This document outlines corporate governance requirements for boards of directors and officers according to the Corporation Code of the Philippines. It discusses qualifications for directors, election procedures, roles and responsibilities of officers, reporting requirements, and rules around compensation, conflicts of interest, and removal of directors. It also defines quorum rules and methods of voting for board and shareholder meetings. Special requirements are defined for certain types of corporations regarding citizenship of directors.

1. TITLE III
BOARD OF DIRECTORS/TRUSTEES/
OFFICERS

2. SEC. 23 – THE BOARD OF
DIRECTORS/TRUSTEES
Qualifications of directors
1. Must own at least 1 share of the capital stock of the
corporation in his name
2. Majority of the directors must be residents of the
Philippines
3. Must not be convicted by final judgment of an offense
punishable by imprisonment

3. Special Corporations not organized in accordance
with the Corporation Code where directors are
required to be citizens of the Philippines:
1. Banks and banking institution (at least 2/3)
2. Rural banks (all directors)
3. Domestic air carriers (Directing head and at least 2/3 of
the board of directors)
4. Registered investment companies (all directors)

4. 5. Private development banks (all the members of board
of directors)
6. Financing corporation (at least 2/3 of all the members)
TERM OF OFFICE
• 1 year until their successors are elected and qualified

5. SEC. 24 – ELECTION OF DIRECTORS OR
TRUSTEES
• The owners (or his representative authorized to
act by written proxy) of majority of the
outstanding capital stock must be present
• If no capital stock, majority of the members
• The election must be in ballot if requested by
any voting stockholder or member

6. • Methods of Voting
1. Straight voting
2. Cumulative voting for 1 candidate
3. Cumulative voting by distribution

7. STRAIGHT VOTING
Example
A owns 100 shares of stock in X corporation.
During the meeting for the purpose of electing 5
directors, he may cast his vote by giving each of
the five candidates 100 votes, hence, he
distributes equally his vote without preference or
discrimination.

8. CUMULATIVE VOTING FOR ONE
CANDIDATE
Example
A owns 100 voting shares and there are five directors to
be elected, A is entitled to 500 votes which he may
“cumulate” by giving it to candidate Y alone.

9. CUMULATIVE VOTING BY
DISTRIBUTION
Example
If A owns 100 voting shares and there are five directors to
be elected, A is entitled to 500 votes which he may
distribute to candidates Y and Z giving the former 300 and
the latter 200 provided that the total number of votes cast
by him does not exceed 500 votes

10. SEC. 25 – CORPORATE OFFICERS,
QUORUM
• Immediately after the election of the directors, they must
formally organize by the election of a president, a
treasurer, a secretary and such other officers as may be
provided for in the by-laws.
• Any 2 or more position may be held concurrently by the
same person, except as president and secretary or as
president and treasurer

11. QUALIFICATIONS OF THE CORPORATE
OFFICERS
1. President. He must be a director
2. Treasurer. He may or may not be a director
3. Secretary. He must be a resident and citizens of the
Philippines
4. Other officers provided for in the bylaws.
Levels of corporate control
1. Board of directors
2. Officers
3. Stockholders

12. SEC. 26 – REPORT OF ELECTION OF
DIRECTORS, TRUSTEES AND OFFICERS
• Within 30 days after election, the secretary or
any other officer shall submit to the SEC, the
names, nationalities and residences of the
directors, trustees and officers elected.

13. SEC. 27 – DISQUALIFICATION OF
DIRECTORS, TRUSTEES OR OFFICERS
No person convicted by final judgment of an
offense punishable by imprisonment for a period
exceeding 6 years, or a violation of this Code,
committed within 5 years prior to the date of his
election or appointment, shall qualify as a director,
trustee or officer of any corporation.

14. SEC. 28 – REMOVAL OF DIRECTORS OR
TRUSTEES
• Vote of the stockholders representing at least
2/3 of the outstanding capital stock
• Vote of at least 2/3 of the members entitled to
vote for a non stock corporation
• Shall take place at the regular or special
meeting

15. SEC 29 – VACANCIES IN THE OFFICE OF
DIRECTOR OR TRUSTEES
• Any vacancy occurring in the board of directors
or trustees other than removal by the
stockholders or members or by expiration of
term, may be filled by the votes of at least a
majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said
vacancies must be filled by the stockholder in a
regular or special meeting call for that purpose.

16. SEC 30 – COMPENSATION OF
DIRECTORS
• In the absence of any provisions in the by-laws
fixing the compensation, the directors shall not
receive any compensation, as such directors,
except for reasonable per diems; provided
however, that any such compensation (other
than per diems) may be granted to directors by
the vote of the stockholder representing at least
a majority of the outstanding capital stock at a
regular or special stockholder’s meetings.

17. SEC 31 - LIABILITY OF DIRECTORS,
TRUSTEES OR OFFICERS
• Directors liable for unlawful or fraudulent
acts.- liable jointly and severally for damages
arising from lawful acts; gross negligence or bad
faith in directing the affairs of the corporation, or
acquire personal or pecuniary interest in conflict
with their duties to the prejudice of the
corporation, stockholders, members even other
person

18. Director’s liability for secret profits-directors
and officers are fiduciary representatives and
such are not allowed to obtain or retain a
commission, bonus, gifts or any personal profit or
advantage “on the side” on their official action, as
in connection with purchase, sale, lease, loan or
contract by the corporation. The rule is similar to
that which applies to agents generally.
• (Secret profits illustrated)

19. SEC 32 - DEALING OF DIRECTORS, TRUSTEES
OR OFFICERS WITH THE CORPORATION
• Contract of directors with corporation.-the
law allows dealing by a director with the
corporation of which he is a member of the
board. If all the conditions set forth by Sec 32
are complied with then it is valid otherwise it is
voidable “at the option of such corporation.”

20. • Directors disqualified to vote if he has
personal interest.- a director is disqualified to
vote at a meeting of the board if he has any
personal interest in a matter before the board;
neither can his vote, in such case, be counted in
making up a quorum.

21. SEC 33 - CONTRACTS BETWEEN CORPORATIONS
WITH INTERLOCKING DIRECTORS
• Interlocking directors; meaning of.-persons
who serve as member of the board of directors
of two or more competing corporations or
corporations engaged in practically the same
kind of business.

22. • Duties of directors. Directors owe a three-fold
duty to the corporation: 1. they must be obedient
,2. they must be diligent , 3. they must be loyal

23. SEC 35 - EXECUTIVE COMMITTEE
• Executive committee may act within
competence of board if authorized by the by-
laws. An executive committee may be provided
for by the by-laws of the corporation or may be
authorized “on a majority vote of the board” to
act on “such specific matters within the
competence of the board except the enumerated
matters provided for in sec.35

24. TITLE IV
POWERS OF CORPORATION

25. SEC 36 - CORPORATE POWERS AND
CAPACITY
1. To sue and to be sued in its corporation name
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate of
incorporation
3. To adopt and use a corporate seal
4. To amend its articles of incorporation in
accordance with the provision of this code

26. 5. morals, or public policy, and to amend or To
adopt by-laws, not contrary to law, repeal the
same in accordance with this code
6. In case of stock corporation, to issue or sell
stocks to subscribers and to sell treasury
stocks in accordance with the provision with
the provision of this code; and to admit
members to the corporation if it be a non-stock
corporation

27. 7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, including securities and bonds of
other corporations, as the transaction of the
lawful business of the corporation may
reasonably and necessarily require, subject to
limitations prescribed by law and the
Constitution

28. 8. To enter into with other corporations merger or
consolidation as provided in this Code
9. To make reasonable donations, including
those for the public welfare or for hospital,
charitable cultural, scientific, civic, or similar
purposes
10.To establish pension, retirement and other
plans for the benefits of its directors, trustees,
officers and employees

29. 11.To exercise such other powers as may be
essential or necessary to carry out its
purposes as stated in its articles of
incorporation.

30. SEC 37 - POWER TO EXTEND OR
SHORTEN CORPORATE NAME
• Corporation may extend or shorten its term. The
Corporation Code allows a corporation to extend
or shorten its term of existence by amendment
of the articles of incorporation.

31. SEC 38 - POWER TO INCREASE OR DECREASE
CAPITAL STOCK
Requirements:
1. It must be approved by the majority vote.
2. A certificate of duplicate must be signed.
3. 25% of such increase in capital stock has been
subscribed and at least 25% of the amount subscribed
has been paid.
4. It should not prejudice the rights of corporate creditor.
5. It must be approved by the SEC

32. • Power to incur, create or increase bounded
indebtedness
Requirements:
1. It must be approved by the majority vote.
2. A certification of duplication must be signed.
3. It must be approved by SEC.
4. The bound issued shall be registered with the SEC.

33. BONDS CLASSIFICATION
• Coupon or Registered bonds
• Mortgage bonds
• Debenture bonds
• Convertible bonds
• Participating bonds
• Collateral bonds
• Guaranteed bonds

34. SEC 39 - POWER TO DENY PRE-EMPTIVE
RIGHT
• A stockholder’s pre-emptive right is his right
subscribe to new share of stock in proportion to
his existing stockholdings, before the new
shares are issued.

35. Remedies for the denial of pre-emptive right:
• Stockholders may obtain to injunction against
the issue.
• The court may order the cancellation of the
shares.

36. SEC 40 - SALES OR OTHER DISPOSITION
OF ASSETS
Requisites for the validity of sale of all or
substantially all the corporate assets:
1. Approved by the majority of directors and
trustees.
2. Written notice of such sales, lease, etc., be
address to each stockholder or member.
3. If non-stock corporation, at least a majority of
trustees in officer.

37. SEC 41 - POWER TO ACQUIRE OWN
SHARES
Requirements:
1. It must be for legitimate corporation purpose(s).
2. That it has unrestricted retained earnings in its
books to cover the share to be purchased or
acquired.

38. SECTION 42
• Power to invest corporate funds in another
corporation or business or for any other purpose

39. SEC. 43 - POWER TO DECLARE
DIVIDENDS
Concept of dividends:
A dividend is a corporate profit set aside, declared
and ordered by the directors to be paid to the
stockholders on demand or at a fixed time.

40. • A corporation has a power to declare dividends
“out of unrestricted retained earnings which shall
be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock
held by them”.

41. CLASSES OF DIVIDENDS
• Cash dividends
• Stock dividends
• Property dividends
• Scrip dividends
• Liquidating dividends

42. A Management contract is an
arrangement under which operational
control of an enterprise is vested
by contract in a separate enterprise that
performs the necessary managerial
functions in return for a fee.

43. SECTION 44 - POWER TO ENTER INTO
MANAGEMENT CONTRACT
Management contract, requisites.
1. Majority of the members of the Board of
Directors, trustees of both the managing and
manage corporations must have approved the
management contract.

44. 2. The stockholders owning atleast the majority of
outstanding capital stock or majority of the
members in case of a non stock corporation of
both the managing and managed corporations
must have likewise approved the said contract.
3. Management contract must not be longer than 5
years for any one term except sevice contracts
or operating agreements.

45. SECTION 45 - ULTRA VIRES ACT
• Ultra Vires act is one not within the express or
implied powers of a corporation as fixed by its
charter or the statutes.
• It may also refer to acts done by the directors or
officers of a corporation in excess of the powers
conferred upon them.

46. However, an Ultra Vires act which is not illegal but
beyond the powers of the corporation to perform is
merely voidable and may be ratified expressly or
impliedly.
The term includes not only contracts, but also:
1. Entirely beyond the scope of the charter and
not pertaining to the objects for which the
corporation was chartered, and also

47. 2. Contracts beyond the limitations of the powers
conferred by the charter, although within the
purpose contemplated by the Articles of
Incorporation.

48. TITLE V
BY-LAWS

49. • By laws- signify the rules and regulations or
private laws enacted by the corporation to
regulate, govern and control its own actions,
affairs and concerns and its stockholders or
members and directors and officers with relation
thereto, and among themselves in their relation
to it.

50. Requisites of valid by-laws
1. It must not be contrary to law, morals, public order or
public policy.
2. It must not impair the obligations of contracts or rights.
3. It must be general and uniform in their operation and
effect.
4. It must be reasonable and not arbitary or oppresive.
5. It must be consistent with the charter or Articles of
Incorporation.

51. In other words, by laws are relatively permanent
and continuing rules of action adopted by the
corporation for its own government and that of the
individuals composing it and control of its affairs, in
whole or in part, in the management and control of
its affairs and activities.

52. SECTION 46 - ADOPTATION OF BY LAWS
• Every corporation formed under this code must,
within (1) month after receipt of official notice of
the issuance of its certificate or incorporation by
the SEC, adopt a code of by-laws for its
government not inconsistent with this code.

53. SECTION 47 - CONTENTS OF BY-LAWS
1. The time, place and manner of calling and
conducting regular or special meetings of the
directors or trustees;
2. The time and manner of calling and conducting
regular or special meetings of the stockholders
or members;
3. The required quorum in meetings of
stockholders or members and the manner of
voting therein;

54. 4. The form for proxies of stockholders and members and
the manner of voting them;
5. The qualification, duties and compensation of directors
or trustees, officers and employees;
6. The time for holding the annual election of directors or
trustees and the mode or manner of giving notice
thereof;
7. The manner of election or appointment and the term of
office of all officers other than directors and trustees;

55. 8. The penalties for violation of the by-laws.
9. In case of stock corporations, the manner of
issuing stock certificate; and
10.Such other matters as may be necessary for
the proper or convenient transaction of its
corporate business and affairs.

56. SECTION 48 - AMENDMENT TO BY-LAWS
• The by-laws may be amended or repealed or
new by-laws may be adopted by (1) a majority
vote of the Board of Directors or trustees, and
(2) vote of the owners at least a majority of the
outstanding capital stock, or atleast a majority of
the members of a non stock corporation.

57. Effectivity of by-laws
The by-laws shall be effective only upon the
issuance by the SEC of a certification that the by-
laws are not inconsistent with this code.

58. PREPARED BY:
DIMAYUGA
GALEON,
GERAGA
VILLAMAYOR