their capacity as such, are
not entitled to receive any compensation except for reasonable per diems.
XPN:
1. When their compensation is fixed in the by‐laws
2. When granted by the vote of stockholders representing at least a majority of the outstanding capital stock at a regular or special meeting 3. When they are also officers of the