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Once you received the certifcate o incorporation, what should be done?

The Corporation should operate and formally organize as early as possible, because

if a corporation does not formally organize and commence the transaction of its

business or the construction of its works within two (2) years from the date of its

incorporation, its corporate powers cease and the corporation shall be deemed

dissolved. owever, if a corporation has commenced the transaction of its businessbut subse!uently becomes continuously inoperative for a period of at least "ve (#)

years, the same shall be a ground for the suspension or revocation of its corporate

franchise or certi"cate of incorporation.

Can you be a director$

%ns& 'es provided that hold at least one share of the Companys stocks, legally

capacitated and a natural person.

*o why are you re!uired to be a holder of at least of least one share$ This applies

only insofar as stock corporations are concerned because non+stock corporations do

not have shares of stocks. t is re!uired only that one be a member of the non+stockcorporation.

%ns& t is important that a director of a corporation be a holder of at least of least

one share because it would encourage him to perform better his task as a director

since has a vested interest in the corporation.

ow does one become a director$

%ns& pon election by the stockholders in the annual stockholders meeting.

-embers of the /0 are elected by * themselves.

-anagement is vested in the /0. 1rom whom did the oard get its power$

%ns& ower of the /0 is granted by law. 3aw is the source of the power.

Can the BOD delegate its power$

General rule& The /0 cannot delegate its power.

Exceptions& Those powers that involves

4. 56ercise of purely ministerial functions2. -atters relating to day to day activities and does not need any discretion

*o that, if you are part of the /0 and you got sick. The by+laws re!uires you to

submit a medical certi"cate, can you send someone else to participate in the oard

meeting, bringing with him the medical certi"cate.

%ns& 7o sir, pro6y is not allowed.

s there any instance wherein a director can delegate his power$

%ns& 7o sir. There is an absolute prohibition. % director cannot delegate because his

function and duty is purely personal. /ne is elected precisely because of his skills,

values, integrity, credibility and even ones relationships.

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BOD can delegate in instances where the delegated power is merely ministerial or

matters relating to day to day activities and does not need discretion. *o

when the /0 appoints -s. 'ap to decide whether the corporation should sell #89

of the corporation properties, it is not allowed since it is not ministerial, it re!uires

discretion. ut if the /0 delegates to -s. 'ap the act of signing the 0eed of *ale of

#89 of the property of the corporation, it is a valid delegation because the act of

signing is merely ministerial. The /0 has already deliberated and decided to sell

the property and whats left for -s. 'ap to do is to sign the 0eed+ purely ministerial.

ituation! *o if the corporation intends to have telephone lines for its o:ce with

30T, and 30T re!uires the corporation to submit a oard ;esolution containing

that the corporation in fact is subscribing with 30T, and the /0 appoints in the

oard ;esolution that the /0 designates -r. Te<ano, the corporations <anitor, to

sign in behalf of the corporation, is that allowed$

%ns& '5*. The law only re!uires the nature of the delegated power and not theperson to whom it is delegated. %s long as the power is ministerial it does notmatter that the person delegated is not an o:cer of the corporation, as long as the/0 appoints him= her as such.

ituation! %uthorizing to engage services of a <anitorial company

%ns& The board need not meet for matters that pertain to day to day activities,otherwise, they will not be able to discuss on the more important matters. The >iceresident for *anitation and 5nvironmental %ctivity is in a proper position to bedelegated as such. This can be delegated because these are simple matters? theseare day to day activities like <anitorial services.

owever, authorizing a >ice resident for 1inancial Concern to borrow 48 -illionfrom the 3and ank of the hilippines, it cannot be delegated because it involves ahuge amount of money and involves a contract that a corporation would enter into.++++++++++++++++++%gain the law says management is vested in the board, where there are #8stockholders and the board is composed of #, does it now protect the interesto the corporation i the management o the corporation composed o "#stoc$holders is vested in the board composed o " members?

%ns& 1or proper management of the corporation, it needs to be given to a certainnumber of people? it might create chaos in creating decisions if they are too many.

The main purpose of this is e:ciency.

@hat do we consider as the power o the board, as part of the management$

%ns& 4. %dminister the properties and assets of the corporation 2. 0etermine the conduct of the corporation A. ;epresent the corporation. (56ercise the powers of the corporation itself?

only the board can act for the corporation)

+++++++++++++++++

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To be a member of the board, you must own at least one stock in that corporation.

The purpose of the re!uirement is the member may have a desire to make the

corporation pro"table. %nd if you are part+owner, you will be serving better. The

moment you cease to be a stoc$holder$

%ns& 'ou cease to be a director

ituation! 'ou are a holder of one share. 'ou went to the bank to loan money. The

bank is asking you to assign your share. f you did$

%ns& f you assign your only share, you are no longer a shareholder and can be

ousted as a director.

ituation! 'ou bargain with the bank and ask that youll <ust pledge your share.

%ns& n pledge, you remain to be the owner of the thing. owever, possession of the

certi"cate is transferred to the bank. The pledgee cannot cast his vote during the

elections. n other words, in case of pledge, the pledgor still votes.

n case of trust, who becomes the legal owner?

The legal trustee, because in a trust, legal ownership is transferred to the trusteealthough bene"cial ownership is retained by the trustor. e may now be nominatedin the board and legal ownership is transferred to trustee but bene"cial ownershiplike payment of dividends retains in the trustor.

ituation! There are occasions where you have to e6ecute a deed of trust overyour shares. 1or e6ample, a stockholder cannot occupy a government position, <ustto illustrate. ecause he cannot occupy a government position, being a stockholderof a particular corporation, what he has to do is to transfer his shares of stock toanother person. *o for all intents and purposes, for the record, the owner is already

the third person. owever, to protect the interest of the real stockholder, they wille6ecute a deed of trust. This document is treated as con"dential. The trustee signs,and acknowledges the fact that hes not the true owner that and hes only holdingthe certi"cate in behalf of the true owner. %nd when the time comes that the trueowner will demand the return of the shares, the trustee is willing to immediatelyand voluntarily return the share.

B& @ho is now the legal owner in the story$

%& The third person. Therefore during elections in the corporation, it is the trustee

who is entitled to vote because in this case he is the legal owner of the share.

ituation! f the corporation needs additional capital, what can they do$

4. /btain a loan from the bank

2. %sk investors to subscribe to more shares

A. ssue redeemable shares

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/ne option is to borrow money, and this might involve several millions of loan but

the bank is willing. The bank e6tends 288- loan however the bank wants to be

sure that the 288- will be devoted to the pro<ects the corporation has presented.

The bank is not interested to recover your property or to foreclose the collateral, the

bank is interested to let the money grow and earn interest so that whenever the

bank e6tends or grants a multi+billion loan, it wants to be sure that the amount

granted by the bank is used for the purpose for which the loan was granted. To be

sure that the corporation will prudently use that money for the purpose it was

granted, the bank will have to re!uire the corporation to provide a seat in the board

for the bank to represent. That is a bank re!uirement whenever a huge loan is

granted and to be sure that the bank could monitor the application of the money,

the bank says that the corporation will have to provide one seat in the board for its

representative so that every board meeting, the bank will send its representative.

ow do you think does that bank representative sit in the board$

%ns& y getting at least one !ualifying share in his name.

The corporation necessarily will have to issue one share for that bankrepresentative with the agreement that during election, that bank representative

should represent the bank. *o he now sits in the board, every board meeting, he

receives the report, he has access to the "nancial status of the corporation, he

has access to the application of the borrowed money where it went, access to

records on the development and progress of the corporation. *o the bank will be

able to know whether or not the money was used for the purpose for which it

was granted. To be sure that the pro<ect is carried out so that if it is carried out

the e6pected pro"ts of that pro<ect will be realized. %nd if realized, the bank can

be assured of being able to collect the amount that was loaned.

The bank representative can vote in board meetings, he is a real member of the

board. ence, he will be there so long as the loan remains outstanding. /nce, theborrowed amount is fully paid however, the bank has no more interest in thecorporation so the bank will now return the share that was lent to it and the bankrepresentative may now resign from the board. *o that when there is now vacancyin the board, a special election will be held for the purpose.

B& ow long shall the director sit in the board$%& 4 year, thats why there is an annual election so that the board will be sub<ectedagain to the decision of the stockholders. %nd during the annual election, this is thetime that the stockholder may replace a member of the board who misbehaves.

Thats the only way that the stockholders may control the management of thecorporation because they cannot intervene with the decision of the board.

B& *o we have the powers of the board. @hat are the limitations of such powers$%& Those that may be found in the laws, articles of incorporations, by+laws, and thecorporation code. eside these limitations, the board has the absolute right tomanage the corporation.

B& The trust agreement is dierent from a voting trust agreement. @hat is a votingtrust agreement$

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%& t is an agreement among some or all of the stockholders on how they will voteon a particular issue.

The stockholder remains the holder of the stocks but he has surrendered his right tovote.

B& *ince he remains to be the owner, who can e6ercise the right to vote.

%& The legal owner, not the one who is entrusted with the voting rights.++++++;50 %35;T++++++ This is the answer agreed by sir. ut check 0e 3eon, cozaccording to him, a voting trustee may now be considered as the legal owner of theshares transferred to him by virtue of a voting trust agreement and, therefore,eligible to o:ce of director.

esides, *ir, himself, said that the stockholder remains to be the holder ofthe stocks but theD right to vote is surrendered.D *o logically, it is the one uponwhom the right to vote was surrendered who should be allowed to e6ercise the rightto vote.

Klaroha lang ninyo. Kayo ang humusga, I might be wrong coz I’m just a dirtyimpotent rapist, but beastly when it comes to performance.

B& The law re!uires that the stockholder must hold at least one share of stock. Canthe by+laws re!uire that a stockholder may be elected as a director only if he owns4# shares of stock$%& 'es. *uch provision does not violate the Code because the Code only re!uiresthat the director must hold Eat leastD 4 share, so the by+laws may re!uire for more.

B& e tried to organize another corporation also to manufacture the best beer. %fteroperating for !uite a time, the best beer that he promoted was actually not the bestbecause the old one remained the best. *o he asked himself, what he should do todefeat the old one. is consultants told him that the best thing to do is to buyshares of stocks of that old beer company and make sure that hell be elected to bea member of the board. *o he did. The other members of the current board noticed

that hes buying a lot of shares of stock which would give him a sure seat in theboard. *o before he could even start campaigning for the board, the members ofthe board in the old beer company wanted to amend the by+laws. Can the boardamend$

%& 'es, provided it is rati"ed by the stockholders by a vote of 2=A.

B& *o the amendment was passed. The amendment said that no stockholder, who isat the same time, a stockholder of up to 48 percent of any beer company incompetition to our company, can !ualify as a director of our company. *o thedirector of the new beer company !uestioned this. e went to court, and said thathe has a lot of shares of stock in the new company but they amended the by+laws insuch a way that he could no longer use his shares of stock to protect his right tovote and be voted upon in that board of the new corporation. t is unfair, accordingto him, and thus violates his right as a stockholder. *o he went to the *C contendingthat the amendment was for him alone because theres no other person who holds48 percent of a company that competes with their company. e said hes singledout, thus theres no e!uality. f you were the *C, would you allow the amendment orwould you agree with the director of the company so that the amendment would beconsidered illegal$

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%& The amendment should be allowed. /therwise, to sustain the contention of thedirector of the new beer company will endanger the old beer company. Thus, itwould be for the best interest of everyone if the amendment of by+laws will beretained.

magine if the new director of the new corporation would be a director of the oldcorporation. 0uring one board meeting, he can summon the brew master, an e6pertinsofar as the mi6ture of the beer is concern, and asked for the formula of the beeror asked for the list of the top customers of the old corporation. Thus, the *upremeCourt says that is a valid amendment of the by+laws. t <ust happened that suchperson was aected by the provision but it was not intended for him alone. t couldapply to anyone who is in the same situation. %mendment to the by+laws can bedone and approved by the board with the rati"cation and con"rmation of thestockholder.

Election o the Board o Directors

Fnaudible answerG

ection %&' Election of directors or trustees. H %t all elections of directors ortrustees, there must be present, either in person or by representative authorizedto act by written pro6y, the owners o a ma(ority o the outstanding capitalstoc$, or i there be no capital stoc$, a ma(ority o the members entitled tovote. The election must be by ballot if re!uested by any voting stockholder ormember. n stock corporations, every stockholder entitled to vote shall have theright to vote in person or by pro6y the number of shares of stock standing, at thetime "6ed in the by+laws, in his own name on the stock books of the corporation, orwhere the by+laws are silent, at the time of the election? and said stockholder mayvote 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 thenumber of directors to be elected multiplied by the number of his shares shalle!ual, or he may distribute them on the same principle among as many candidatesas he shall see "t& rovided, That the total number of votes cast by him shall note6ceed the number of shares owned by him as shown in the books of thecorporation multiplied by the whole number of directors to be elected& rovided,however, That no delin!uent stock shall be voted. nless otherwise provided in thearticles of incorporation or in the by+laws, members of corporations which have nocapital stock may cast as many votes as there are trustees to be elected but maynot cast more than one vote for one candidate. Candidates receiving the highestnumber of votes shall be declared elected. %ny meeting of the stockholders ormembers called for an election may ad<ourn from day to day or from time to time

but not sine die or inde"nitely if, for any reason, no election is held, or if there arenot present or represented by pro6y, at the meeting, the owners of a ma<ority of theoutstandingcapital stock, or if there be no capital stock, a ma<ority of the memberentitled to vote.

1irst, there will be a meeting, the time the elections will be held.)e*uirement o a valid meeting!

• Buorum H re!uired number of persons to hold a valid meeting.

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f there are 48, !uorum is I.(#8J4& stock, ma<ority of the outstanding capital stock? non+stock, ma<ority of themembers)Buestion& Can # hold a valid meeting in a group of 48$%& 'es, if it is provided in the by+laws that such will constitute the !uorum.

Simple majority + the minimum ma<ority, one+half plus oneQualifed majority H that ma<ority reKected in the articles of incorporation or theby+laws (based on de 3eon) that is higher than simple ma<ority. t is not only whatthe parties agreed upon but even the code sometimes refers to it as 2=A, A=L (#=I).

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