As a rule, directors and trustees must have all agent or trustee designated as

the prescribed qualifications and none of the nominee may be elected as director
disqualifications under the Corporation Code. ● They may be mere nominees5 or
trustees even for one share ach for the
Qualifications for director or trustees: benefit of shareholders
1) Must own at least one share of the ● A person CEASES TO BE
capital stock of the corporation in his DIRECTOR the moment he CEASES
own name or if the corporation is a TO BE A SHAREHOLDER OF
non-stock1 corporation, he must be a RECORD of at least one share.
member thereof ● It has been opined, that a person who
2) Must not be disqualified under the does not own any stock at time of his
Corporation Code2; election or apportionment is not
3) Must be of legal age3; and disqualified as director if he becomes
4) Must possess other qualifications as shareholder before assuming duties of
may be prescribed in special laws or his office6
regulations or in the by-laws or ● Holder of a non-voting share cannot
regulations or in the by-laws of the be elected as director7
corporation ● One share requirement is only the
minimum. AOI may require more than
Natural Persons one share as long as the required
● A director or trustee must be a natural number is reasonable
person
● However, in the case of condominium Special Laws may provide for qualifications
corporations where all or part of the and disqualifications.
members thereof are corporate
members or juridical persons, an The Corporation may also provide in its
offficer or duly authorized agent or by-laws the qualifications and disqualifications
trustee who has been designated as of members of the board. These qualifications
its representative for the express CANNOT BE WAIVED.. If the shareholders
purpose of qualifying him as director, feel that the said qualifications should not
may be eligible as director. operate, the remedy is to AMEND.

Shares or Membership Ex-Officio Member

● Stock Corporation - A director must A person who is not a stockholder ina
have at least one share registered corporation cannot be a director but he can be
under his name in the corporation’s an ex-officio member without voting rights in
books4 the board.
● Non-stock Corporation - must be a
member Disqualification
● The law simply requires them to be ● A disqualified stockholder cannot run
“among the holders of stocks for election as director.
registered in the corporation’s books.” ● Should a ground be present at the
● While a corporation cannot be elected time of election, and a disqualified
as director, its duly authorized officer, stockholder be elected director, the
subsequent disqualification would not
render the board incapable of
1
Sufficient that the legal title in the books is in the director transacting business as long as the
2
​See Section 26 of the Revised Corporation Code
3
​Minority restricts an individual’s capacity 5
4
​Intended for the protection of the corporation so that it Once assignment is revoked, no longer qualified to be a
director
may have means of knowing at any time who are the
stockholders who may participate in the management of
6
​SEC Opinion dated April 5, 1990
the corporation.
7
​SEC Opinion dated March 20, 1996
 remaining directors s​till constitute a his responsibilities as director of any
quorum​. This merely ​gives rise to a covered company.
vacancy8 in the board. ● Any relationship with the company
○ Same rule if not disqualified must not compromise the director’s
upon election but objectivity and loyalty to the
subsequently disqualified. shareholder.

Re-election To ascertain independence of director, the law

Unless there is a provision in the AOI or uses a subjective test: “ independent of
By-laws disqualifying an incumbent director or management and free from any business or
officer from re-election, he is not prevented other relationship which could, or could
from seeking re-election. reasonably perceived to materially interfere
with the exercise of independent judgment in
Hold-over Period carrying out his responsibilities.
That time from the lapse of one year from a
member’s election to the Board and until his Test of Independence is gauged considering
successor’s election and qualification. Not a the following parameters:
part of one’s term of office, nor is it a new 1) Existence of a ​business or other
term. It is part of his tenure. relationship
● Implies that an office has a fixed term, ● Professional and family
which has expired, and the incumbent relationships are included
is holding the succeeding term. ● Must exist at the time of
● If no election is held, the directors appointment
shall hold-over until successors are ● Mere likelihood is sufficient,
elected. considering the nature and
● This applies to a going concern where extent of relationship with the
there is no break in the exercise of company, or its directors,
duties of the officers and directors officers or material
● Cannot be invoked as a shield to shareholders
perpetuate office ● past/ terminates ones not
● Upon election, old officers cannot considered
continue to serve 2) Such relationship ​could or could
● Does not affect the term of office, the reasonably be perceived to cause
term of one year is fixed by statute​. interference
● Mere likelihood is sufficient,
INDEPENDENT DIRECTORS considering the nature and
A person who, apart from shareholdings and extent of relationship with the
fees received from the corporation, is company, or its directors,
independent of management and free from officers or material
any business or other relationship which could shareholders
reasonably be perceived to materially interfere 3) Likelihood of interference must be
with the exercise of independent judgment in material
carrying out the responsibilities of the director. ○ The test of materialy, is
● The policy behind this is that a whether the overall cost of
non-executive director must not have terminating such relationship
a relationship with the corporation that vis-a-vis the overall benefit of
would materially interfere with his asserting independence
independent judgment in carrying out ○ Hence, even if the relationship
exists, if the cost of losing
indepedent directorship is
higher compared to the benefit
8
​SEC Opinion December 17, 2002
 derived from the existing Applies to registered corporations and to
relationship, the existing branches and subsidiaries of foreign
relationship, the existence of corporations operating in the Philippines that:
such relationship will not 1) Sell equity and/or debt securities to
disqualify a director for being the public that are required to be
independent registered with the SEC; or
2) Have assets in excess of 50M or such
The Commission may provide additional amount as the Commission shall
requirements in the form of regulations. The prescribe . and having 200 or more
Code of Corporate Governance likewise stakeholders each holding at least 100
provides circumstances when a director is shares of a class of its equity
independent.9 securities; or
3) Whose securities are listed on an
exchange; or
Corporation vested with Public interest 4) Are grantees of secondary licenses
generally refers to: from the SEC
a) Public corporation
b) Corporation whose securities are Public companies which have more than 200
registered in an exchange, including shareholders or corporations whose equity
those with a class of securities listed securities are listed in an exchange, there is a
for trading in an exchange; greater possibility that there is separation
c) Especially regulated financial between management and ownership. It is
intermediary; or necessary to provide framework that will focus
d) Corporation requiring the election of on the relationship between the directors and
an independent director officers on one hand and stockholders on the
other.
In any of these cases, the stakeholders, other
than the shareholders need extra protection Alternative Theories to Corporate
with the appointment of an independent Governance
director. 1) Shareholder Primacy Theory
(conservative school of thought)
As some currently follow the Code of - Holds that corporation should
Corporate Governance, they should evaluate run for the exclusive benefit of
whether it is expedient to comply with its shareholders
higher standards in light of the changes in the 2) Social Responsibility Theory/
code. As the code operates on a “comply or Stakeholder Protection Theory
explain” premise, their decision depends on (progressive school of thought)
the feedback of the shareholders. They should - Prefers limitation on excessive
adequately explain why they prefer to follow pursuit of profit and promotion
the minimum standards under the code, of employee, customer, and
otherwise, they will be subjected to sanctions. community voice in corporate
governance
Corporate Governance
The framework of rules, systems and Corporate governance practices cannot
processes in the corporation that governs the disregard the different stakeholders in the
performance by the Board of Directors and corporation. The intent is to encourage social
Management of their respective duties and and civil responsibility.
responsibilities to the stockholders. ● Demonstrate an awareness that
corporations are not mere business
organizations intended to serve
personal interests but are social
9
See Code of Corporate Governance
 institutions in which all sectors of
members entitled to vote are not present in
society have an interest. person, by proxy, or through remote
communication or not voting in absentia at the
meeting, such meeting may be adjourned and
SEC. 23. Election of Directors or Trustees​. – the corporation shall proceed in accordance with
Except when the exclusive right is reserved for Section 25 of this Code.
holders of founders’ shares under Section 7 of
this Code, each stockholder or member shall The directors or trustees elected shall perform
have the right to nominate any director or trustee their duties as prescribed by law, rules of good
who possesses all of the qualifications and none corporate governance, and by-laws of the
of the disqualifications set forth in this Code. corporation.

At all elections of directors or trustees, there

must be present, either in person or through a Manner of Election
representative authorized to act by written proxy,
A corporation cannot adopt a procedure other
the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of than what is provided in the provision.
the members entitled to vote. When so
authorized in the bylaws or by a majority of the Each stockholder or member shall have the
board of directors, the stockholders or members
may also vote through remote communication or right to nominate any qualified director or
in absentia: Provided, That the right to vote trustee EXCEPT when the exclusive right (to
through such modes may be exercised in vote and to be voted for in the election of
corporations vested with public interest,
directors) is reserved for holders of founders’
notwithstanding the absence of a provision in the
by-laws of such corporations. share for a limited period of 5 years​.10

A stockholder or member who participates Stock Corporations

through remote communication or in absentia,
shall be deemed present for purposes of
Each stockholder entitled to vote has the total
quorum. number of votes not exceeding the number of
shares owned by him as shown in the books of
The election must be by ballot if requested by
the corporation ​at the time fixed by the
any voting stockholder or member.
By-Laws, ​or if silent, at the time of the
In stock corporations, stockholders entitled to election​, multiplied by the whole number of
vote shall have the right to vote the number of directors to be elected.
shares of stock standing in their own names in
the stock books of the corporation at the time
a) Stockholders have the option to adopt
fixed in the bylaws or where the bylaws are any of the following:
silent, at the time of the election. The said i) Straight Voting - every
stockholder may: (a) vote such number of shares stockholder may vote such
for as many persons as there are directors to be
elected; (b) cumulate said shares and give one number of shares for as many
(1) candidate as many votes as the number of persons as there are directors
directors to be elected multiplied by the number to be elected
of the shares owned; or (c) distribute them on the
same principle among as many candidates as
ii) Cumulative Voting - he is
may be seen fit: Provided, That the total number allowed to concentrate his
of votes cast shall not exceed the number of votes and give one candidate
shares owned by the stockholders as shown in
as many votes as the number
the books of the corporation multiplied by the
whole number of directors to be elected: of directors to be elected
Provided, however, That no delinquent stock multiplied by the number of his
shall be voted. Unless otherwise provided in the shares shall equal
articles of incorporation or in the bylaws,
members of nonstock corporations may cast as
iii) Cumulative Voting by
many votes as there are trustees to be elected Distribution - he may
but may not cast more than one (1) vote for one distribute his voyes among as
(1) candidate. Nominees for directors or trustees
many candidates as he shall
receiving the highest number of votes shall be
declared elected. see fit

If no election or the owners of majority of the

outstanding capital stock or majority of the
10
See Section 7
 b) Elections should be at large in stock 3) A partisan director may criticize
corporations11 management unreasonably so as to
All shareholders holding voting shares make it less willing to take risky but
have the right to vote. The stockholders who desirable actions;
can vote are the stockholders, who are not 4) A partisan director may leak
delinquent, who are stockholders of record at confidential information;
the time fixed in the By-Laws, or if the 5) It may be used to further narrow
By-Laws is silent, at the time of the election. partisan goals, particularly to give an
insurgent group a toehold in the
Staggered elections is not allowed in stock corporation in an effort to obtain
corporations, it would be violative of the rule control
that provides for the annual election of all
directors. Formula
In order to determine the number of shares
Automatic membership in the Board is not needed to elect a single is as follows:
allowed. There must be an election in the
manner prescribed in this provision. S

Staggered elections is not allowed in stock

corporations, it would be violative of the rule D+1
that provides for the annual election of all
directors. S = total number of shares voting
D = number of directors to be voted
Agreement by which selection of corporate
directors is reposed in anybody except Number of Shares necessary to elect a
stockholders is in violation of public policy and desired number of Director
unenforceable.
S x (Desired Numbers of Directors) + 1
Advantages of Cumulative Voting
1) It is democratic in that person with D+1
large (but minority) holdings would
have a voice in the conduct of Any fractional part of one in the result should
corporation be dropped in using the formula.
2) It is desirable to have as many
viewpoints as possible represented on Number of Directors that can be elected by
Board of Directors; and a shareholder holding a specific number of
3) The presence of minority director may share
discourage conflicts of interest by
management since discovery is ( N - 1) (D +1)
considerably more likely.
S
Grounds to Oppose Cumulative Voting N = the number of shares of the shareholder
1) The introduction of a partisan on the D = number of directors to be elected
Board is inconsistent with the notion S = number of shares to be voted by all
that the Board should represent all shareholders
interests in the corporation;
2) Partisan director may cause Election of Incomplete Directors
disharmony whcih reduces the Stockholders may elect less than the total
efficiency of the Board number of directors specified in the AOI. An
incomplete Board may still function so long as
11
​To do otherwise will be in violation of Section 23, the remaining directors constitute a quorum.
cannot be provided otherwise in the By-Laws.
Failure to hold Election GOCCs
If the Board or officer authorized to call a Under RA 10149 known was the GOCC
meeting the stockholders may ask for the Governance Act of 2011, the state is entitled
assistance of the SEC to comple the holding of to nominate Appointive Directors/Trustees to
such elections. the extent of its percentage shareholdings in
such GOCC that are created even under
Election Contests Corporation COde. The president appoints
Refers to any controversy or dispute involving these directors.
title or claim to any elective office in a stock or
non-stock corpoation, the validation of proxies, Who is duly elected
the manner and validity of elections, and the Nominees with the highest number of votes
qualifications of candidates, including the shall be declared elected. ​Plurality of votes ​is
proclamation of winners, to the office of observed.
director, trustee or other officer directly elected
by the stockholders in a close corporation or Quorum
by members of a non-stock corporation where At all elections of directors or trustees, there
the AOI or By-Laws so provide. must be present, either ​in person or ​through
a representative authorized ​to act by written
Election of directors are presumed to be valid. proof:
Complaints involving election contest should a) If there is capital stock - owners of
be filed withe the RTC. majority of the outstanding capital
stock
Questions regarding the validity of teh election b) If there be no capital stock - majority of
of teh Board of Directors for a given year mau the members entitled to vote.
be rendered moot and academic by a valid In the absence thereof, elections is invalid. It
election of a new set of Board of Directors for is meant to prevent railroading of election of
the next succeeding year. directors.

Automatic membership in the Board is not All stockholders at the time of election must be
allowed. There must be an election in the considered. However, it is also proper for the
manner prescribed in this provision. by-laws to provide for a record date13.

Staggered elections is not allowed in stock Presence of Candidate

corporations, it would be violative of the rule Not necessary to be present during the
that provides for the annual election of all meeting. He can be elected in absentia.
directors. However, The by-laws may require the
presence to be elected.
Agreement by which selection of corporate
directors is reposed in anybody except How to Vote
stockholders is in violation of public policy and The stockholders and members may vote:
unenforceable. 1) Personally by attending the meeting
2) Through a proxy; or
Non-stock Corporations 3) Through remote communication or in
There can be election by region in a non-stock absentia
corporation, because the right to vote in a
non-stock corporation may be limited, broaded Voting through remote communication or in
or denied in the AOI or By-laws​.12 absentia is allowed:
1) When authorized by the By-laws; or

13
The by-laws may provide that only
stockholders of record a certain date before
12
​See Section 88 the elections are entitled to vote.
 2) When authorized by a majority of the 3) Corporate Secretary (must be
directors; or a resident citizen)
3) Even without a provision in the 4) Compliance officer (for
By-laws, in corporations vested with Corporations vested with
public interest Public Interest)
5) Such other officers as may be
Business Judgment Rule provided in the By-Laws
Questions of Policy or management are left ● Elected by the majority of all directors
solely to the honest decision of officers and or trustees
directors of a corporation and the courts are
without authority to substitute their judgment AOI and By-Laws may create other coporate
for the judgment of the BOD; the board is the offices.
business manager of the corporation, so long
as it is in good faith, its orders are not Officers specified in By-Laws
reviewable by the courts or SEC. Directors are ● Position must be expressly mentioned
not liable to the stockholders in such acts. in the By-Laws in order to be
considered corporate office
Criminal Liability ● Person elected = Corporate Officer
Directors, corporate officers, or employees EXCEPT if the office is created by
through whose act, default ot omission the such law
corporation commits a crime, will be ● The Board of Directors (BOD) has no
individually held answerable for the crime. power to create additional offices
without first amending the by-laws as
to include the newly created office.
SEC. 24. ​Corporate Officers. – Immediately after ● Two requisites must concur:
their election, the directors of a corporation must 1) The creation of the position is
formally organize and elect: (a) a president, who under the corporation’s
must be a director; (b) a treasurer, who must be charter or by-laws; and
a resident; (c) a secretary, who must be a citizen
and resident of the Philippines; and (d) such 2) The election of the officers is
other officers as may be provided in the bylaws. by the director or stockholders
If the corporation is vested with public interest, ● If not specified in the By-laws, teh
the board shall also elect a compliance officer.
The same person may hold two (2) or more baord may still create appointive
positions concurrently, except that no one shall positions, since they are teh
act as president and secretary or as president corporation’s governing body, with
and treasurer at the same time, unless otherwise
power to exercise prerogatives in
allowed in this Code.
managing the business affairs of the
The officers shall manage the corporation and corporation.
perform such duties as may be provided in the ○ They are NOT corporate
bylaws and/or as resolved by the board of
directors.
officers though. They are not
empowered to exercise
powers aside from those
Corporate Officers
lawfully delegated to them.
● Officers who are designated or
specified as such or given that
The same person may hold two or
character in the law, AOI and the
more positions concurrently. However:
By-Laws of the corporation:
1) Treasurer cannot be the
1) President (who shall be a
President at the same time
director)
2) Corporate Secretary cannot
2) Treasurer (who may or may
likewise be the president
not be a director but must be a
3) Single stockholder in a One
resident)
Person Corporation may not
 be appointed as Corp removal of directors or
Secretary but he/she can be trustees16
treasurer subject to the giving 2) To call for a special meeting of
of a bond to the SEC.14 the BOD/T at any time as
provided by the by-laws17
Officers are elected by the Board, removal is 3) To preside at all meetings of
also by them and no stockholder’s the BOD/T as well as of the
concurrence is required. stockholder or members,
unless the by-laws provide
Qualifications and Functions otherwise18
Minimum qualifications are provided for in the 4) To sign the certificate of
Corporation Code and the By-Laws.15 stocks representing shares
issued by the corporation;19
President 5) To sign verification of a
● There can only be ONE petition for dissolution of the
● Not covered by compulsory retirement corporation20
age for employees
● Often given general supervision and Vice-President
control over corporate operations ● In the absence of the president, or in
● In the absence of a charter or By-Laws event of vacancy, has the authority to
provision to the contrary, he is act in his stead, or perform any duty of
presumed to have the authority to act the office.
within the domain of the general ● Ordinarily assigned the duty of
objectives of the corporation’s succession
business and within the scope of his
usual duties Chairman
● Possesses the power to enter into ● The concept and functions as
contract for the corporation, when “the executive vary in different companies.
conduct of both the president and teh ● The duties according to the Code of
corporation shows that he had been in Corporate Governance
the habit of acting in similar matters on 1) Ensure that the meetings of
behalf of the corporation and the the Board are held in
company had authorized him so to act accordance with the By-laws
and had recognized, approved and or as the chair may deem
ratified his former and similar actions. necessary
○ A party dealing with the 2) Supervise the preparation of
president is entitled to assume the agenda of the meeting in
taht he has authority to enter cooperation with the
into contracts that are within Corporate Secretary. Taking
teh scope of the powers of into considertaions the
said corporation and do not suggestion of the CEO,
violate any statute or rule on maangement ad directors
public policy. 3) Maintain qualitative and timely
● Certain duties are provided for under lines of communication and
the Corporation Code: infromation between the board
1) To order calling by the and the management
Secretary of a special meeting
of the stockholders or 16
​See Section 27
members for the purpose of 17
​See Section 52
18
​See Section 53
14
​See Section 122 19
​See Section 62
15
​See Section 47 20
See Section 135
 ● Custodian of the funds with authority
Corporate Secretary to disburse them in proper cases.
● There shall only be ONE ● In the absence of provisions to teh
● Need not be a lawyer unless contrary. He is authorized to:
corporation is covered by the Revised 1) Receive funds
Code of Corporate Governance and 2) Issue receipts
the secretary is also the Compliance 3) Keep the money of the
officer, a lawyer is preferred corporation
● Primarily duty bound to keep the
corporate records and to make proper Appointment and Removal of Officers
entires thereto Unless the By-Laws specifies other officers
● SEC Memorandum Circular No. 3 who have appointment authority, the Board of
Series of 2013 imposes the Directors/Trustees shall appoint the officers,
responsibility of monitoring and and as incident of the power of appointment,
observing compliance with the may also remove or discharge those
provisions of Filipino and Foreign appointed.
Ownership requirements as required
in the Constitution and Foreign Corporation is not prohibited from hiring
Investment Act corporate officer to perform services that will
● Other specific functions make him an employee.
1) Maintains the stock and
transfer book, makes the Anti-Dummy Law
entries and records transfer ● Foreigners cannot be officers of a
book wholly nationalized and partly
2) Must sign the certificates of nationalized corporations. He may be
stock of a corporation a director in a partly nationalized, but
3) Must send notices of the he cannot be an officer. The difference
meeting of the directros and/or lies in the fact that a director cannot
stockholders act on his own, while an officer acts
4) Takes nad prepares written individually for the corporation.
minutes of the meeting ● Foreigners cannot intervene in the
5) Issues certificates regarding management, operatioom,
the passage, existence and administration or control, whetehr as
binding effect of a board an officer, employee or laborer, with or
resolution (Secretary’s without remuneration, escept techincal
Certificate) personnel
6) Calls meeting of stockholders ● Applies only to those reserved by the
for the removal of the constitution or law to Filipinos, or the
directors/trustees upon order capital is owned 60% by Filipinos
of the president or on written
demand of teh stockholders Authority of Officers
representing or holding ay When authorized, corporate officers can bind
least a majority of the the corporation. The authority is generally
outstanding capital stock. derived from:
7) Other duties imposed by the 1) Law
Code of Corporate 2) AOI
Governance 3) Corporate by-laws
4) Authorization from the board,
Treasurer expressly or impliedly by habit,
● Shall be only ONE custom, acquiescence in the general
course of bushiness, or
 5) Those inherent in office Ratification
In the absence of specific provision of law, The principal voluntarily adopts, confirms and
they may do so ONLY if authorized by the gives sanction to some unauthorized act of its
by-laws. agent on its behalf.
● Substance is confirmation after
General principles of agency govern the conduct as substitute of prior authority.
relationship between the corporate officers or ● Can be made expressly or impliedly[
agents and the corporation.
Apparent Authority
Corporate officer may represent and bind the If a corporation knowingly permits its officers
corproation in transactions with third persons pr any other agent, to do acts within the scope
to the extent that the authority to do so has of an apparent authority, and holds the officer
been conferred upon him, including: or agent out to the public as possessing power
1) Those that in the usual course of to do those acts, the corporation will, as
business are incidentall to those against one who has in good faith dealt with
expressly provided the corporation through such agent, be
2) May be implied from those conferred estopped from denying his authority.
3) Apparent powers as the corporation ● any body who alleges this must
has caused the person dealing with present evidence of similar acts
the officer to believe it has conferred executed
● There must be proof of reliance upon
Implied Authority representation which predated the
A corporate officer, entrusted with the general action
management and control of its business, has ● Action in behalf of the corporation
implied authority to make any contract or do must be established.
any other act necessary or appropriate to the
conduct of business of the corporation. Apparent authority is determined only by the
acts of the principal and not by the acts of the
Practice, Custom, Policy agent.
● Where the BOD approves imilar acts
as a matter of general practice, De Facto Officer
custom and policy, the officer may One who acts as such under color of authority,
bind the company without formal through election or appointment
authorization of the BOD. ● By color of authority - derived from an
● Existence of such authority is election or appointment, although
established by: irregular or informal
1) Proof of the course of ● Adopted to protect the interest of the
business public
2) Usage and practice of the ● The official dealings of officers or
company directors de facto with third persons
3) Knowledge that the BOD has are sustained as rightful and valid on
or must be presumed to have, the ground of continuous
of acts and doings of its acquiescence by the corporation and
subordinates and th e affairs suffering them to hold themselves out
of the corporation as having such authority thereby
inducing others to deal with them in
When corporate officers exceed their authority, such capacity.
their actions cannot bind the corporation
unless the BOD ratifies such acts or is
estopped from disclaiming them.
SEC. 25. ​Report of Election of Directors, involving fraud acts; and
Trustees and Officers, Non-holding of Election
and Cessation from Office. – Within thirty (30) (c) By a foreign court or equivalent foreign
days after the election of the directors, trustees regulatory authority for acts, violations or
and officers of the corporation, the secretary, or misconduct similar to those enumerated in
any other officer of the corporation, shall submit paragraphs (a) and (b) above. The foregoing is
to the Commission, the names, nationalities, without prejudice to qualifications or other
shareholdings, and residence addresses of the disqualifications, which the Commission, the
directors, trustees, and officers elected​. primary regulatory agency, or the Philippine
Competition Commission may impose in its
The non-holding of elections and the reasons promotion of good corporate governance or as a
therefor shall be reported to the Commission sanction in its administrative proceedings.
within thirty (30) days from the date of the
scheduled election. The report shall specify a
new date for the election, which shall not be later Disqualifications are meant to assure that only
than sixty (60) days from the scheduled date. persons of rectitude can act as directors.
If no new date has been designated, or if the
rescheduled election is likewise not held, the The disqualifications under this section are not
Commission may, upon the application of a exclusive. Additional grounds can be found in
stockholder, member, director or trustee, and other provisions of the code, by-laws, AOI, and
after verification of the unjustified non-holding of
the election, summarily order that an election be Code of Corporate Governance.
held. The Commission shall have the power to
issue such orders as may be appropriate,
including orders directing the issuance of a SEC 27​. ​Removal of Directors or Trustees.​ – Any
notice stating the time and place of the election, director or trustee of a corporation may be
designated presiding officer, and the record date removed from office by a vote of the
or dates for the determination of stockholders or stockholders holding or representing at least
members entitled to vote. two-thirds (2/3) of the outstanding capital stock,
or in a nonstock corporation, by a vote of at least
Notwithstanding any provision of the articles of two-thirds (2/3) of the members entitled to vote:
incorporation or bylaws to the contrary, the Provided, That such removal shall take place
shares of stock or membership represented at either at a regular meeting of the corporation or
such meeting and entitled to vote shall constitute at a special meeting called for the purpose, and
a quorum for purposes of conducting an election in either case, after previous notice to
under this section. stockholders or members of the corporation of
the intention to propose such removal at the
Should a director, trustee or officer die, resign or meeting. A special meeting of the stockholders
in any manner cease to hold office, the or members for the purpose of removing any
secretary, or the director, trustee or officer of the director or trustee must be called by the
corporation, or in case of death, the officer’s secretary on order of the president, or upon
heirs shall, within seven (7) days from knowledge written demand of the stockholders representing
thereof, report in writing such fact to the or holding at least a majority of the outstanding
Commission. capital stock, or a majority of the members
entitled to vote. 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 of the corporation signing
SEC. 26. ​Disqualification of Directors, Trustees the demand may call for the meeting by directly
or Officers​. – A person shall be disqualified from addressing the stockholders or members. Notice
being a director, trustee, or officer of any of the time and place of such meeting, as well as
corporation if, within five (5) years prior to the of the intention to propose such removal, must
election or appointment as such, the person was: be given by publication or by written notice
prescribed in this Code. Removal may be with or
(a) Convicted by final judgment: without cause: Provided, That removal without
(1) Of an offense punishable by imprisonment for cause may not be used to deprive minority
a period exceeding six (6) years; stockholders or members of the right of
representation to which they may be entitled
(2) For violating this Code; and under Section 23 of this Code.
The Commission shall, motu proprio or upon
(3) For violating Republic Act No. 8799, verified complaint, and after due notice and
otherwise known as “The Securities Regulation hearing, order the removal of a director or trustee
Code”; elected despite the disqualification, or whose
(b) Found administratively liable for any offense disqualification arose or is discovered
 subsequent to an election. The removal of a SEC 28. ​Vacancies in the Office of Director or
disqualified director shall be without prejudice to Trustee; Emergency Board. ​– Any vacancy
other sanctions that the Commission may occurring in the board of directors or trustees
impose on the board of directors or trustees who, other than by removal or by expiration of term,
with knowledge of the disqualification, failed to may be filled by the vote of at least a majority of
remove such director or trustee. the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies
must be filled by the stockholders or members in
Requisites for Removal a regular or special meeting called for that
1) Must take place either at a regular purpose.
meeting or special meeting of the
When the vacancy is due to term expiration, the
stockholders or members duly called election shall be held no later than the day of
for the purpose such expiration at a meeting called for that
2) Ther emust be previous notice to the purpose. When the vacancy arises as a result of
removal by the stockholders or members, the
stockholders or members of the election may be held on the same day of the
intention to propose a removal at the meeting authorizing the removal and this fact
meeting must be so stated in the agenda and notice of
said meeting. In all other cases, the election
3) The removal must be by a vote of
must be held no later than forty-five (45) days
stockholders prepresenting at least ⅔ from the time the vacancy arose. A director or
ofoutstanding capital stock or ⅔ od trustee elected to fill a vacancy shall be referred
members; and to as replacement director or trustee and shall
serve only for the unexpired term of the
4) The director may be removed with or predecessor in office.
without cause unless he was elected
by a minority, in which case, cause is However, when the vacancy prevents the
remaining directors from constituting a quorum
required for removal
and emergency action is required to prevent
grave, substantial, and irreparable loss or
Call must be made by the Corporate Secretary damage to the corporation, the vacancy may be
upon: temporarily filled from among the officers of the
corporation by unanimous vote of the remaining
1) Order of the president; or directors or trustees. The action by the
2) Written demand of stockholders designated director or trustee shall be limited to
reoresenting majority of outstanding the emergency action necessary, and the term
shall cease within a reasonable time from the
capital stock, or a majority of members
termination of the emergency or upon election of
entitled to vote the replacement director or trustee, whichever
OTHERWISE the meeting is VOID comes earlier. The corporation must notify the
Commission within three (3) days from the
creation of the emergency board, stating therein
Stockholders may elect replacement in the the reason for its creation.
same meeting for removal.
Any directorship or trusteeship to be filled by
reason of an increase in the number of directors
Removal vs Disqualified
or trustees shall be filled only by an election at a
There is no need to follow procedure in this regular or at a special meeting of stockholders or
provision for disqualified director, by operation members duly called for the purpose, or in the
of law, such director is disqualified to act same meeting authorizing the increase of
directors or trustees if so stated in the notice of
creating vacancy in the board, the meeting.

Removal does not result to transfer of In all elections to fill vacancies under this section,
the procedure set forth in Sections 23 and 25 of
Director’s share, he remains a stockholder.
this Code shall apply.

Replacement Director​ must be elected by :

1) Stockholders or members if vacancy is
due to:
a) Removal
 b) Term expiration 5) Temporary replacement must be
c) Ground other than a) and b) elected by vote of the remaining
d) Increase in the number of directors/trustees
directors or trustees 6) Notice must be given to SEC within 3
2) By the Board if the remaining directors days from creation of Emergency
constitute a quorum in cases not Board
reserved to stockholders or members
like death and resignation Limitations
1) The actions of the designated director
When election should be made or trsutee shall be limited to th
If vacancy is: emergency action necessary
1) Due to term expiration - on the day of 2) Term will cease within reasonable
expiration, at a meeting called for that time from termination of the
purpose emergency or upon election,
2) Occurs as a result of removal by whichever comes earlier.
stockholders or members - may be
held on the same day of the meeting Non-Holding of Election
for removal and must be stated in the A new date should be fixed within 60 days
agenda and notice of the meeting from the original scheduled date of the
3) All other cases of vacancy - held no meeting for election, which was not held.21
later than 45 days from the time
vacancy arose Power of SEC
If no new date is designated, or the
Vacancy ​may occur if director abandoned his rescheduled one is not held, the SEC may,
position. Director is deemed to have upon:
abandoned his position if he accepts a position 1) Application of a stockholder, member
incompatible with his duties and which will or director; and
render him physically incapable of performing 2) After verification of the unjustified
his duties as director. non-holding of election,
summarily order that election be held and
By-laws may provide procedure for filling up issue orders as may be appropriate.22
vacancy, as long as they are consistent with
the Code. Majority not needed for quorum.23

Hold-over Directors
See explanation in Section 22

Creation of Emergency board

The remaining directors, even if there is no
quorum, may elect replacement
director/trustee subject to the following
requirements:
1) Remaining directors do not constitute
a quorum
2) There is a need for emergency action
3) Action is necessary to prevent grave,
substantial, and irreparable loss or
damage to the corporation
4) Temporary replacement must come
for the officers of the corporation 21
​See Section 25
22
Ibid
23
​Ibid
 The board subject to ratification of the
SEC 29. ​Compensation of Directors or Trustees.
– In the absence of any provision in the by-laws stockholders may provide for bonuses, but its
fixing their compensation, the directors or covered by the 10% limitation.
trustees shall not receive any compensation in
their capacity as such, except for reasonable per
diems: Provided however, That the stockholders Compensation of Officers
representing at least a majority of the These are fixed by the board, by way of
outstanding capital stock or majority of the resolution which ar prospective in application.
members may grant directors or trustees with
Not covered by the 10% limitation.
compensation and approve the amount thereof
at a regular or special meeting.
SEC 30. ​Liability of Directors, Trustees or
In no case shall the total yearly compensation of
​ irectors or trustees who willfully and
Officers. – D
directors exceed ten (10%) percent of the net
knowingly vote for or assent to patently unlawful
income before income tax of the corporation
acts of the corporation or who are guilty of gross
during the preceding year.
negligence or bad faith in directing the affairs of
the corporation or acquire any personal or
Directors or trustees shall not participate in the
pecuniary interest in conflict with their duty as
determination of their own per diems or
such directors or trustees shall be liable jointly
compensation.
and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or
Corporations vested with public interest shall
members and other persons.
submit to their shareholders and the
Commission, an annual report of the total
A Director, Trustee, or Officer shall not attempt to
compensation of each of their directors or
acquire, or acquire any interest adverse to the
trustees.
corporation in respect of any matter which has
been reposed in them in confidence, and upon
which, equity imposes a disability upon
Rules on Compensation
themselves to deal in their own behalf, otherwise
1) The by-laws may provdie fro the fixed the said director, trustee, or officer shall be liable
compensation of teh members of the as a trustee for the corporation and must account
BOD for the profits which otherwise would have
accrued to the corporation.
2) If it does not, compensation may be
granted to directors by the vote of
stockholders representing at leas a Sections 30-33 were intended to impose
majority of the capital stock exacting standards of fidelity on corporate
3) Even if no compensation is provided in officers and directors but without unduly
teh by-laws, they are still entitled to impending them in the discharge of their work
per diems with concerns of litigation.
4) Total compensation must not exceed
10% of teh net income before income Duties
tax of the corporation during the Management has three paramount duties:
preceding year. a) Obedience
b) Diligence
No salary because the services are rendered c) Loyalty
gratuitously.
Obedience
Per Diem Requires compliance with the law an rules,
Limited to pay fro a day’s services. They are and to act intra vires and within authority. It
allowances of money for expenses each day. also requires compliance with the AOI,
by-laws, and orders of the court.
The 10% limit can only be given if there are
profits. If there is none, they will only receive Diligence
per diems. Directors and officers are required to exercise
due care in the performance of their functions.
This duty is also referred to as the
responsibility of directors that is proportioned a) Vote for or assent to patently
to the occasion. unlawful acts of the
corporation
The standard of care to be applied in the b) Act in bad faith or with gross
exercise of diligence is that of a reasonabley negligence in directing the
prudent person. affiars of the corporation
c) Are guilty of conflict of interest
Determination of exercise of due care entails to the prejudice of corporation,
examination of the facts and circumstance of a its stockholders or members,
particular case. The court should consider and other persons;
such circumstances such as: 2) When a director consented to the
1) Kind of corporations involved issuance of watered stocks or who,
2) Its size and financial resources having knowledge thereof, did not
3) Magnitute of transaction fortwith file with the corporate
4) Immediacy of the problem presented secretary his written objection thereto
3) When the director, trustee or officer
Directors and officers owe fiduciary duty to the has contractually agreed or stipulated
corporation and to the shareholders. That is to hold himself personally and
why it provides rules on: solidarily liable with the corporation
1) Self-dealing directors 4) When a director, trustee or officer is
2) Contracts between corpration with made by specific provisions of law,
inter-locking directorship personally liable for his corproate
3) Usurpation of the corporation business offense
opportunity
4) Oppression of minority stakehodlers The burden is on the one claiming to prove
5) Conflict of interest that the specific acts are covered by the
enumeration above.
The requirement of presence of bad faith and
ngeligence does not contemplate simple The directors and officers are the only ones
mistakes or negligence. personally liable if they are not authorized at
all or acted in excess of their authority as
It is well-established that corporate officers are agents or representatives in entering a
not permitted to use their position of trust and contract.
confidence to further thei private interest.
Patently Unlawful Act
There must be loyalty to other stakeholders One declared unlawful by law that imposes
like creditors. Absence of fraudulent intent on penalties for commision of such unlawful acts.
the part of directors is immaterial because the There must be a law delcaring the act unlawful
right of the creditors does not depend upon and provides corresponding penalty.
fraud in fact, but upon the violation of the ● Act is not patently unlawful just
fiduciary relation to the directors. because an act is ultra vires

Personal and Solidary Liability Bad Faith and Fraud

Liability of directors and officers are solidary Imports a dishonest purpose. It means breach
with the corporation. Hence, they are of a known duty, through some ill motive or
personally liable even if the act was done in interest. It imports some moral oliquity and
the name of the corporation: conscious doing of a wrong. It partakes of a
1) When directors and trustees or nature of fraud.
officers: ● It must be established. It cannot be
presumed
 ● Fraud refers to all kinds of deception 3) Equity imposes a disability upon him
that would lead an ordinarily prudent to deal in his own behalf.
person into error after taking
circumstances into account. Must be Agency Rules in Corporation
established by clear and convincing Articles 1898 and 1891 apply to make director,
evidence. officer or trustee liable as fiduciaries.

Gross Negligence Labor cases

Negligence must be so gross that it could Directors and corporate officers are personally
amount to bad faith. It is one that is liable in illegal termination cases if they acted
characterized by want of even slight care, with malice or bad faith in terminating the
acting or omitting to act in a situation where services of an employee.
tehre is duty to act not inadvertently but
willfully and intentionally with a conscious Employee may successfully use the Doctrine
indifference to consequences insofar as other of Piercing the Veil of Corporate Fiction to
persons are affected. It evnices thoughtless make officer liable in illegal termination,. The
disregard of consequences without exerting corporate entity may be disregarded in the
any effort to avoid them. interest of justice in such cases as fraud that
● Must be established by clear and may work inequities among members of the
convincing evidence corporation internally, involving no rights pf the
public or third persons.
Directors would also be considered grossly
negligent if their action lacks business Officers are similarly vested with teh duties of
purpose. obedience, loyalty and diligence.
1) Obedience - requires him to act within
Watered Stocks the authority given to him by the
Stocks issued for less than their par or issued board, by-laws and AOI, he must also
value or in any otehr form other than cash act in accordance with the instructions
valued in excess of its fair value. of the Board in the execution fo the
agency
Conflict of Interest 2) Loyalty - requires avoidance of conflict
The provision provides two statements of of interest situation
liability for conflict of interest situations that 3) Diligence - makes him liable for
breach their duty of loyalty. damages that the principal may have
suffered through his non-performance
The first paragraph expresses the broad of his duty.
statement of laibility consistent with the nature
of the persons as fiduciaries. SEC 31. ​Dealings of Directors, Trustees or
Officers with the Corporation. – A contract of the
The second one holds one liable as trustee for corporation with (1) one or more of its directors,
trustees, officers or their spouses and relatives
the corporation and must account for the
within the fourth civil degree of consanguinity or
profits which otherwise would have accrued to affinity is voidable, at the option of such
the corporation if the following requirements corporation, unless all the following conditions
are present: are present:
1) A director, trustee or officer attempts (a) The presence of such director or trustee in
to acquire or acquires an interest the board meeting in which the contract was
adverse to the corporation in respect approved was not necessary to constitute a
of any matter quorum for such meeting;
2) The matter must have been reposed in (b) The vote of such director or trustee was not
him in confidence necessary for the approval of the contract;
 membership of the board, with at least
(c) The contract is fair and reasonable under the
circumstances; a majority of the independent directors
voting to approve the material contract
(d) In case of corporations vested with public 5) In case of an officer the contract has
interest, material contracts are approved by at
least two-thirds (2/3) of the entire membership of been previously authorized by the
the board, with at least a majority of the board of directors
independent directors voting to approve the
material contract; and
Exception: ​Where any of the first two
(e) In case of an officer, the contract has been conditions is absent, in the case of a contract
previously authorized by the board of directors. with directir and trustee, such contract maybe
ratifed by the vote of the stockholders
Where any of the first three (3) conditions set
forth in the preceding paragraph is absent, in the representing at least ⅔ of the outstanding
case of a contract with a director or trustee, such capital stock or of at least ⅔ of the members in
contract may be ratified by the vote of the a meeting called for the purpose. It is required
stockholders representing at least two-thirds
though:
(2/3) of the outstanding capital stock or of at
least two-thirds (2/3) of the members in a 1) There is full disclosure of the adverse
meeting called for the purpose: Provided, That interest of the director or trustee
full disclosure of the adverse interest of the involved at such meeting; and
directors or trustees involved is made at such
meeting and the contract is fair and reasonable 2) The contract is fair and reasonable
under the circumstances. under the circumstances

Covers contracts between the corporation and: Fair and Reasonable

1) A director or trustee Fairness typically requires that the transaction
2) Officer reflects terms one would expect in an arm’s
3) Their spouse length transaction, that a self-dealing director
4) Relatives within 4th degree of must treat the corporation’s interest as his
consanguinity or affinity own. He should not take advantage from his
position on both sides of his transaction nor
This is discouraged because of the fiduciary act in conflict with the corporation’s interest
relationship with teh corporation and there can even to the slightest extent.
be no real bargaining where the same is acting
on both sides of the trade. Disclosure is sine qua non. The efficacy of the
approval of the impartial directors is
Status of the contract: VOIDABLE at the dependent on the board’s knowledge of all
option of the corporation. material facts.

When valid
The contract is valid if the following conditions SEC 32. ​Contracts between Corporations with
are present: Interlocking Directors. – ​Except in cases of fraud,
and provided the contract is fair and reasonable
1) the presence of the director or trustee under the circumstances, a contract between two
in the baord meeting in which the (2) or more corporations having interlocking
contract was approved was not directors shall not be invalidated on that ground
alone: Provided, That if the interest of the
necessary to constitute quorum
interlocking director in one (1) corporation is
2) The vote of such director or trustee substantial and the interest in the other
was not necessary for the approval of corporation or corporations is merely nominal,
the contract the contract shall be subject to the provisions of
the preceding section insofar as the latter
3) Teh contract is fair and reasonable corporation or corporations are concerned.
under the circumstances
4) In case of corporations vestwed with Stockholdings exceeding twenty (20%) percent
of the outstanding capital stock shall be
public interest, material contracts are
considered substantial for purposes of
approved by at least ⅔ of the entire
 interlocking directors.
The rule under this provision does not apply if
a third party corporation will be prejudiced.
There is an interlocking director in a
corporation when one (or some or all) of the
directors in one corporation is (or are) a
director(s) in another corporation. SEC. 33. ​Disloyalty of a Director. – Where a
director, by virtue of such office, acquires a
business opportunity which should belong to the
Interest both Substantial corporation, thereby obtaining profits to the
If the interest of the interlocking directors in the prejudice of such corporation, the director must
account for and refund to the latter all such
corporation are both substantial (stockholdings
profits, unless the act has been ratified by a vote
exceed 20% of the outstanding capital stock): of the stockholders owning or representing at
● General Rule: VALID It shall not be least twothirds (2/3) of the outstanding capital
invalidated on that ground alone. stock. This provision shall be applicable,
notwithstanding the fact that the director risked
● Exception: VOIDABLE at the option of one’s own funds in the venture.
the Cpororation, if the contract is
fraudulent or not fair and reasonable.
It may be annulled under the grounds
Doctrine of Corporate Opportunity
provided in the New Civil Code for
This covers cases when a director takes a
voidable contracts.
business opportunity that belongs to the
corporation:
Interest Substantial in one, Nominal in the
1) Corporation is financially able to
other
undertake
● General Rule: VOIDABLE at the
2) From its nature, it is in line with the
option of teh corporation where the
corporation’s business; and
interlocking director has nominal
3) It is one which the corporation has
interest
interest of reasonable expectancy
● Exception: It will be valid if the first 3
conditions in Section 31 are met:
The duty of loyalty mandates that directors
1) Presence of director not
should not give preference to their own
necessary to constitute
personal amelioration by taking the opportunity
quorum in the meeting
belonging to the corporation. No criminal
2) Vote not necessary for
liability is attached to the offending director.
approval of the contract
3) Contract is fair and
This doctrine rests fundamentally on the
reasonable under the
unfairness wherein an officer or director takes
circumstances
advanteg of an opportunity for his own
● Where any of the first two is absent,
personal profit when the interest of the
can be ratified by vote of stockholders
corporation justly calls for protection.
representing at least ⅔ of outstanding
capital stock or by vote of at least ⅔ of
General Rule
the members in a meeting called for
If a director, by virtue of such office, seizes a
the purpose, as long as the following
business opportunity which should belong to
are present:
the corporation thereby obtaining profits to the
1) Full disclosure of teh adverse
prejudice of the corprations, he ​must account
interest of the
and refund ​ to the corporation all the profits
directors/trustees involved is
made on such meeting
Exception
2) The contract is fair and
The contract or act may be ratified by a vote of
reasonable under the
the stockholders owning or representing at
circumstances
least ⅔ of the outstanding capital stock
Section 33 expressly apply only to directors. Fairness and Mixed test can be applied in our
However, the conflict of interest in Section 30 jurisdiction. The line of Business cannot be
applies not only to directors, but also to strictly applied because there is no wholesale
officers and trustees. prohibition against a director to engage in the
same line of business as the corporation.
Prohibition does not apply if made after
resignation or where the corporations are In fact, if there is no express prohibition in the
involved even if there is interlocking AO or by-laws, a director can also be a
directorship, director in a competing corporation.
Non-competition clauses are expressly
Interest or Expectancy Test stipulated to prevent this.
Precludes acquisition by corporate officers of
property or business opportunity to which teh Burden of Proof
corporation has a “beachhead” in the sense of The burden on the questions of good faith, fair
a legal or equitable interest or expectancy dealing, and loyalty of the officer rests upon
growing out of pre-existing right or the officer who appropriated the bsuienss to
relationship. his own advantage.
● More restrictive and inflexible ● Because fiduciary with a conflict of
interest should be requried to justify
Line of Business Test his actions
Characterizes an opportunity as
corporatewhenevr a managing officer become Opportunity or Business ceases to be a
involved in an activity intimately or closely corproate opportunity and is transformed into
related with the existing or prospective personal opportunity where the corporation is
activities of the corporation. definitely no longer able to avail itself of the
● “In line of business” is applied opportunity, whetehr by financial insolvency or
reasonably and sensibly based on legal restrictions or any other factor taht
facts and circumstances prevents the corporation.
● Where a corporation is engaged in a 1) The officer must give notice to the
certain business and an opportunity is corporation that such opportunity
presented to it embracing an activity exists and the corporation does not
as to which: want to avail of it.
1) It has fundamental knowledge 2) He must inform teh corporation that
2) Practical experience kloss of certain business is imminent
3) Ability to pursue, and the corporation must be given
4) which is logically and naturally reasonable chacne to undertake the
adaptable to its business business
having regard for its financial
position; and is
5) one that is consonant with its
reasonable needs and
aspirations for expansion

Fairness test
Determines existence of corporate opprotunity
by applying ethical standards of what is fair
and equitable under teh circumstances.

Mixed test
Applying any two or all the tests
 Just like any board, the resolution of teh
Executive Committee may be repealed by
SEC. 34. ​Executive, Management, and Other
Special Committees. – If the bylaws so provide, subsequent Board resolutions unless what is
the board may create an executive committee involved is an accomplished fact or a contract
composed of at least three (3) directors. Said that is binding on third persons.
committee may act, by majority vote of all its
members, on such specific matters within the
competence of the board, as may be delegated In a meeting of executive committe, a member
to it in the bylaws or by majority vote of the may ask for deferment if actions in the certain
board, except with respect to the: (a) approval of
actions in case teh board members feel
any action for which shareholders’ approval is
also required; (b) filling of vacancies in the board; strongly that it should be decided by the entire
(c) amendment or repeal of bylaws or the board.
adoption of new bylaws; (d) amendment or
repeal of any resolution of the board which by its
express terms is not amendable or repealable; Quorum
and (e) distribution of cash dividends to the Same as that for directors
shareholders. The board of directors may create
special committees of temporary or permanent
Required Vote
nature and to determine the members’ term,
composition, compensation, powers, and Majority of committee members regardless of
responsibilities. their classification of membership
(director/members of non-director/members.)

Purpose If not validly constituted, they are de facto

Executive committee is an agent of teh BOD to officers.
meet contingency and confronting urgent
matters it is not ready to take​. Board Committees
● It can only be created if provided by The board in the exercise of its business
the by-laws. judgment can create committees taht can give
it assistance in the performance of their
Authority function, under the business judgment rule.
● The Executive committee has all the These are not the executive committe
authority of teh board to the extent contemplated in this provision.
provided in the resolution of teh board
or in the by-laws. Executive Committee is as powerful and in
● Resokutions passed by tehm are as effect acting for the board of directors itself.
valid as resolutions of the BOD
provided they are made at the time the
committe is constituted/

However, tehre must be no undue abdication

of teh powers of teh board. While the committe
may manage day-to-day operation of the
busines of teh corproation, the business and
affairs thereof shall be managed and all
corporate powers shall be exercised under the
ultimaet directions of teh board.

The decision of the committee is not subject

to appeal to the board. They are valid and
unappealable. However, the board may ratify
a resolution is invalid (if not within the powers
conferred)