How Can Shareholders Call a Meeting Without the President?

Introduction

A corporation cannot be governed indefinitely through the inaction or refusal of its president. When the president or another authorized corporate officer refuses to call a regular or special stockholders’ meeting, concerned shareholders may seek assistance from the Securities and Exchange Commission (SEC).

Under the Revised Corporation Code of the Philippines, the SEC may authorize a petitioning stockholder to call the meeting and initially preside over it. This remedy is particularly relevant when the corporation’s annual meeting has not been held, directors’ terms are disputed, or management refuses to place matters before the stockholders.

What Law Governs the Calling of a Stockholders’ Meeting?

Section 49 of the Revised Corporation Code permits regular and special meetings of stockholders or members. A special meeting must generally be preceded by at least one week’s written notice, unless a different period is provided by the corporation’s bylaws, law, or applicable regulation.

Section 50 governs the place, time, and notice of meetings. It also provides that when there is no person authorized to call a meeting, or when the authorized person unjustly refuses to do so, the SEC may, upon petition and a showing of good cause, direct the petitioning stockholder or member to call the meeting.

The meeting must be called using the notice required by the Revised Corporation Code or the corporation’s bylaws. The petitioning stockholder initially presides until at least a majority of the stockholders or members present choose a presiding officer.

Can Shareholders Proceed Without the President’s Approval?

Yes, but not by simply calling an unauthorized meeting on their own. The proper course is to first follow the corporation’s bylaws and then seek an SEC order when the officer authorized to call the meeting refuses, fails, or neglects to act.

In Bernas et al. v. Cinco et al., G.R. Nos. 163356-57, July 10, 2015, the Supreme Court held that a special stockholders’ meeting called by persons who were not authorized under the Corporation Code or the corporation’s bylaws was void from the beginning. Majority approval after the meeting could not validate it.

The ruling also recognized that shareholders may go directly to the SEC when the authorized officer refuses to call the meeting. The SEC may then issue an order authorizing the petitioning stockholder to call and preside over the meeting.

Who May Call the Meeting Under the Corporation Code?

The usual authority to call a stockholders’ meeting comes from the Corporation Code, the corporation’s bylaws, or both. Depending on the corporation’s governing documents, authority may belong to the president, the board of directors, or the corporate secretary acting upon the proper order or demand.

For a meeting to remove a director or trustee, Section 27 of the Revised Corporation Code provides a specific procedure. The meeting must be called by the secretary upon the president’s order or upon the written demand of stockholders holding or representing at least a majority of the outstanding capital stock. If the secretary refuses or fails to act, the stockholders signing the demand may call the meeting by directly addressing the stockholders.

Section 27 applies specifically to the removal of directors or trustees. For an annual meeting or another special meeting, the shareholder should rely on the applicable bylaws and the SEC petition procedure under Section 50.

What Must a Shareholder Establish Before the SEC?

The petition should demonstrate that the requested meeting is legally required or reasonably necessary and that the normal corporate process has failed. The following matters should ordinarily be addressed:

• The petitioner’s status as a stockholder or member;
• The corporation’s articles of incorporation and current bylaws;
• The meeting sought to be held, such as an annual meeting or a special meeting;
• The officer or body authorized to call the meeting;
• The shareholder’s written request or demand for the meeting;
• The president’s refusal, failure, or neglect to call the meeting; and
• The specific business to be submitted to the stockholders.

The petition should also explain why the meeting is necessary. Examples include the failure to hold the annual meeting, the expiration or uncertainty of directors’ terms, the need to elect directors, or the need to address a corporate dispute that cannot be resolved without stockholder action.

Recommended SEC Petition Process

1. Review the Corporation’s Governing Documents

Obtain and examine the articles of incorporation, bylaws, stock and transfer book, prior meeting notices, and minutes. The bylaws may identify who is authorized to call meetings, the required notice period, the place of the meeting, quorum rules, and procedures for voting by proxy or remote communication.

2. Make a Written Demand

The shareholder should send a formal written demand to the president, corporate secretary, and, when appropriate, the board of directors. The demand should identify the proposed date, place, purpose, agenda, and legal basis for the meeting.

Proof of delivery should be preserved. Depending on the circumstances, this may include an acknowledgment receipt, courier record, email transmission, or other reliable evidence showing that the demand was received.

3. Allow the Authorized Officer to Act

The shareholder should allow a reasonable period for the president, secretary, or board to respond, subject to the corporation’s bylaws and the urgency of the circumstances. An express refusal is useful evidence, but an unjustified failure to act may also support the petition.

4. File a Petition With the SEC

If the authorized officer refuses, fails, or neglects to call the meeting, the shareholder may petition the SEC for an order authorizing the shareholder to call it. The petition should attach the corporate documents, the written demand, proof of service, relevant correspondence, and evidence of the petitioner’s share ownership.

The relief requested should be specific. It may include authority to issue the notices, conduct the meeting, place the stated matters on the agenda, and initially preside until the stockholders elect a presiding officer.

5. Conduct the Meeting in Compliance With the Order

If the SEC grants the petition, the shareholder must strictly follow the order, the Revised Corporation Code, the bylaws, and applicable SEC rules. Notice should state the time, place, purpose, agenda, proxy requirements, and procedures for remote participation or voting in absentia when allowed.

Section 50 recognizes that the petitioning shareholder presides only at the beginning. Once at least a majority of the stockholders or members present choose a presiding officer, that person assumes the role for the remainder of the meeting.

What Should the Meeting Notice Contain?

Section 50 requires notice of the meeting to state its time, place, and purpose. Section 49 generally requires at least one week’s written notice for a special meeting unless a different period is provided by the bylaws, law, or regulation.

Under Section 50, the notice should also be accompanied by:

• The meeting agenda;
• A proxy form to be submitted to the corporate secretary within a reasonable time before the meeting;
• Requirements and procedures for remote communication or voting in absentia, when permitted; and
• Nomination and election procedures when directors or trustees will be elected.

Section 57 allows voting in person or by proxy. Remote or in-absentia voting may be used when authorized by the bylaws or by a majority of the board, subject to the corporation’s prescribed procedures. A stockholder participating remotely or in absentia is deemed present for quorum purposes.

What Happens if an Unauthorized Meeting Is Held?

An unauthorized meeting may be void from the beginning. In Bernas et al. v. Cinco et al., the Supreme Court rejected the argument that a later ratification by a majority of stockholders could cure the defect when the meeting had not been called by a person authorized under the bylaws or law.

This principle creates a substantial risk for shareholders who bypass the SEC and convene a meeting without proper authority. Resolutions adopted at that meeting, including the election or removal of directors, may be challenged.

A meeting may nevertheless be valid despite an irregularity in its calling when all stockholders are present or duly represented and no one expressly objects at the beginning of the meeting to the transaction of business on the ground that the meeting was not lawfully called or convened. This rule under Section 50 should not be treated as permission to disregard the normal calling requirements.

Can the SEC Authorize the Petitioning Shareholder to Preside?

Yes. The SEC is not limited to directing the incumbent president or chairman to call and preside over the meeting.

In SEC EB Case No. 11-21-491, 2021, the SEC affirmed that Section 50 authorizes the Commission to direct the petitioning stockholder to call the meeting and preside until the stockholders present select a presiding officer. The existence of incumbent corporate officers does not prevent the SEC from granting this remedy when corporate inaction has obstructed the meeting.

The same principle appears in SEC Case No. 02-13-402, 2015, and SEC Case No. 12-10-333, 2017. These proceedings recognize the SEC’s authority to compel a corporation to hold a stockholders’ meeting when the statutory and corporate procedures have been frustrated.

What Matters May Be Taken Up at the Meeting?

The meeting should be limited to the matters identified in the notice and SEC order. Typical matters include the election of directors, approval of corporate reports, filling vacancies, consideration of corporate transactions, or removal of directors when the requirements of Section 27 are satisfied.

A shareholder should not use the SEC petition to introduce unrelated matters without proper notice. Adding substantial business at the meeting may expose the proceedings and resulting resolutions to challenge for lack of notice or opportunity to participate.

Example: Failure to Hold the Annual Meeting

Assume that a corporation’s bylaws require an annual stockholders’ meeting every June. The president refuses to call the meeting because the shareholders are divided over the election of directors. A shareholder sends a written demand to the president and corporate secretary, but no meeting is called.

The shareholder may petition the SEC, attaching the bylaws, proof of share ownership, the written demand, and evidence of the refusal or inaction. If the SEC finds good cause, it may authorize the shareholder to issue the required notice, call the annual meeting, and initially preside over it.

The meeting must then be conducted in accordance with the SEC order, the bylaws, and the Revised Corporation Code. The stockholders present may elect a presiding officer and proceed with the properly noticed agenda.

Important Distinction for Publicly Listed Companies

For a publicly listed company, additional SEC requirements may apply. SEC Memorandum Circular No. 7, Series of 2021 recognizes and sets procedures for shareholders holding at least 10% of the outstanding capital stock who have continuously held those shares for at least one year to call a special stockholders’ meeting, subject to the conditions and procedures stated in the issuance.

Accordingly, shareholders of a publicly listed company should examine both Section 50 of the Revised Corporation Code and the requirements of SEC Memorandum Circular No. 7, Series of 2021 before proceeding.

Checklist for Concerned Shareholders

• Confirm share ownership and voting rights;
• Review the articles, bylaws, and stock and transfer book;
• Identify the officer or body authorized to call the meeting;
• Send a written demand stating the proposed agenda and purpose;
• Preserve proof of delivery and all responses;
• Prepare a petition showing good cause and corporate inaction;
• Request a specific SEC order authorizing the calling of the meeting; and
• Follow the order, notice requirements, quorum rules, proxy rules, and voting procedures exactly.

Conclusion

A president’s refusal does not give shareholders an unrestricted license to convene a meeting without authority. The safer and legally recognized remedy is to document the refusal and petition the SEC under Section 50 of the Revised Corporation Code.

Shareholders should avoid relying on later ratification to cure an improperly called meeting. Proper authority, adequate notice, a clearly defined agenda, and strict compliance with the SEC order are essential to protect the validity of the meeting and the corporate acts approved during it.

About Nicolas and De Vega Law Offices

 Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.