BOARD OF DIRECTORS & TRUSTEES - Convicted of serious crimes (imprisonment over

6 years) within 5 years before election.

“Unless otherwise provided in this Code, the
board - Found guilty of fraud or similar misconduct by
a foreign court.
of directors or trustees shall exercise the
corporate - Other disqualifications may be set by regulatory
bodies like the SEC or the Philippine Competition
powers, conduct all business, and control all
Commission.
properties of the corporation.”

Corporations Vested with Public Interest

DOCTRINE OF CENTRALIZED
Covered Corporations:
MANAGEMENT
1. Registered Securities: Corporations with
The Doctrine of Centralized Management says
securities registered with the SEC.
that the Board of Directors (BOD) has power
from the law, not from shareholders. 2. Listed or Large Corporations: Those listed on
an exchange or with at least P50 million in assets
EX:
and 200+ shareholders holding at least 100 shares
Jollibee {hindi sya laging may sale (++hindi each.
pwede magdecide ang mga customer kung ano
3. Financial Institutions: Banks, quasi-banks,
ang gagawin ng isang corporation) ( mga board
pawnshops, insurance companies, and other
member lang pwede mag decide)}
financial intermediaries.

Tenure, Qualifications, and Disqualifications of

Other Corporations:
Directors
-The SEC may classify additional businesses as
QUALIFICATIONS:
vested with public interest based on factors like:
-Director: Must own at least 1 share of stock.
-Minority ownership level.
-Trustee: Must be a member of the corporation.
-Types of financial products offered.
- If a director loses their share or a trustee loses
-The public interest related to their operations.
membership, they must step down.
- Additional qualifications can be set by laws or
the corporation's bylaws. INDEPENDENT DIRECTORS
1. An ID is a person on a company's board who
doesn't have ties to the management or major
As to Number:
shareholders. This helps ensure they can make
-Director: Maximum of 15. unbiased decisions.

-Trustee: Can be more than 15. 2. Election: They are chosen by shareholders
during director elections, either in person or by
proxy.
As to Term: 3. Board Requirement: For public companies, at
- Director:Elected for 1 year. least 20% of the board must be independent
directors.
- Trustee:Elected for up to 3 years.
4. Term Limits: An ID can serve for a maximum
- Directors and trustees stay in office until their of nine (9) years. After that, they cannot be re-
successors are elected. elected as an independent director for that
company, but they can serve in other roles.
5. Extension: If there are good reasons, an ID may
DISQUALIFICATIONS:
stay longer, but this needs approval from
shareholders.
6. Voting Procedure: The voting for independent MINIMUM SHARE NEEDED TO BE VOTED:
and regular directors can be done separately, 167
ensuring that at least two independent directors
MINIMUM VOTES NEEDED TO BE VOTED:
are elected.
835

Election of Directors or Trustees

Removal of Directors or Trustees

General Rule:
Voting Requirements:
- Shareholders or members can nominate
- Directors or trustees can be removed by a vote
qualified candidates for directors or trustees,
from shareholders (SH) holding at least 2/3 of the
except when founder’s shares have special voting
outstanding common shares (OCS) or 2/3 of
rights.
voting members.
Meeting Requirements:
Voting Requirements:
- Removal must occur at a regular or specially
- A majority of shareholders must be present (in called meeting.
person or by proxy) for stock corporations.
- Notice must be given to SHs or members about
- Non-stock corporations require a majority of the intention to propose removal.
voting members present.
Calling a Special Meeting:
- Voting can be done remotely or absentee if
- A special meeting for removal can be called by:
allowed by bylaws or the Board.
- The secretary upon the president's order, or
- Written demand from SHs holding a majority
Quorum: (minimum number of members of a
of OCS or voting members.
group necessary to constitute the group at a
meeting) - If the secretary doesn’t call the meeting, a
demanding SH or member can do so directly.
- Those voting remotely or absentee count as
present for quorum. Removal Conditions:
- A director elected by the majority can be
removed with or without cause.
Election Process:
- A director elected by the minority can only be
- Stockholders vote based on their shares, either
removed for cause.
spreading votes among candidates or giving all
votes to one. SEC Authority:
- The SEC can order the removal of a director or
trustee if they were elected despite
Voting Rules for Stock Corporations:
disqualification, either on its own or after a
- Total votes cannot exceed shares owned times complaint, following notice and a hearing
the number of directors to be elected.
- Delinquent shares cannot be voted.
:To remove a director or trustee, shareholders
need a 2/3 vote at a meeting. A special meeting
can be called if requested by the majority.
Voting Rules for Non-Stock Corporations:
Majority-elected directors can be removed freely,
- Members can vote for as many trustees as there while minority-elected ones need a valid reason.
are positions but only one vote per candidate.
- Cumulative voting is allowed if stated in the
Vacancies in the Office of Director or Trustee;
corporation's rules.
Emergency Board
Filling Vacancies: Compensation of Directors or Trustees
1. General Vacancies (not due to removal or term
expiration):
General Rule:
- Can be filled by a majority vote of remaining
- Directors and trustees typically do not receive
directors if there’s a quorum.
compensation.
- If no quorum, shareholders/members can fill
Exceptions:
the vacancy at a special meeting.
- They can receive reasonable per diems for each
day of service to cover daily expenses.
2. Term Expiration:
When Directors or Trustees Can Get Paid:
- An election must be held by the day of
1. If the corporation's bylaws state a fixed
expiration.
compensation.
2. If shareholders (representing a majority) vote
3. Removal by SHs or Members: to grant compensation at a meeting.
- An election can occur on the same day as the
removal meeting, which must be noted in the
Compensation Limitations:
agenda.
- Total annual compensation cannot exceed 10%
of the corporation’s net income before tax from
4. Other Cases: the previous year.
- Elections must happen within 45 days of the - Directors and trustees cannot vote on their own
vacancy. compensation or per diems.

5. Replacement Directors/Trustees: Fiduciary Duties and Liabilities of Directors,

- Those elected to fill a vacancy serve only for Trustees or Officers
the remaining term.
Directors, trustees, and officers are generally not
personally liable for a corporation's debts.
However, they can be held liable if they:
Emergency Board:
1. Willfully approve illegal acts.
- If vacancies prevent a quorum and immediate
action is needed to avoid serious harm to the 2. Show gross negligence or bad faith in their
corporation: duties.
- Vacancies can be temporarily filled from 3. Have personal interests that conflict with their
among corporate officers. responsibilities.
- This requires a unanimous vote of the In these cases, they can be treated as trustees for
remaining directors. the corporation and must compensate for
damages.
- The corporation must notify the SEC within 3
days, explaining the reason for the emergency
board.
The Doctrine of Corporate Opportunity
states that if a director gains a business
Increase in Directors/Trustees: opportunity that rightfully belongs to the
corporation, they must return any profits to the
- New vacancies from increasing the number of
corporation. This is considered disloyalty.
directors must be filled by election at a regular or
special meeting, or during the meeting where the
increase is authorized.
CAPITAL AFFAIRS 2. "Water": This is the difference between what
the shares are worth at the time they’re issued and
their official price.
CERTIFICATE OF STOCK
A Certificate of Stock is a document from a
3. Directors' Liability: If directors agree to issue
corporation that shows that you own a certain
these watered stocks or know about the low value
number of shares in that company. It’s signed by
and don’t raise a concern, they can be held
an official from the company and proves you are
responsible. They may have to pay back the
a shareholder. Essentially, it’s a physical proof
difference between what the company got and
that you own part of the company.
what the shares were worth at issuance.

RULES ON ISSUANCE OF STOCK

"If directors don’t act responsibly when issuing
CERTIFICATE
shares, they could face financial consequences"

1. Issuance: Corporations must issue stock

Payment of Balance of Subscription
certificates for their shares. These certificates
must be signed by the president or vice president
and countersigned by the secretary, with the
1. When to Pay: Stockholders need to pay the
corporation's seal.
remaining balance of their stock subscription on:
a.) The date stated in the subscription agreement,
2. Ownership and Transfer: Once you have a or
stock certificate, it’s your personal property. You
b.) If there’s no specific date, then on the date set
can transfer it to someone else by giving them the
by the board of directors.
certificate and signing it over.

2. Consequences of Late Payment: If a

3. Electronic Shares: The SEC can allow
stockholder doesn’t pay on time, the entire
companies that trade their stocks publicly to issue
remaining balance becomes due immediately.
shares electronically instead of on paper.
The stockholder may also have to pay interest on
the unpaid balance at the legal rate
4. Unpaid Claims: You cannot transfer shares if
the corporation has an unpaid claim against them.
3. Delinquency: If payment isn’t made within 30
days of the due date, the shares become
"delinquent."
VALID TRANSFER OF STOCKS
This means the company can sell the shares
just hand it over, sign it, and make sure it’s logged
unless the board decides to allow more time for
with the company.
payment.

WATERED STOCKS
DELIQUENCY SALE
"Watered stocks" refer to shares issued by a
company for less than their official value or for
non-cash considerations that are overvalued. 1. Board Decision: The board of directors can
decide to sell shares if payments are overdue.
They will specify:
1. Watered Stocks: When a company issues
a.) The amount owed on each subscription.
shares for less than their official price or takes
something other than cash that's valued too high. b.) The date, time, and location of the sale (which
must be 30 to 60 days after the stock becomes
delinquent).
 process, and stockholders have limited time to
challenge or pay before losing their shares.)
2. Notice of Sale: The company must inform
delinquent stockholders by:
1.) Personal delivery, EFFECTS OF DELIQUENCY SALE
2.) Registered mail, or • A delinquent stock cannot:
3.) Other methods outlined in the company’s a.) Be voted for
bylaws.
b.) Be entitled to vote
(The sale notice also needs to be published
c.) Be represented in any SH’s meeting
weekly for two weeks in a local newspaper.)
d.) Be counted for purposes of quorum
e.) Be entitled to any of the rights of a stockholder
3. Payment Before Sale: Stockholders must pay
except the right to dividends
the amount owed by the sale date to avoid losing
their shares.

> Cash dividend- shall first be applied to the

unpaid balance on the subscription + costs and
4. Public Auction: If no payment is made, the
expenses
delinquent shares will be sold at public auction.
The shares will go to the highest bidder willing to > Stock dividend- shall be withheld until unpaid
pay the total owed for the fewest number of subscription is paid
shares.

Delinquent shares can’t participate in voting or

5. Transfer of Shares: The shares purchased at the meetings, and their stockholder rights are very
auction will be transferred to the buyer. limited, except when it comes to receiving
dividends, which are used to pay off debts first.

6. Remaining Shares: Any remaining shares after

the sale will still belong to the delinquent RIGHTS OF UNPAID SHARES
stockholder, who can also receive a certificate for
them. •Holders of subscribed shares not fully paid
which are not delinquent shall have all the rights
of a stockholder.
7. No Bidders: If no one bids, the corporation can
buy the shares and consider the payment as fully
satisfied. These shares will become treasury CORPORATE BOOKS AND RECORDS
shares and can be sold later. 1. Foundational Documents: The Articles of
Incorporation (AOI) and Bylaws, along with any
changes made to them.
8. Challenging the Sale: If someone wants to
dispute the sale, they must pay the amount for
which the shares were sold, plus interest. They 2. Ownership and Voting: A current list of who
also need to file any complaints within 6 months owns shares and their voting rights, including:
of the sale date.
•Lists of stockholders or members.
•Information on group ownership and
9. Legal Action: The corporation can also take relationships.
legal action to collect any unpaid amounts,
including interest and costs.
3. Board and Officers: Names and addresses of all
board members and executive officers.
( If stockholders don’t pay on time, the company
can sell their shares after following a specific
4. Business Records: A record of all business Refusal on the Part of the Corporation on the
transactions.
Request for Inspection

5. Board Resolutions: Documentation of

1. If Officers Refuse Access: If an officer or agent
decisions made by the board of directors or
of the corporation doesn’t allow someone to
trustees and by stockholders or members.
inspect or copy records, they can be held
responsible for any damages caused.
6. Regulatory Filings: Copies of the latest reports -They may also face penalties under the law.
submitted to regulatory authorities.
-If the refusal is based on a board decision, the
board members who voted for it are also liable.
7. Meeting Minutes: Detailed minutes of all
meetings, which should include:
2. Defense Against Claims: Officers can defend
-Time and place of the meeting. themselves by proving that the requester:
-How the meeting was authorized. -Misused information from past inspections.
-Notice given about the meeting. -Was not acting honestly or for a good reason.
-Meeting agenda. -Is a competitor or represents a competitor.
-Whether the meeting was regular or special.
-Purpose of any special meetings. 3. Reporting to the SEC: If someone is denied
access and the corporation doesn’t respond, they
-Names of those present and absent.
can report it to the Securities and Exchange
-Any actions taken or decisions made during the Commission (SEC).
meeting.

The SEC will investigate within five days and can

(Corporations must maintain comprehensive order the inspection or copying of the records.
records covering their structure, ownership,
meetings, and business activities to ensure
transparency and compliance with regulations.) (Officers who deny access to records may face
legal trouble. They have some defenses, and
anyone wronged can seek help from the SEC.)
STOCK AND TRANSFER BOOKS

STOCK TRANSFER AGENT

the STB is a vital record that tracks stock
ownership, payments, and transfers, ensuring
transparency and accessibility for stockholders stock transfer agents help manage stock transfers
and directors. and must be licensed. Corporations can manage
their own transfers but must follow the same
rules, and the SEC may require them to use
RIGHT TO INSPECTION independent agents for certain trades.

corporate records are available for inspection by

authorized individuals, but there are strict rules
about confidentiality and restrictions on who can
access these records to protect sensitive
information.
DISSOLUTION AND LIQUIDATION 3. Filing for Dissolution:
After the meeting: Submit a verified request to the
Securities and Exchange Commission (SEC) that
DISSOLUTION
includes:
Dissolution is when a corporation officially ends
a.) Why you’re dissolving.
its legal existence. This means it can no longer do
business. However, for three years after b.) How and when notices were sent.
dissolution, the corporation can still exist to wrap
c.) Names of those who approved the dissolution.
up its affairs and sell off its assets.
d.) Details of the meeting.
e.) Proof of publication.
ex: For the next 3 years, it can still exist to
4. Documents to SEC:
1. Pay off debts.
Include:
2. Sell remaining inventory.
a.) A certified copy of the resolution to dissolve,
signed by the BOD and the secretary.
METHODS OF DISSOLUTION
b.) Proof that the notice was published.
c.) Any required recommendation from the
1. Voluntary Dissolution appropriate agency if needed.
a.) No Creditors Affected: The company 5. SEC Approval: The SEC will approve the
dissolves without any outstanding debts. request within 15 days if there’s no withdrawal.
They will issue a certificate of dissolution, which
b.) Creditors Affected: The company dissolves
means the dissolution officially happens.
but has debts, requiring it to notify and settle with
creditors first. 6. Special Cases: For certain financial institutions
(like banks or insurance companies), you need
c.) Dissolution by Shortening Corporate Term:
extra approvals from relevant government
The company chooses to end its existence sooner
agencies.
than originally planned.
2. Involuntary Dissolution
VOLUNTARY DISSOLUTION WHERE
The company is forced to dissolve due to legal
CREDITORS ARE AFFECTED
issues or non-compliance with regulations.

1. Voting Requirements: The Board of Directors

VOLUNTARY DISSOLUTION WHERE NO
(BOD) needs a majority vote, and shareholders
CREDITORS ARE AFFECTED
must approve with a two-thirds (⅔) majority
2. Filing a Petition: A verified petition for
1. Voting Requirements: The Board of Directors dissolution must be submitted to the SEC,
(BOD) needs a majority vote, and shareholders including:
must also approve with a majority.
a.) The reason for dissolving.
2. Notice for Meeting: At least 20 days before the
b.) How and when notifications were given.
meeting:
c.) Details of the meeting where the vote took
Notify all shareholders (even those who can’t
place.
vote) by personal delivery, registered mail, or any
method allowed by the by-laws. 3. Documents to SEC:
Include the meeting's purpose: Include:
- to vote on dissolving the corporation. a.) A certified copy of the resolution to dissolve,
signed by the BOD and the secretary.
- publish the meeting details once in a local
newspaper. b.) A list of all creditors.
4. SEC Review: If the petition is complete, the
SEC will issue an order:
Additionally, a corporation can be dissolved if it's
a.) Setting a deadline for any objections, which proven that:
will be between 30 to 60 days from the order.
- It was created for illegal activities like fraud or
b.) The order must be published weekly for three tax evasion.
weeks in a local newspaper and posted in three
- It helped with illegal acts, and its owners were
public places.
aware.
5. Hearing: After the objection period ends (5
- It repeatedly allowed its leaders or employees to
days after the deadline), the SEC will hold a
commit fraud or illegal actions.
hearing. If there are no valid objections and the
petition is true, they will issue a judgment to
dissolve the corporation and direct how to handle
its assets. • if a corporation is not doing business properly
or is involved in illegal activities, it can be forced
6. Finalization: The dissolution officially happens to shut down.
when the SEC issues a certificate of dissolution.

FORFEITURE IN FAVOR OF NATIONAL

DISSOLUTION BY SHORTENING GOVERNMENT
CORPORATE TERM
- if a corporation is involved in serious crimes, the
1. Amend the Articles of Incorporation (AOI): To government can take its property or assets.
shorten the corporate term, you need to change
the AOI.
2. Submit to SEC: After amending the AOI, send LIQUIDATION
a copy to the SEC.
3. Automatic Dissolution: When the shortened Liquidation is what happens after a corporation is
term ends, the corporation will be automatically dissolved. It involves:
dissolved. No extra steps are needed, except for
following liquidation rules. 1. Settling Debts: The corporation collects any
money owed to it and pays off its debts.
2. Turning Assets into Cash: The corporation sells
4. Effective Date: The dissolution takes effect the its assets to get cash, which is used to pay
day after the corporate term ends, without creditors.
needing a certificate from the SEC.
3. Distributing Remaining Cash: After paying
debts, any leftover cash is given to the
INVOLUNTARY DISSOLUTION shareholders.

Involuntary dissolution of a corporation can

happen in two main ways: Even after a corporation is dissolved, it can still
1. The government can decide to dissolve it on its operate for three (3) years to settle affairs, defend
own. against lawsuits, and handle property. During this
time, it can transfer its property to trustees who
2. An interested party can file a formal complaint. manage it for the benefit of shareholders and
creditors.

Reasons for dissolving a corporation include:

For banks, liquidation follows specific laws. If
- Not using its business charter.
any property is left unclaimed (escheat), it goes
- Being inactive for a long time. back to the national government.
- A court order saying it must dissolve.
- Being found to have been set up through fraud. Liquidation is about closing a business properly
by paying debts and distributing what’s left.