NOTES IN CORPORATION

● Incorporators - are those stockholders or members mentioned in the articles of

incorporation as originally forming and composing the corporation and who are
signatories thereof. (Sec. 5)
● SEC. 10. Number and Qualifications of Incorporators. Any person, partnership,
association or corporation, singly or jointly with others but not more than fifteen (15)
in number, may organize a corporation for any lawful purpose or purposes:
Provided, That natural persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not be allowed to
organize as a corporation unless otherwise provided under special laws.
● Incorporators who are natural persons must be of legal age.
● Each incorporator of a stock corporation must own or be a subscriber to at least 1
share of the capital stock.

Who are not allowed to incorporate as ОРС?

1. Banks and quasi-banks, pre-need, trust insurance, public and publicly-listed companies,
and non-chartered government-owned and -controlled corporations
2. A natural person who is licensed to exercise a profession may not organize as a One Person
Corporation for the purpose of exercising such profession except as otherwise provided under
special laws.

● Board of Directors - Unless otherwise provided in this Code, the board of directors
or trustees shall exercise the corporate powers, conduct all business, and control all
properties of the corporation.
When corp powers are granted by law to stockholders or members
1. Amendment of the AOI
2. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all
of its property and assets.
3. Investment of corporate funds in another corporation or business or for any other
purpose other than the primary purpose.
4. Increase or decrease of capital stock; incurring, creating or increasing bonded
indebtedness.
5. Adoption of by-laws.
6. Amendments, repeal of by-laws or adoption of new by-laws.
 7. Merger or consolidation.
8. Approval of stock dividends.
9. Execution by a corporation of management contract with another corporation.
10. Voluntary dissolution where no creditors are affected.
11. Voluntary dissolution where creditors are affected.
12. . Dissolution by shortening corporate term
13. Election, removal and fixing the compensation of directors/trustees.

Business Judgement Rule

● The powers vested in the BOD must be exercised by the BOD and cannot be
exercised by the SH.
● The BOD, subject to the limitations imposed by law, the corporate charter or by-laws,
possesses the power to bind the corporation and its SH by any contract which is
within its express or implied powers, and which in their judgement is necessary or
proper to carry out the objects for which the corporation was created.
NOTE: The power granted to the directors to bind the corporation is conferred upon them as
a body and not individually.
Directors or trustees cannot attend or vote by proxy at board meetings.

Term of Office (Sec 22)

● Directors shall be elected for a term of one (1) year.
● Trustees shall be elected for a term not exceeding three (3) years.
● (HOLD-OVER DOCTRINE) Each director and trustee shall hold office until the
successor is elected and qualified.

QUALIFICATIONS OF DIRECTORS/ TRUSTEES (Sec. 22)

1. should not be more than 15.
2. natural person with capacity to act.
3. must own at least 1 share.
4. must not have the disqualifications under Sec. 26.
5. must have the other qualifications prescribed by law or the by-laws of the corporation.
6. must not be disqualified by law or the by-laws.

Ownership of 1 share
 ● A director who ceases to be a member or stockholder of the corporation shall cease to
be such.
● The person in whose name the share of stock is registered in the books of the
corporation is qualified to be elected as a director even if he is not the owner thereof
in his own right.
● Stockholder in books of the corporation as of the time he enters into the performance
of his duties as director.
● By-laws may require ownership of more than 1 share.

Must directors be Filipinos?

Citizenship is not required in RA 11232. However, there are cases when corporate directors
or trustees are required to be Filipinos:
1. ALL DIRECTORS MUST BE FILIPINOS.
● Mass media
● Rural banks
● Private development banks
● Investment companies
● Rice and corn industry
● Security, watchman and detective agency
● Cottage industry
● Cooperatives
● Small scale mining
2. Partially owned by Filipinos and represented by Filipinos in the board in the
same proportion:
● Banks
● Financing companies
● Investment house
● Domestic air carriers
● BOI registered companies
● Realty and logging companies
The by-laws may provide for the additional qualifications of directors or trustees provided
they are not inconsistent with the Constitution, law or charter of the corporation and they are
reasonable.
Independent Directors (Sec. 22)
An independent director 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
which could, or could reasonably be perceived to materially interfere with the exercise of
independent judgement in carrying out the responsibilities as a director.

Corps vested with public interest, which are required to have IDs occupying 20% of the
BOD
1. Publicly listed corporations or with assets of at least PhP 50M and having 200 or
more SH, each holding at least 100 shares of a class of its equity shares;
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 corporations engaged in business vested with public interest similar to the
above, as may be determined by the Commission.

Independent Directors are:

elected by the shareholders present or entitled to vote in absentia during the election
of directors.
subject to rules and regulations governing their qualifications, disqualifications,
voting requirements, duration of term and term limit, maximum number of board
memberships and other requirements that the SEC will prescribe to strengthen their
independence and align with international best practices.
Unless otherwise provided in the articles of incorporation or in the bylaws, members of
nonstock corporations may cast as many votes as there are trustees to be elected but may not
cast more than one (1) vote for one (1) candidate. Nominees for directors or trustees receiving
the highest number of votes shall be declared elected.

Election of Directors or Trustees (Sec. 23)

Who may vote?
Each stockholder or member may vote
- except when the exclusive right is reserved for holders of founders' shares
- stockholders entitled to vote shall have the right to vote the number of shares of stock
standing in their own names in the stock books of the corporation at the time fixed in the
bylaws or where the bylaws are silent, at the time of the election.
Who may NOT vote?
1. Holders of non-voting shares; and
2. Owners of delinquent stocks.
How to vote?
(a) straight voting - vote such number of shares for as many persons as there are directors to
be elected;
Eg: Lee Cao Co has 200 shares of stock in LCC Corp.
There are 5 vacant director positions and 6 aspirants.
● Lee can equally divide 200 shares to his 5 nominees. He can give each of them 40
votes.
(b) cumulative voting - cumulate shares and give one candidate as many votes as the number
of directors to be elected multiplied by the number of his shares shall equal;
Eg: Lee Cao Co may cast the whole 200 shares in favour of one candidate alone.
(c) cumulative voting by distribution- distribute the shares in any manner the stockholder
sees fit.
Eg: Lee Cao Co may give candidate no. 1= 50 votes, candidate no. 2= 30 votes,
candidate no. 3= 120 votes.
Provided, 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 corporation multiplied by the whole number of
directors to be elected.

There may be voting through remote communication or in absentia

● allowed in cases of corporations vested with public interest
● in case of other corporations, allowed only when authorized in the bylaws/by a
majority of the BOD
There must be a quorum.
● majority of the outstanding capital stock or majority of the members entitled to vote
must be present.
● Presence may either be in person or through proxy.
The election must be by ballot if requested by any voting stockholder or member.
Meeting may be adjourned.
 ● NO election held or
● NO quorum

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 the office.

Directors or trustees are not entitled to compensation in their capacity as such EXCEPT for
reasonable per diems.

They are entitled to compensation when:

• Fixed by the bylaws OR
• Granted by vote of the SH representing at least a majority of the OCS.

TOTAL YEARLY COMPENSATION

● Shall NOT exceed 10% of the
● Net income before income tax of the corporation during the preceding year.

Directors or trustees shall not participate in the determination of their own per diems or
compensation.

● ADDITIONAL REQUIREMENT FOR CORPS VESTED WITH PUBLIC

INTEREST:
 ● Corporations vested with public interest shall submit to their shareholders and
the Commission, an annual report of the total compensation of each of their
directors or trustees.
Corporate Officers
SEC. 24. Corporate Officers. - Immediately after their election, the directors of a
corporation must formally organize and elect:
(a) a president, who must be a director; (b) a treasurer, who must be a resident; (c) a
secretary, who must be a citizen and resident of the Philippines; and (d) such other officers
as may be provided in the bylaws.

If the corporation is vested with public interest, the board shall also elect a compliance
officer.

NOTE
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 in this Code.

The officers shall manage the corporation and perform such duties as may be provided in the
bylaws and/or as resolved by the board of directors.

Doctrine of Apparent Authority

The corporation is stopped from denying the agent's authority if it knowingly permits one of
its officers or any other agent to act within the scope of an apparent authority. and it holds
him out to the public as possessing the power to do these acts.

Apparent authority arises from the following instances:

1. The general manner by which the corporation hold out an officer or agent as having
power to act or, in other words, the apparent authority with which it clothes him to act
in general, or
2. The acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or without the scope of his ordinary authority.

REPORT OF ELECTION (Sec 25)

Within 30 days after the election, the secretary or any other officer shall submit to SEC the
names, nationalities, shareholdings, and residence addresses of the directors, trustees and
officers elected.

REPORT OF NO ELECTION (Sec 25)

Within 30 days from date of scheduled election, report:
1. The non-holding of elections,
2. Reasons for no. 1,
3. New date for the election, which shall not be later than 60 days from scheduled date.

POWERS OF THE SEC re: ELECTION (Sec 25)

1. SUMMARILY ORDER AN ELECTION- upon the application of a stockholder,
member, director or trustee, and after verification of the unjustifiable non-holding of
the election, and if no new date has been designated, or if the rescheduled election is
likewise not held
2. ISSUE SUCH ORDERS AS MAY BE APPROPRIATE

Report of death or resignation of director/trustee/officer

Should a director, trustee or officer die, resign or in any manner case to hold office, the
secretary or officer of the corporation shall, within 7 days from knowledge thereof, report in
writing such fact to the SEC.

Disqualifications (Sec. 26)

If, within five (5) years prior to the election or appointment as such, the person was:
(a) Convicted by final judgement:
1. Of an offense punishable by imprisonment for a period exceeding six (6) years;
2. For violating RCCP; and
3. For violating The Securities Regulation 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) and (b) above.