Voting Requirements

Voting Requirements | Directors, Trustees, and Officers | Corporations | BUSINESS ORGANIZATIONS

Under Philippine law, particularly under the Revised Corporation Code (Republic Act No. 11232), the voting requirements and rules for directors, trustees, and officers within corporations are governed by strict provisions that ensure fair corporate governance, accountability, and transparency. Here's a detailed exploration of these requirements:

1. Voting Requirements for Directors and Trustees

Election of Directors and Trustees

  • Cumulative Voting: Shareholders have the option to use cumulative voting when electing directors. Under this system, a shareholder can either allocate their votes to one candidate or distribute them among several candidates. This method strengthens minority shareholders' influence by allowing them to elect directors that may represent their interests on the board.
  • Straight Voting: Alternatively, shareholders may use straight voting, where each share has one vote for each director position. However, cumulative voting is mandated by law unless the corporate charter explicitly prohibits it.

Voting Thresholds for Major Board Decisions

  • Quorum Requirements: For a valid board meeting, a quorum, typically a majority of the directors or trustees, must be present. However, the Revised Corporation Code allows for a different quorum threshold if specified in the corporation's bylaws.
  • Approval of Resolutions: Most board resolutions require a majority vote of the directors or trustees present at the meeting, provided there is a quorum. However, certain decisions, such as approving contracts, incurring substantial debts, and issuing new shares, may necessitate a higher voting threshold (e.g., two-thirds majority) if stipulated in the corporation's charter or bylaws.
  • Two-Thirds Vote: Certain corporate actions require at least a two-thirds vote from the board, such as amendments to the articles of incorporation, mergers, or dissolving the corporation.

2. Voting Requirements for Officers

  • Appointment and Removal of Officers: The board of directors is vested with the power to appoint officers, such as the president, treasurer, and corporate secretary. The voting threshold required for appointing and removing officers can vary depending on corporate bylaws.
  • President: The corporation’s president must be a director. Typically, the board elects the president with a simple majority vote.
  • Corporate Secretary and Treasurer: The corporate secretary must be a resident and citizen of the Philippines. While not required to be a director, the corporate treasurer should be in good standing. The appointment of both may also be subject to specific voting requirements if mandated by the bylaws.

3. Voting Rights of Shareholders for Corporate Decisions Involving Directors and Officers

  • Special Stockholders’ Meetings: A vote from stockholders may be necessary for actions that significantly impact the corporation or its structure. Examples include mergers, the sale of substantial corporate assets, amendments to the articles of incorporation, and the election or removal of directors or trustees.
  • Proxy Voting: Shareholders are allowed to vote via proxy, provided there is clear authorization. Proxies must be in writing, signed by the shareholder, and filed with the corporate secretary. Proxies are generally valid for five years unless a shorter period is stipulated.
  • Voting in Absentia: The Revised Corporation Code permits voting in absentia, allowing shareholders to vote without attending meetings physically. Corporations must outline the procedures for this in their bylaws, including mechanisms for verifying the identity of absent voters and ensuring vote integrity.

4. Removal of Directors and Trustees

  • Grounds for Removal: Directors and trustees may be removed from office by a two-thirds vote of shareholders or members if they breach fiduciary duties, engage in fraud, or commit serious misconduct.
  • Voting Process: The removal of directors or trustees requires a specific process. Shareholders or members must be given due notice, and the director or trustee must have an opportunity to respond to the allegations. Voting may take place in a special meeting called for this purpose.
  • Protection of Minority Directors: Directors elected by minority shareholders through cumulative voting cannot be removed without cause unless shareholders vote in favor of the removal with the same cumulative voting method.

5. Related Provisions on Voting Rights and Governance Standards

  • Conflict of Interest and Self-Dealing: Directors or trustees with a conflict of interest in a transaction must disclose this conflict to the board and are typically prohibited from voting on related resolutions. Their presence is not counted toward the quorum for any meeting regarding the conflicted transaction.
  • Fiduciary Duty and Loyalty: Directors, trustees, and officers are bound by fiduciary duties of loyalty and care. They must act in the corporation’s best interests, and any violation can result in penalties, dismissal, or legal action by shareholders.
  • Resignation and Replacement: If a director or trustee resigns, the remaining members of the board may appoint a replacement by a majority vote, but only if the vacancy does not prevent the corporation from meeting the quorum requirements.
  • Prohibited Acts: Directors, trustees, and officers are prohibited from certain actions, such as issuing dividends that impair capital or engaging in ultra vires (beyond the scope) acts. Any such act requires approval from the majority or supermajority of directors and, in certain cases, a shareholder vote.

6. Documentation and Transparency Requirements

  • Minutes of the Meetings: The minutes of every board meeting must document votes cast, both in favor and against resolutions, as well as abstentions. These minutes should be available to shareholders upon request, subject to reasonable limitations as per corporate bylaws.
  • Right of Inspection: Shareholders have a legal right to inspect corporate books and records, including minutes and voting records, to ensure transparency in corporate decision-making.

Summary

In Philippine corporate law, voting requirements for directors, trustees, and officers are designed to uphold corporate democracy, transparency, and accountability. They balance the rights of majority and minority shareholders and place checks on the powers of directors and officers, aligning with principles of good corporate governance.