Corporate Directors and Officers

Partnership and Corporation

Atty. Antonio Chua

Dizon, Mariana Mariss

Pajaro, Kathryn
4LM1
Role of Directors
• Occupies a position of responsibility
• Characterized as Agents, which acts on behalf of
the corporation
• Directors collectively control the corporation
• Often incorrectly characterized as trustees but
they do not own or hold title to the property for
the use and benefit of others
Philippine Context
Under the Corporation Code of the Philippines [Pambansa Blg.
68], Sec. 23 states that:
• The board of directors or trustees. - all business
conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock,
from among the members of the corporation, who shall hold
office for one (1) year until their successors are elected and
qualified.
Every director must own at least one (1) share of the capital
stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of
the capital stock of the corporation of which he is a director
shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. a majority of the
directors or trustees of all corporations organized under this
Code must be residents of the Philippines.
Election of Directors
• Historically, minimum number of directors is three
but today whichever the state permits.

First board of Directors

• Are normally appointed by the incorporators in
the creation of the corporation or named by the
corporation itself in the articles
• They serves until the first annual shareholder’s
meeting
• Subsequent directors are elected by a majority
vote of the shareholders.
Philippine Context

Sec. 24. Election of directors or trustees. -

• At all elections of directors or trustees, there

must be present, either in person or by
representative authorized to act by written
proxy, the owners of a majority of the
outstanding capital stock, or if there be no
capital stock, a majority of the members entitled
to vote.
• The election must be by ballot if requested by
any voting stockholder or member.
Philippine Context
• In stock corporations, every stockholder entitled to vote shall have the right
to vote in person or by proxy the number of shares of stock standing, at the
time fixed in the by-laws, in his own name on the stock books of the
corporation, or where the by-laws are silent, at the time of the election; and
said stockholder may vote such number of shares for as many persons as
there are directors to be elected or he may cumulate said 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, or he may distribute
them on the same principle among as many candidates as he shall see fit:
Provided, That the total number of votes cast by him shall not exceed
the number of shares owned by him as shown in the books of the
corporation multiplied by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall be voted. Unless
otherwise provided in the articles of incorporation or in the by-laws,
members of corporations which have no capital stock may cast as many
votes as there are trustees to be elected but may not cast more than one
vote for one candidate.
Philippine Context
• Candidates receiving the highest number of
votes shall be declared elected.
• Any meeting of the stockholders or members
called for an election may adjourn from day to
day or from time to time but not sine die or
indefinitely if, for any reason, no election is held,
or if there not present or represented by proxy,
at the meeting, the owners of a majority of the
outstanding capital stock, or if there be no
capital stock, a majority of the member entitled
to vote.
 Philippine Context
Sec. 25. Corporate officers, quorum. -
• Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director,
a treasurer who may or may not be a director, a secretary who shall be a
resident and citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be held
concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.

• The directors or trustees and officers to be elected shall perform the

duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of
corporate business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which
shall require the vote of a majority of all the members of the board.

• Directors or trustees cannot attend or vote by proxy at board meetings.

Term of office for a director
• Usually for a year
• From annual meeting to annual meeting
• Longer and staggered terms are permissible
• Common-practice: to elect one-third of the
board members each year for a three-year term
Directors
• Director can be removed for cause (for failing to perform a required duty)

• Even the board of directors itself may be given

power to remove a director for a cause, subject
to shareholder review.
• In some cases, unless the shareholders have
reserved the right at the time of election, a
director cannot be removed without cause.
Vacancies
• Can occur on the board of directors because of
death or by resignation or a new position is
created through amendment of articles or
bylaws.
• The shareholders or the board itself can fill the
position, depending on the provisions of the
bylaws or state laws.
Directors’ Compensation

• Compensation for directors is ordinarily

specified in the corporate articles or bylaws.
• Directors have fiduciary relationship to the
shareholders and to the corporation, an express
agreement or provision is necessary
Directors’ Compensation
• Sec. 30. Compensation of directors. - In the
absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any
compensation, as such directors, except for
reasonable pre diems: Provided, however, That any
such compensation other than per diems may be
granted to directors by the vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular or special stockholders'
meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income
tax of the corporation during the preceding year.
Board of Directors’ Meeting

• Conducts business by holding formal meetings

with recorded minutes.
• Dates on which meetings are held is established
in the articles and bylaws or by board resolution
• Special meetings can be called with notice to all
directors.
Board of Directors’ Meeting
• Quorum Requirements
(Quorum – the minimum number of members of
a body officials or other group that must be
present in the order for business to be validly
transacted)
Voting is done in person, one vote per director
only
A simple majority vote is required in most cases
Rights of Directors
• Right of Participation
– the directors must be notified of the board of
directors’ meeting so as to participate.
– Regular board meetings – no notices of these
meetings is required

• Right of Inspection
– directors must have all access to all of the corporate
books and records to make decisions and to exercise
the necessary provision over corporate officers and
employees.
– this right is virtually absolute and cannot be
restricted.
Rights of Directors
• Right of Compensation
– Most directors gain through the indirect benefits , such
as business, contacts, prestige and other rewards such as
stock options.
– compensations can be enormous, in some cases the
board can set its own compensation unless it is stated in
the articles or bylaws.

• Right of Indemnification
– a corporation permits its directors to indemnify for legal
cost, fees and judgements because in some cases the
corporate directors may become involved in lawsuits by
the virtue of their positions and actions as directors
– right to purchase liability insurance for directors and
officers are permitted to cover indeminification
Management Responsibilities
• Policy making decisions are part of the
Management responsibilities of directors

• Directors must act as a body in carrying out

routine corporate business

• The board of directors can delegate some of its

functions to an executive committee or to
corporate officers.
Areas of Responsibility of the Board of
Directors
1. Declaration and payment of corporate
dividend to shareholder
2. Authorization for major corporate policy
decisions
3. Appointment, supervision, and removal of
corporate officers and other managerial
employees and determination of their
compensation.
4. Financial decisions, such as the decisions to
issue authorized shares and bonds.
Role of Corporate Officers and
Executives
• Hired by the board of directors or in some cases the
shareholders.
• They act as agents of the corporation, and the ordinary
rules of agency normally apply to their employment
• Qualifications are determined at the discretion of the
corporation
• Rights of corporate officers are defined by employment
contracts
• Corporate officers can be removed by the board of
directors with or without cause regardless of the terms of
the employment contracts
• Duties are the same with those of directors, because they
are involved in the decision making and similar positions
of control.