Directors are elected by the stockholders of a corporation in an election held where the owners of majority of the outstanding capital stock, whether in person or through proxy, are present.
Being a director of a corporation sounds fancy and images of powerful men and women in suit come to mind. Why is this so? Perhaps, since a corporation has a separate juridical personality, it may act through its board of directors. Thus, as enunciated in Section 22 of Republic Act No. 11232, otherwise known as “The Revised Corporation Code” (Corporation Code), the board of directors shall exercise the corporate powers, conduct all business, and control all properties of the corporation. The law adopts the principle of centralized management, with the board of directors as the main decision-making authority save on certain cases requiring shareholders’ or members’ approval [Teresita Herbosa, The Revised Corporation Code of the Philippines, Its Theories and Applications p.98 (2019)]. Basically, the directors, as the decision makers of a corporation, hold power in their hands.
How can one become a Director?
So, how does one obtain the fancy title of being a director? Simple. A director is elected by the stockholders of the corporation in an election held where the owners of majority of the outstanding capital stock, whether in person or through proxy, are present.
A basic requirement is that the director must have at least one share registered under his name. A director who ceases to own at least one (1) share of stock or a trustee who ceases to be a member of the corporation shall cease to be such [Sec. 22 Corporation Code].
Procedure in Election of Directors
Section 23 of the Corporation Code provides for the procedure in electing corporate directors. Except when the exclusive right is reserved for holders of founders’ shares, each stockholder shall have the right to nominate any director who possesses all the qualifications and none of the disqualifications set forth by law. During the elections, there must be present, either in person or through a representative authorized to act by written proxy, the owners of majority of the outstanding capital stock. When so authorized in the bylaws or by a majority of the board of directors, the stockholders may also vote through remote communication or in absentia (except in corporations vested with public interest where such authorization is not required).
Stockholders shall have the right to vote the number of shares of stock standing in their own names in the stock books of the corporation at the time fixed in the bylaws or where the bylaws are silent at the time of the election. Pertinently, stockholders of delinquent stocks cannot vote.
Manner of Voting
The law further explains that the stockholder may:
(a) vote such number of shares for as many persons as there are directors to be elected; or
(b) cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of shares owned; or
(c) distribute them on the same principle among as many candidates as may be seen fit:
The election may be by show of hands, or if so requested by any shareholder, by poll or ballot [Teresita Herbosa, The Revised Corporation Code of the Philippines, Its Theories and Applications p.113 (2019)]. Nominees for directors receiving the highest number of votes shall be declared elected.
Report of Election of Directors
Section 25 of the Corporation Code mandates that within thirty (30) days after the election of the directors, the Corporate Secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission (SEC), the names, nationalities, shareholdings, and residence addresses of the directors elected.
Who are Disqualified from Becoming Directors?
Section 26 of the Corporation Code categorically provides that a person shall be disqualified from being a director of any corporation if, within five (5) years prior to the election or appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment for a period exceeding six (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”;
(b) Found administratively liable for any offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) above.
This is without prejudice to qualifications or other disqualifications, which the SEC or Philippine Competition Commission may impose in its promotion of good corporate governance or as a sanction in its administrative proceedings.
That’s how simple it is to elect directors of a corporation!
About Nicolas and De Vega Law Offices
If you need assistance in holding board meetings, or have issues in corporate law, commercial law, corporate or commercial litigation, or civil or other criminal law-related issues, we can help you. 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@example.com. Visit our website https://ndvlaw.com.