When is a contract between two corporations having interlocking directors subject to stricter scrutiny?
Generally, a contract between two or more corporations with interlocking directors will not be invalidated solely on that ground, provided there is no fraud and the contract is fair and reasonable (SEC. 32, Revised Corporation Code of the Philippines). However, the contract becomes subject to the stricter scrutiny and validating conditions of Section 31 if the interest of the interlocking director in one corporation is substantial and their interest in the other corporation is merely nominal. For this purpose, stockholdings exceeding twenty percent (20%) of the outstanding capital stock are considered substantial. This rule ensures that a conflict of interest leading to potential self-dealing is appropriately managed by requiring board neutrality or stockholder ratification in the less-interested corporation.
31 October 2025
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/.
