Corporate Governance: Frequently Asked Questions (FAQs)

FAQs about Corporate Governance

Who are incorporators?

Incorporators are those stockholders or members stated in the Articles of Incorporation who original form and compose the corporation and who are signatories thereof. (Sec 5, Corporation Code)

 

 

Who are stockholders? What are their rights and obligations?

Stockholders are the owners of the shares in a corporation.

 (Sec. 5, Corporation Code)

Unless otherwise stated in the Articles of Incorporation and certificate of stock, all stockholders shall enjoy equal rights and obligations, including the following: (Sec 6, Corporation Code)

 

 

Rights of Stockholders:

1. Right to vote.
2. Right to receive dividends.
3. Right to receive distributions upon liquidation of the corporation.
4. Right to inspect the books of the corporation.
5. Right to transfer or dispose of his fully paid shares of stock.
6. Right to file derivative suit (Cojuangco, Jr. v. Roxas).
7. Right to elect and remove directors (Sec 24 & 28, Corporation Code).
8. Right to approve certain corporate acts.
9. Right to adopt and amend or repeal the by-laws or adopt new by-laws (Sec 46, 48, Corporation Code).
10. Right to compel the calling of meetings of stockholders when for any cause there is no person authorized to call a meeting.
11. Right to issuance of certificate of stock or other evidence of stock ownership and be registered as shareholder.
12. Appraisal Right.

Obligations of Stockholders:

1. Payment of subscription of shares in a timely manner;
2. Election of members of the board of Directors
3. Voting on corporate acts requiring the vote of stockholders including the amendment of the AOI and/or by-laws.

 

 

Who are members of the Board of Directors? What are their rights and obligations/duties and responsibilities?

Members of the Board of Directors (“BOD”) are elected by the stockholders. It is a minimum requirement under the law that a director must own at least 1 share of capital stock of the corporation. (Sec 23, Corporation Code)

The BOD acts as the governing body of the corporation. Corporate powers are exercised through the BOD. They have the sole authority to determine policy and conduct the ordinary business of the corporation within the scope of its charter in all matters that do not require the consent or approval of the stockholders.

Their obligation is to “to seek the maximum amount of profits for the corporation”. (Gokongwei v. SEC, 89 SCRA 336)

 

 

Who are the officers of the corporation? What are their rights and obligations/deities and responsibilities

Unless otherwise stated in the By-laws, every corporation must at least have a President, Vice President, Treasurer and Secretary.

The President of Corporations has the power of general supervision and control of the business as chief executive officer. He is in charge of the day-to-day operations of the corporation, as may be allowed by the corporate charter. The powers of the president of the corporation are such as are conferred upon him by the board of directors or vested in him by the by-laws. The president must be a member of the board of directors. The president cannot be the secretary or a treasurer at the same time.

The Secretary’s duty is to make and keep records and make proper entries of the votes, resolutions and proceedings of the shareholders and directors in the management of the corporation and all other matters required to be entered in the corporate records. The secretary also manages the stock and transfer book.

The Treasurer is the officer entrusted with the authority to receive and keep the monies of the corporation.

 

 

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What corporate acts are allowed to be performed by these officers? What are they not allowed to do without BOD approval?

Corporate officers perform the duties required of them by law, by the by-laws of the corporation and by the direction of the Board of Directors, either expressly or impliedly by habit, custom or acquiescence in the general course of business. They are in charge of the day-to-day business operations.

They are NOT allowed to perform acts that will cause fundamental changes in the corporation. They cannot exercise powers that are not possessed by the corporation by charter (ultra vires acts).

 

 

What are the corporate acts that need BOD approval? What are those that require majority vote? What are those that require 2/3 vote?

                Acts involving Fundamental Charges/Acts of Strict Dominion

Corporate acts that need BOD approval are:

Requires Majority vote (50% + 1):

1. To extend or shorten corporate term (Sec 37, Corporation Code)
2. To increase or decrease capital stock; incur, create or increase bonded indebtedness (Sec 38, Corporation Code)
3. Sell, lease, exchange, mortgage, pledge, or otherwise dispose of all or substantially all of its property and assets (Sec 40, Corporation Code)
4. To invest corporate funds in another corporation or business or for any purpose (Sec 42, Corporation Code)
5. To enter into management contract (Sec 44, Corporation Code)
6. Amend by-laws (Sec 48, Corporation Code)
7. Voluntary dissolution if no creditors are affected (Sec 118, Corporation Code)
8. Amendment to the plan of merger or consolidation (Sec 77, Corporation Code)

 

 

What are the corporate acts that need stockholder (SH) approval? What acts need majority SH approval? 2/3?

Corporate acts that need SH approval are:

Requires 2/3 Vote:

1. Shares to be issued in good faith in exchange for property needed for corporate purposes (Sec 39, Corporation Code)
2. Shares to be issued in good faith in payment of previously contracted debt
3. Sell, lease, exchange, mortgage, pledge, or otherwise dispose of all or substantially all of its property and assets (Sec 40, Corporation Code)
4. To invest corporate funds in another corporation or business or for any purpose (Sec 42, Corporation Code)
5. To issue stock dividends (Sec 43, Corporation Code)
6. Plan of merger and consolidation (Sec 76,77, Corporation Code)
7. Voluntary dissolution if no creditors are affected (Sec 118, Corporation Code)

Majority:

8. To enter into management contract (Sec 44, Corporation Code)
9. To amend, repeal any by-laws or adopt new by-laws. (Sec 48, Corporation Code)
10. Amendment of Articles of Incorporation (Sec 103, Corporation Code)

 

 

What are the requirements for calling and holding a BOD Meeting?

Regular meetings of the board of directors of every corporation shall be held MONTHLY, unless the by-laws provide otherwise. Special meetings can also be held AT ANY TIME upon the call of the president or as provided by the by-laws.

The meeting can be held anywhere in the Philippines or as provided by the by-laws.

Notice of regular or special meetings stating the date, time and place of the meeting must be sent to every director at least 1 DAY prior to the scheduled meeting, unless otherwise provided by the by-laws.

The president shall preside at all meetings of the directors as well as of the stockholders or members, unless otherwise provided by the by-laws. (Sec 53, Corporation Code)

 

 

What are the requirements for calling and holding a SH meeting?

Regular meetings of stockholders are held ANNUALLY on a date fixed by the by-laws, or if so not fixed on any date in April of every year as determined by the BOD. Special meetings can be held at ANY TIME necessary or as provided by the by-laws.

The meeting should be held in the city or municipality where the principal office of the corporation is located, and if practicable in the principal office of the corporation.

Written notice for regular meetings must be sent to stockholders at least 2 WEEKS BEFORE the meeting and at least 1 WEEK for special meetings, unless a different period is required by the by-laws. (Sec 50, 51, Corporation Code)

There are certain matters of importance which the law requires to be taken up at meetings called expressly for the purpose. It is therefore necessary that the notice should state the purpose for which the meeting is called.

The person or persons designated in the by-laws have authority to call stockholders’ or members’ meeting. If there is no provision in the by-laws, the meeting may be called by a director or by an officer entrusted with the management of the corporation unless otherwise provided by law.

 

Source: Corporate Code of the Philippines of Cesar Lapuz Villanueva and The Law on Partnerships and Private Corporations of Hector De Leon