Directors, Trustees, and Officers | Corporations | BUSINESS ORGANIZATIONS

Under Philippine law, particularly the Revised Corporation Code of the Philippines (Republic Act No. 11232), Directors, Trustees, and Officers hold a pivotal role in corporate governance and administration. This code provides detailed regulations regarding the formation, duties, powers, liabilities, and limits of authority of directors, trustees, and officers within corporations and non-profit organizations. Here’s a breakdown of the significant rules, requirements, and limitations relevant to these positions:


1. Directors

Definition and Requirements
Directors are members of the board governing a corporation, usually elected by the stockholders, and must meet several essential qualifications:

  • Number: A board must have at least five (5) but not more than fifteen (15) directors.
  • Qualifications: Directors must hold at least one share of stock and be of legal age. In some cases, corporations may stipulate additional requirements in their by-laws.
  • Residency: At least a majority of the directors must be residents of the Philippines, unless otherwise stated.

Election and Term of Office

  • Election: Directors are elected by shareholders during the annual stockholders' meeting.
  • Term: Directors serve for a period of one (1) year, or until their successors are elected and qualified, unless the corporation adopts staggered terms in its by-laws.

Powers and Duties

  • Governance: Directors are responsible for setting policies, supervising management, and making strategic decisions.
  • Fiduciary Duties: Directors owe fiduciary duties of loyalty and diligence to the corporation, prioritizing its interests above personal gains.
  • Duty of Care and Loyalty: Directors must act prudently, diligently, and in good faith, and are expected to make well-informed decisions.
  • Business Judgment Rule: Directors are generally protected from liability for decisions made in good faith, even if these later prove unwise.

Disqualification and Removal

  • Grounds for Disqualification: The Revised Corporation Code enumerates causes for disqualification, including criminal convictions involving moral turpitude, violations of corporation rules, and lack of required shareholding.
  • Removal: Directors may be removed by the stockholders for just cause or without cause, depending on the corporation’s by-laws and the vote threshold set therein.

Liability

  • Personal Liability: Directors may be held personally liable for corporate actions in cases of fraud, bad faith, gross negligence, or where they violate the provisions of the Corporation Code or by-laws.

2. Trustees

Applicability to Non-Stock Corporations
Trustees serve on the governing board of non-stock corporations, such as charitable, educational, or religious organizations.

Qualifications and Election

  • Number: The number of trustees is also limited to a minimum of five (5) but not exceeding fifteen (15).
  • Qualifications: Trustees must meet specific criteria outlined by the corporation’s articles of incorporation or by-laws, including residency and any shareholding requirements.

Term and Holdover

  • Term: Trustees, like directors, typically serve for one year unless specified otherwise.
  • Holdover Principle: Trustees remain in office until their successors are elected and duly qualified, a principle known as “holdover.”

Powers and Responsibilities

  • Governance Role: Trustees manage the non-stock corporation’s property and affairs, ensuring alignment with the corporation’s goals and missions.
  • Fiduciary Responsibility: Trustees must act in the best interests of the non-profit corporation, avoiding conflicts of interest and exercising their roles with care, loyalty, and good faith.

Disqualification, Removal, and Liability

  • Disqualification: Trustees may be disqualified on similar grounds as corporate directors, especially if they fail to meet their fiduciary obligations or commit acts of misconduct.
  • Removal and Liability: Trustees can be removed by the corporation's members, and they may be held liable under the same principles that govern corporate directors.

3. Officers

Designation and Appointment

  • Mandated Officers: The Revised Corporation Code requires at least a president, a treasurer, a corporate secretary, and other officers as may be required by the by-laws. The president must be a director.
  • Election and Tenure: Officers are typically appointed by the board of directors and serve for terms as determined by corporate by-laws.

Duties and Powers of Key Officers

  • President: The president serves as the chief executive officer, representing the corporation and executing board directives.
  • Treasurer: The treasurer is responsible for the corporation’s financial assets and records, overseeing the organization’s financial health.
  • Corporate Secretary: The corporate secretary maintains records, including minutes of meetings, stockholder information, and compliance with regulatory requirements.

Fiduciary Duties and Liability

  • Officers, like directors and trustees, have fiduciary obligations to act in the best interests of the corporation.
  • They may be personally liable for corporate losses if found to be negligent, fraudulent, or if they engage in self-dealing.

Disqualification and Removal

  • Officers can be disqualified on the grounds specified in corporate by-laws or by the board’s determination.
  • They may be removed by the board at any time, with or without cause, depending on the rules in place.

4. Compliance, Internal Controls, and Accountability

Corporate Governance Standards
Corporations must adhere to established governance principles to promote transparency, integrity, and accountability among directors, trustees, and officers.

Audit Committees
Publicly listed and large corporations are often required to form audit committees. These ensure independent oversight of the corporation’s financial reporting, internal controls, and compliance with legal standards.

Conflict of Interest and Related-Party Transactions

  • Directors, trustees, and officers must disclose conflicts of interest and abstain from decisions where they may have personal interests.
  • Related-party transactions should be carefully reviewed and approved by independent directors or committees to prevent self-dealing or misuse of corporate assets.

Proxy Voting and Stockholder Rights

  • Stockholder Involvement: Directors are accountable to stockholders, who exercise their rights through voting, primarily in the election of directors.
  • Proxy Voting: Stockholders may vote through proxies, and directors must ensure that proxy solicitations are conducted fairly.

5. Liability and Remedies for Breach of Duty

Types of Liability

  • Civil Liability: Directors, trustees, and officers may face civil liability for damages arising from gross negligence, fraud, or bad faith in the performance of their duties.
  • Criminal Liability: Criminal sanctions may apply for violations of specific provisions of the Revised Corporation Code, such as fraud or falsification of records.
  • Administrative Penalties: The Securities and Exchange Commission (SEC) can impose administrative penalties for violations, including the suspension or disqualification of erring directors, trustees, and officers.

Legal Remedies

  • Derivative Suits: Shareholders may file derivative suits on behalf of the corporation against directors or officers for acts that harm the corporation.
  • Quo Warranto: This action may be brought against directors, trustees, or officers who usurp corporate positions or violate their qualifications.
  • Injunction and Damages: Courts may grant injunctions or award damages for breaches of fiduciary duties or wrongful acts by corporate officers.

The Revised Corporation Code upholds a strict and comprehensive framework governing directors, trustees, and officers to safeguard corporate governance, promote transparency, and protect the interests of stockholders, stakeholders, and the public.