b. Participation in Management; Voting Requirements

Requisites for Valid Proxy

• The proxy shall be in writing;
• Signed by the stockholder or member; and
• Filed before the scheduled meeting with the corporate secretary (Sec. 57)¹

Duration of Proxy

General Rule: It shall be valid only for the meeting for which it is intended.

Exception: Unless otherwise provided in the proxy

Note: No proxy shall be valid and effective for a period longer than five (5) years at any one time.

The by-laws of the corporation may prescribe a particular form for proxy and fix the deadline for its submission.

Generally, proxies, even those with irrevocable terms, have always been considered as revocable, unless coupled with an interest, and their revocation may be by formal notice, orally, or by conduct as by the appearance of the stockholder or member giving the proxy, or the issuance of a subsequent proxy, or the sale of shares.

Note: Proxies, who are not stockholders or members, cannot be elected as a director or trustee. (Lim v. Moldex Land, Inc., G.R. No. 206038²)

Proxy Disputes—Jurisdiction

The regular courts now have the power to hear and decide cases involving all matters and conduct of the elections of directors, including validation of proxies. The power of SEC to regulate proxies remains only in instances when stockholders vote on matters other than the election of directors (SEC v. CA, G.R. No. 187702/189014)³.

Requisites for Valid Voting Trust

• In writing and notarized
• Specifying the terms and conditions
• A certified copy must be filed with the corporation and with the SEC. (Sec. 58)⁴

Duration

General Rule: Not exceeding 5 years

Exception: If the voting trust was a requirement for a loan agreement, period may exceed 5 years but shall automatically expire upon full payment of the loan.

No voting trust must be used for the purposes of fraud. Stockholders who are defrauded by their trustees have a right to revoke the trust and recover damages from such trustee.

Voting Trust v. Proxy

Limitations on Right to Vote

• Where the Articles of Incorporation provides for classification of shares under Sec. 6 of RA 11232⁵, holders of non-voting shares may nevertheless vote on the matters enumerated in the said section.
• Preferred or redeemable shares may be deprived of the right to vote unless otherwise provided.
• Fractional shares of stock cannot be voted unless they constitute at least one full share.
• Treasury shares have no voting rights as long as they remain in treasury.
• Holders of stock declared delinquent by the board for unpaid subscription have no voting rights.
• A transferee of stock if his stock transfer is not registered in the stock and transfer book of the corporation and does not have a proxy from or voting trust agreement with the transferor may not vote the purchased / acquired shares.
• A stockholder who mortgages or pledges his shares retains the right to vote unless the pledgee or mortgagee is expressly given that right in writing and the instrument is recorded in the appropriate corporate books.

Cases When Stockholder’s Action is Required

• Concurrence of majority of the outstanding capital stock (by majority vote)
• To enter into management contract if any of the two instances stated above are absent;
• To adopt, amend or repeal the by-laws.
• Concurrence of 2/3 of outstanding capital stock (by 2/3 vote) (see similar enumeration in the specific express powers of the corporation)
• Extend or shorten corporate term;
• Increase/Decrease Corporate Stock;
• Incur, Create Bonded Indebtedness;
• Deny pre-emptive right;
• Sell, dispose, lease, encumber all or substantially all of corporate assets;
• Investing another corporation, business other than the primary purpose;
• Declare stock dividends
• Enter into management contract if (1) a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than 1/3 of the total outstanding capital entitled to vote of the managing corporation; or (2) a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of the managed corporation;
• Amend the Articles of Incorporation
• By Cumulative Voting
• See discussion on election of directors
• Without board resolution
• 2/3 of outstanding capital stock – delegate to the board the power to amend the by-laws;
• Majority of the outstanding capital stock – revoke the power of the board to amend the bylaws which was previously delegated.
• Removal of directors by a vote of the stockholders representing at least 2/3 of the outstanding capital stock

The term “outstanding capital stock (OCS),” means the total shares of stock issued under binding subscription contracts to subscribers or stockholders, whether fully or partially paid, except treasury shares. (Sec. 173)⁶

Manner of Voting (sec. 57)

Stockholders and members may vote in person or by proxy in all meetings of stockholders or members.

Voting through remote communication or in absentia; Requisites:

• Authorized in the by-laws or by a majority of the board of directors
• Votes are received before the corporation finishes the tally of votes.

Effect: A stockholder or member who participates through remote communication or in absentia, shall be deemed present for purposes of quorum.

The corporation shall establish the appropriate requirements and procedures for voting through remote communication and in absentia, taking into account the company’s scale, number of shareholders or members, structure and other factors consistent with the basic right of corporate suffrage.

Proprietary Rights

By the Shareholders

(Note: Generally, the vote requirement of the shareholders or members are joined with a vote of, or a ratification by, a majority of the Board of Directors)

Vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 of members (as applicable) are needed in the following instances:

• Extension or shortening of corporate term
• Increase or decrease of capital stock or the creation of bonded indebtedness
• Denial of pre-emptive rights through an amendment of the articles of incorporation (RA 11232, Secs. 15 and 38)

Statutory exceptions to pre-emptive rights under RA 11232, Sec. 38 (not instances requiring a two-thirds vote to deny those rights):

• Shares issued in good faith in exchange for property needed for corporate purposes
• Shares in payment of previously contracted debts

• Sale of all or substantially all corporate assets
• Investing corporate funds in another corporation or business or for any other purpose other than its primary purpose
• Power to enter into management contracts in the following instances:
• where stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or
• where a majority of the members of the Board of Directors of the managing corporation also constitute a majority of the members of the Board of Directors of the managed corporation
• Declaration of stock dividend

Right to Vote

The right to vote is given to the shareholders but can be limited if stipulated in the Articles of Incorporation and the Certificate of Stock.

However, holders of nonvoting shares shall nevertheless be entitled to vote on the following matters:

• Amendment of the articles of incorporation;
• Adoption and amendment of bylaws;
• Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate property;
• Incurring, creating, or increasing bonded indebtedness;
• Increase or decrease of authorized capital stock;
• Merger or consolidation of the corporation with another corporation or other corporations;
• Investment of corporate funds in another corporation or business in accordance with this Code; and
• Dissolution of the corporation