RA 11232 - Governance of a Corporation Flashcards
refers to the rules of action adopted by a corporation for its internal government and for the regulation of conduct, and it
prescribes the rights and duties of its stockholders or members towards itself and among themselves in reference to the management of its affairs. It neither affects nor prejudices third persons. It is less important than Articles of Incorporation.
By-Laws
- Submission of By-Laws –
By-laws shall be submitted to SEC at the time of submission of Articles of Incorporation.
- Required vote for adoption or amendment of by-laws or delegation to board of directors of power to amend by-laws or revocation of delegated power to the board.
▪ Adoption of pre-incorporation by-laws.
✓ Unanimous vote of the incorporators or subscribers.
▪ Adoption or Amendment of Post-incorporation by-laws when there is no valid stockholders’ delegation to the Board of
Directors of the power to adopt or amend by-laws.
✓ At least majority vote of the board of directors and approval by at least majority vote of the stockholders.
▪ Adoption or Amendment of Post-incorporation by-laws when there is valid stockholders’ delegation to the Board of Directors
of the power to adopt or amend by-laws.
✓ At least majority of the board of directors.
▪ Delegation to the board of directors of the power to adopt or amend post-incorporation by laws by stockholders.
✓ At least 2/3 vote of the stockholders.
▪ Revocation of Delegated power board of directors to adopt or amend post-incorporation by laws by stockholders.
✓ At least majority vote of the stockholders.
o Governing body of the Corporation
✓ Stock corporation?
✓ Nonstock corporation?
✓ Stock corporation – Board of Directors
✓ Nonstock corporation – Board of Trustees
o Number of members of the board
✓ Stock corporation?
✓ Ordinary nonstock corporation?
✓ Educational nonstock corporation?
✓ Corporation sole?
✓ Stock corporation – 5 to 15
✓ Ordinary nonstock corporation – At least 5 but may exceed 15
✓ Educational nonstock corporation – 5 or 10 or 15
✓ Corporation sole – One
Term of office of members of the board
✓ Stock corporation?
✓ Ordinary nonstock corporation?
✓ Educational nonstock corporation?
✓ Stock corporation – One year
✓ Ordinary nonstock corporation – Three years
✓ Educational nonstock corporation – Five years
o Qualifications of members of the board of directors or trustees
✓ He must own at least one share of the capital stock of the corporation or a member.
✓ He must be of legal age.
✓ Majority must be residents of the Philippines.
✓ The number of directors, which shall not be more than fifteen (15) or the number of trustees which may be more than fifteen (15).
✓ Compliance with the required minimum ownership of Filipino or maximum ownership of foreigners in industries reserved to
Filipinos.
* Note: The Corporation may provide additional qualifications to directors in its corporate by-laws provided such
qualifications are just and reasonable and not violative of Corporation Code of the Philippines.
o Mandatory Presence of Independent Directors - The board of the following corporations vested with public interest shall have
independent directors constituting at least twenty percent (20%) of such board:
- Definition of Independent Director?
✓ Corporations covered by Section 17.2 of “Securities Regulation Code” namely those whose securities are registered with SEC, corporations listed with an exchange (PSE) or with assets of at least P50,000,000 and having 200 or more shareholders, each holding at least 100 shares of a class of its equity shares.
✓ Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries; and
✓ Other corporations engaged in business vested with public interest similar to the above, as may be determined by the SEC, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products, or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.
- An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director. Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors.
- Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting
requirements, duration of term and their limit, maximum number of board memberships and other requirements that the
SEC will prescribe to strengthen their independence and align with international business practices.
o Grounds for temporary disqualifications of members of the board for a period of at least five (5) years from conviction
✓ Conviction by final judgment (1) Of an offense punishable by imprisonment for a period exceeding six (6) years, (2) For violating this Code; and (3) For violating “The Securities Regulation Code”; or
✓ Found administratively liable for any offense involving fraudulent acts; or
✓ By a foreign court or equivalent foreign regulatory for acts, violations or misconduct similar to those enumerate in letter (i) and (ii) above.
o Election of the members of the board
✓ Quorum for validity of meeting for election of members of the board of directors.?
✓ Electorate in election of directors?.
✓ Required vote to elect a director.?
✓ Required number of stocks to have a guaranteed sit?
✓ Manner of voting
▪ Stock corporation?
▪ Nonstock corporation ?
✓ Quorum for validity of meeting for election of members of the board of directors.
▪ At least majority of the outstanding capital stock (Outstanding capital stock = Issued shares + subscribed shares – treasury
shares – delinquent shares).
✓ Electorate in election of directors.
▪ The common stockholders and voting preferred stockholders.
✓ Required vote to elect a director.
▪ The director garnering the highest number of votes will be elected. (Plurality rule).
✓ Required number of stocks to have a guaranteed sit.
▪ (Outstanding capitals stock)/(Number of sits to be elected +1)+ 1
✓ Manner of voting
▪ Stock corporation – Cumulative voting
▪ Nonstock corporation – Variation of cumulative voting and straight voting
o Filling up of vacancy in the board
✓ By stockholders – The stockholders can always fill up the vacancy.
✓ By remaining board of directors with quorum but only if the reason of vacancy is death, resignation, abandonment or
disqualification.
▪ Reasons of vacancy in the board that disqualifies the board with quorum to fill up the vacancy therefore stockholders may
only fill up the vacancy.
✓ Removal of directors.
✓ Expiration of term.
✓ Increase in sits.
Notes only
o Emergency Board - When the vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors or trustees. The action by the designated director or trustee shall be limited to the emergency action necessary, and the term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement director or trustee, whichever comes earlier. The corporation must notify the SEC within three (3) days from the creation of the emergency board, stating therein the reason for its creation.
Notes only
o Compensation or salary of board members – The directors as a general rule are not entitled to compensation except reasonable per diems;
✓ Required vote for granting compensation to board of directors.?
✓ Maximum limit for salary of board of directors.?
✓ Reasonable per diems of board of directors.?
✓ Required vote for granting compensation to board of directors.
▪ At least majority vote of the outstanding capital stock excluding the directors.
✓ Maximum limit for salary of board of directors.
▪ 10% of net income before tax of the immediately preceding year.
✓ Reasonable per diems of board of directors.
▪ At least majority vote of the board of directors.
o Creation of Executive Committee
✓ Requirement for creation of executive committee?
✓ Membership of executive committee?
✓ Powers that cannot be delegated by board of directors to executive committee (FAAD)?
.
✓ Requirement for creation of executive committee
▪ It must be created only by virtue of provision in the by-laws.
✓ Membership of executive committee
▪ It must consist of at least three members of the board of directors.
✓ Powers that cannot be delegated by board of directors to executive committee (FAAD)
▪ Filling up of vacancy in the board.
▪ Adoption or amendment of by-laws.
▪ Approval of corporate acts requiring approval or ratification by stockholders.
▪ Distribution or declaration of cash dividends.
o Acts of management or administration. (Vote?)
✓ Quorum for validity of meeting?
✓ Required vote for approval of act of management or administration
✓ Quorum for validity of meeting
▪ At least majority of the directors as stated in the Articles of Incorporation.
✓ Required vote for approval of act of management or administration
▪ At least majority of the directors who attended the meeting with quorum.
▪ Business judgment rule means that the decision of the board of directors on matters of management cannot be changed by the court unless such management decision is ultra vires or destructive of the interest of minority stockholders.
