d. Election, Removal, and Filling of Vacancies

Manner of Election

• In any form; or
• By ballot when requested by any voting stockholder or member
• In stock corporations, voting may be in person or by proxy

Time to Determine Voting Right

• At the time fixed in by- laws
• If by- laws are silent, at time of election

Cumulative Voting/Straight Voting

• Straight voting – Every stockholder may vote the number of shares standing in the stockholder’s name for as many persons as there are directors to be elected; or in non-stock corporations, members may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. (In straight voting, the votes are spread out evenly among all the elective positions)
• Cumulative voting for one candidate – a stockholder may accumulate his shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal;
• Cumulative voting by distribution – a stockholder may also cumulate his shares by multiplying the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit

4. Directors, Trustees, and Officers

Methods of Voting in Relation to Type of Corporation

Stock Corporations

Stockholders entitled to vote 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

The stockholder may use:

• Straight Voting
• Cumulative voting for one candidate
• Cumulative voting by distribution

Note: The total number of votes cast shall not exceed the number of shares owned by the stockholders as shown in the books of the corporation multiplied by the whole number of directors to be elected; and that no delinquent stock shall be voted.

Non-stock Corporations

General Rule: Members of nonstock corporations may use Straight Voting, i.e. cast as many votes as there are trustees to be elected but may not cast more than one (1) vote for one (1) candidate.

Exception: Unless otherwise provided in the articles of incorporation or in the bylaws. (Sec. 23)¹

Quorum

At all elections of directors or trustees, there must be present, either in person or through a representative authorized to act by written proxy:

• Stock Corporation – owners majority of outstanding capital stock
• Non-stock Corporation – majority of members entitled to vote

Note: When so authorized in the bylaws or by a majority of the board of directors, the stockholders or members may also vote through remote communication or in absentia. The right to vote through such modes may be exercised in corporations vested with public interest, notwithstanding the absence of a provision in the by-laws of such corporations. (sec. 23)²

Who Elects Directors or Trustees

• By the stockholders/members as provided in the by-laws (traditionally during annual SH/M meetings
• By the board, if still constituting quorum for vacancies in the interim (i.e. between annual meetings) due to causes other than removal or expiry of term (Sec. 28)³
• If the vacancies are due to removal or expiry of term, the directors/trustees must be elected by the stockholders/members at a meeting called for this purpose, subject to the timing and notice requirements of Sec. 28

How Elected

• An election requires the presence of owners of a majority of the outstanding capital stock or, in a nonstock corporation, a majority of the members entitled to vote (RA 11232, Sec. 23). Candidates receiving the highest number of votes are elected.
• Stockholders/members may be present in person or by written proxy
• For stock corporations: Number of votes = (no. of shares) x (no. of directors to be elected)
• In stock corporations, a stockholder may vote by straight voting, cast all cumulative votes for one candidate, or distribute cumulative votes among candidates (RA 11232, Sec. 23).
• For non-stock corporations: Unless otherwise provided in the articles of incorporation or in the by-laws, members of non-stock corporations may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate.
• Viva voce (live voice) or must be by ballot if requested
• Delinquent shares and treasury shares cannot vote
• Candidates with highest number of votes will be declared elected

Election Rules on Stock and Non-Stock Corporations

Filling Vacancies in Board - Permissive

The filling of vacancies in the board by the remaining directors or trustees constituting a quorum as provided for by Section [28]⁴ is merely permissive, not mandatory, and the vacancies may still be filled-up by the stockholders or members in a regular or special meeting called for the purpose. However, when the by-laws of the corporation contain a specific mode of filling up existing vacancies in the board, the same is mandatory (Tan v. Sycip, G.R. No. 153468, 17 August 2006)⁵.

Report Of Election of Directors, Trustees and Officers

Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the SEC, the names, nationalities, shareholdings, and residence addresses of the directors, trustees, and officers elected. (Sec. 25)⁶

The report submitted to the SEC may serve as evidence of the corporation’s reported directors and officers; it does not, by itself, establish their authority to bring suit on the corporation’s behalf. Such authority must be established under the applicable rules on corporate authority (Premium Marble Resources, Inc. v. Court of Appeals, G.R. No. 96551, 4 November 1996)⁷.

Non-holding of Election

The non-holding of elections and the reasons shall be reported to the SEC within thirty (30) days from the date of the scheduled election. The report shall specify a new date for the election, which shall not be later than sixty (60) days from the scheduled date.

If no new date has been designated, or if the rescheduled election is likewise not held, the SEC may, upon the application of a stockholder, member, director or trustee, and after verification of the unjustified non-holding of the election, summarily order that an election be held.

The SEC shall have the power to issue such orders as may be appropriate, including:

• orders directing the issuance of a notice stating the time and place of the election,
• designated presiding officer, and
• the record date or dates for the determination of stockholders or members entitled to vote.

Notwithstanding any provision of the articles of incorporation or bylaws to the contrary, the shares of stock or membership represented at such meeting and entitled to vote shall constitute a quorum for purposes of conducting an election under this section. (Sec. 25)⁸

Cessation from Office

Should a director, trustee or officer die, resign or in any manner cease to hold office, the secretary, or the director, trustee or officer of the corporation, or in case of death, the officer’s heirs shall, within seven (7) days from knowledge thereof, report in writing such fact to the SEC. (Sec. 25)⁹

Independent Directors –R.A. No. 11232, Section 22¹⁰

An independent director is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.

Requisites of Removal from the Board

• It must take place either at a regular meeting or special meeting of the stockholders or members called for the purpose;
• There must be previous notice to the stockholders or members of the intention to remove;
• The removal must be by a vote of the stockholders representing 2/3 of the outstanding capital stock or 2/3 of the members, as the case may be;
• The director may be removed with or without cause unless he was elected by the minority, in which case, it is required that there is cause for removal.

Note: The SEC shall, motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to an election. This is without prejudice to other sanctions that the SEC may impose on the board of directors or trustees who, with knowledge of the disqualification, failed to remove such director or trustee.

Compensation – R.A. No. 11232, Section 29¹¹

General Rule: In the absence of any provision in the by-laws fixing their compensation, the directors or trustees shall not receive any compensation in their capacity as such, except reasonable per diems.

Exception: Stockholders representing at least a majority of the outstanding capital stock, or a majority of the members, may grant directors or trustees compensation and approve its amount at a regular or special meeting.

How Elections should be held:

In all elections to fill vacancies under this section, the procedure set forth in Sections 23 and 25 of this Code¹² shall apply.

When Elections may be held:

• Due to term expiration- the election shall be held no later than the day of such expiration at a meeting called for that purpose.
• Result of removal- the election may be held on the same day of the meeting authorizing the removal and this fact must be so stated in the agenda and notice of said meeting.
• In all other cases, the election must be held no later than forty-five (45) days from the time the vacancy arose.

Vacancy NOT by removal or expiration of term May be filled by:

• the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum;
• if not, said vacancies must be filled by the stockholders or members in a regular or special meeting called for that purpose.

Cases when Emergency Action is Required Requirements:

• If the vacancy prevents the remaining directors from constituting a quorum
• emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation

Effects:

• The vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors or trustees.
• The action by the designated director or trustee shall be limited to the emergency action necessary,
• The term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement director or trustee, whichever comes earlier

Vacancy filled by reason of an increase in the number of directors or trustees

This vacancy shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting.

Voting Requirements

Duties and Liabilities