CORPORATIONS

LAW NOTES – ATTY. MIGALLOS

CONTROL AND MANAGEMENT OF CORPORATION – CAMPOS-BASED NOTES

[POINTS TO REMEMBER]

ALLOCATION OF POWER AND CONTROL

• One of the primary concerns of investors in a business enterprise is the allocation of control over its
affairs.
• 3 levels of control in the corporate hierarchy:
o THE BOARD OF DIRECTORS/TRUSTEES – responsible for corporate policies and the general
management of the business and affairs of the corporation
o OFFICERS – execute the policies laid down by the board, but in practice often have wide latitude
in determining the course of business operations
o STOCKHOLDERS/MEMBERS – have the residual power over fundamental corporate changes, like
amendments of articles of incorporation

WHO EXERCISES CORPORATE POWERS

1. BOARD OF DIRECTORS OR TRUSTEES

• The governing body of a corporation is its board of directors (stock), board of trustees (non-
stock)
• Non-stock corporations as well as educational and religious corporations may however designate
their governing boards by any other name.
• GENERAL RULE: Although the stockholders or members elect the members of the board, once
they have so elected them, they have no right to interfere with the board’s exercise of its powers
and functions
o EXCEPTION: where the law expressly gives them the final say, like in cases of removal of
a director, amendment of the articles of incorporation and other major changes
• The board has the sole power and responsibility to decide whether a corporation should sue,
purchase and sell property, enter into a contract or perform any act
• Stockholders’ or members’ resolutions dealing with matters other than the exceptions are not
legally binding on the board and may be treated by it as merely advisory or may even be
completely disregarded (Ramirez v. Orientalist Co.)
• If the stockholders do not agree with what the board has decided or the policies sought to be
implemented, their remedy is to wait for the next election of directors and choose new ones to
take their place
• In the case where the board of directors fails to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, the corporation may be held
liable on a tort and may be liable to pay damages caused to third persons. It is also liable
whenever a tortious act is committed by an officer or agent who acts under direction or authority
from the board

(1) BOARD MUST ACT AS A BODY IN A MEETING

o The directors/trustees must not act individually or separately, but as a body in a lawful
meeting.
o The law presumes that they will act only after discussion and deliberation of the matters
before them
o A corporation is just as bound by a contract of an unauthorized officer where the
majority of the directors know of it, and take advantage of the benefits thereof
 CORPORATIONS LAW NOTES – ATTY. MIGALLOS

o GENERAL RULE: a third person who acts in GOOD FAITH cannot be prejudiced by the
fact that the directors did not act in accordance with the requirements of the law, if
such third person was led to believe or had the right to presume that the act involved
was duly authorized by the board
o This is of course without prejudice to the right of any stockholder or dissenting director
to question the validity of any irregular act done by the board

(2) REQUIREMENTS OF MEETING

o Meetings may be REGULAR or SPECIAL
o A board meeting must be properly called in accordance with law otherwise it will not be
valid and any action taken therein may be questioned by an objecting director or a
stockholder without prejudice to any right which may have been acquired by an
innocent third person

a) NOTICE

¶ The code allows the by-laws to provide for different or additional
requirements regarding notice, date and place of board meetings
¶ If the by-laws are SILENT on the matter, the board must meet at least
ONCE A MONTH
¶ Notice of any meeting is required although by-laws may require that the
notice be given earlier than 1 day prior to the date of the meetings
¶ An individual director/trustee may waive such requirement as to him
except in the case of such waiver, if the required notice is not sent to the
director, he may question the validity of the meeting and of any matter
taken up therein

b) PLACE OF MEETING

¶ If the by-laws are silent, the board may meet anywhere it pleases, possibly
in a different place each meeting and even outside the Philippines
¶ The by-laws however may set limitations on this freedom of the board to
choose a place for meetings

c) QUORUM AND VOTE

¶ Sec. 25 fixes the quorum for directors’ meetings at a majority of the
number of directors or trustees as fixed in the articles of incorporation
¶ The vote of at least a majority of the directors or trustees PRESENT at a
meeting where there is a quorum, is necessary for a valid corporate act
¶ “unless the AOI or by-laws provide for a GREATER majority”
¶ If the articles provide for a 7-member board, the quorum is 4.
¶ Should there be 2 vacancies due to death, resignation or other cause, the
quorum would still be 4 not 3.
¶ If there are 4 present in the meeting, then a vote of 3 will be sufficient for
a valid corporate act
¶ If there are 6 present, then a vote of 4 is needed to bind the corporation
¶ If the articles provide for a quorum higher than a majority (6/7), 4 will be
necessary for each corporate act.
¶ However, in the election of members, the vote required is a majority of ALL
the members of the board and NOT a majority of those who are present
 CORPORATIONS LAW NOTES – ATTY. MIGALLOS

¶ A director must be personally present in order to be counted in the

quorum
¶ A proxy is not allowed because he was elected presumably for his personal
qualifications and his sound judgment and not somebody else’s
¶ Although a representative is allowed during DISCUSSIONS

d) AGENDA

¶ The notice of the meeting should contain the agenda
¶ Extraordinary matters not mentioned in the notice cannot be validly acted
upon against the objection of a director, even if listed as “other matters”
(only those ordinary/routine can be validly acted upon)
¶ A resolution to amend articles cannot be included in “other matters”.
However, IF ALL directors are present and agree to take up alien matters,
then no one can later question the validity of any action taken thereon

e) PRESIDING OFFICER

¶ Unless the by-laws provide, the president of the corporation shall preside
all meetings of the directors or trustees as well as of
stockholders/members
¶ It is possible for the by-laws to provide for a Chairman of the Board who
will preside over the meetings

(3) CLOSE CORPORATIONS

o Stock ownership is usually identical with management
o Often find it unnecessary and even inconvenient to follow all the formal
requirements for a board meeting, or even hold formal board meetings at all
o The code allows such close corporations to do away with the board entirely,
treating the stockholders as directors
o Where innocent third persons are concerned, the corporation, close or otherwise,
should be bound in instances where estoppel or ratification is shown
o Where the close corporation has no board of directors, the stockholders will be
treated as directors, with the corresponding duties and responsibilities
o In such cases, the legal requirements of the Code with respect to meetings of
directors would apply to meetings of stockholders