Title III

BOARDOF DIRECTORS/TRUSTEES/OFFICERS

SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless
otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers,
conduct all business, and control all properties of the corporation.

Directors shall be elected for a term of one (1) year from among the holders of stocks registered
in the corporation’s books, while trustees shall be elected for a term not exceeding three (3) years from
among the members of the corporation. Each director and trustee shall hold office until the successor is
elected and qualified. A director who ceases to own at least one (1) share of stock or a trustee who
ceases to be a member of the corporation shall cease to be such.

The board of the following corporations vested with public interest shall have independent
directors constituting at least twenty percent (20%) of such board:

(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The
Securities Regulation Code”, namely those whose securities are registered with the Commission,
corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and
having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a
class of its equity shares;

(b) Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations
engaged in money service business, preneed, trust and insurance companies, and other financial
intermediaries; and

(c) Other corporations engaged in businesses vested with public interest similar to the above, as
may be determined by the Commission, after taking into account relevant factors which are germane to
the objective and purpose of requiring the election of an independent director, such as the extent of
minority ownership, type of financial products or securities issued or offered to investors, public interest
involved in the nature of business operations, and other analogous factors.

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.

Independent directors must be elected by the shareholders present or entitled to vote in

Now let’s talk about the term of the directors/trustees. For how long can they hold such possession as a
director in a stock corporation or trustee in non stock corporation. The revised corporation tells us that,
if you are elected as a director then you shall hold a term one year. If you are elected as trustees, then
you shall hold a term not more than 3 years. That is the section 22, Revised Corporation code
particularly the second paragraph. Directors shall be elected for a term of one (1) year from among the
holders of stocks registered in the corporation’s books, while trustees shall be elected for a term not
exceeding three (3) years from among the members of the corporation. Each director and trustee shall
hold office until the successor is elected and qualified. A director who ceases to own at least one (1)
share of stock or a trustee who ceases to be a member of the corporation shall cease to be such.

Now how can you be qualified to become a director or trustee in a corporation. Let’s talk about
qualifying as a director first.

Let’s talk about as a qualifying as a director first. For us to become a director,

1. we must be a holder of at least one share of stock.

So let’s talk about them one by one.

You must be an owner of at least one share of stock.

Now why is there a stock ownership for us to be a director? Remember that the board of directors, the
role of such is that they are the governing body of the corporation. The powers of the corporation are
being exercised through them. And therefore, it is important that the directors in the board actually look
into the interest of the corporation. If you are the shareholder, if you have a stake in the corporation
then clearly you will lookout for the best interest of the corporation. That is the reason behind the stock
ownership requirement.

You must be the registered owner of the share/s of stock.

Why? Is there a time that you are actually the owner, but you are not the registered owner? Yes, in a
voting trust agreement. Its like A buying of stocks in a corporation but that purchase was registered in
the name of X by virtue of agreement between them. So here while A is really the owner as he
purchases those shares, X is the registered owners. So, who can be qualified as a director, is it A or X?
The revised corporation code tells us that we must be the registered owner. So, in that scenario, it
should be X who may be elected as a director as he is the one registered as the owners of shares.

He must continue to be the holder of the shares for the entire duration of his term.

This means then that once your elected as a director, you being the holder of at least a share of stock.
You must not sell your shares during the period that you are a director. You may sell some, but you must
not sell all of your shares. Why? Because if you sell all your shares then automatically you cease to
become a director. Even if you will buy them a week after because the law is clear that you must
continue be the owner of such stock during your term as a director.

Now these three requirements are actually those that are provided for by your revised corporation
code. Can the corporation add more qualifications for you to become a director? The answer is yes so
longas it is provided in the bylaws.

Can a juridical person become a director in a corporation? Considering that a juridical person can
actually now become an incorporator in a corporation?
Under section 10 under revised corporation code, we have discussed that you can have incorporators,
you can have rather partnerships and corporations to become incorporators in a corporation. This was
not allowed prior to the revised corporation code. Does that mean also that you can also have
corporations or partnerships as directors in a corporation? The answers is no. it is deducible from
section 22 that only NATURAL PERSONS can become directors of a corporation. If we were to allow
corporations or partnership to become directors, then what would happen now to your board of
directors? It could happen that there’s no one seating actually as a director because these are all
juridical persons.

Now what then would be the remedy of a corporation or a registered partnership who is a stockholder
in a corporation who would want to have someone in their corporation or in their partnership to have a
seat in the board of directors?

They can actually point someone. However, they must give that person whom they have chosen to elect
as a member of board of directors, they must give him a qualifying share. Why? Why is there a need for
that? Because again, we said that a director for him to be qualified as such must be a registered owner
of such share. So at least he has one share that is registered in the books of the corporation so that h e
may be elected as a one of the directors.

Is there a citizenship or residence requirement to become a director? The answer is no. The revised
corporation code does not require directors to be Filipino citizens or to be a residence of the Philippines.

Now when we go over section 22 of the revised corporation code, we will see here the term
independent directors and the requirements of such independent directors to be incorporations
invested with public interest. Now what is an independent director? An independent director is of
course a share holder in the corporation, and he is elected as such. How is he different from the other
directors? The independent director has no other connection with the corporation except for his being a
shareholder. He also doesn’t take part in the management of the corporation. What is the purpose of
having an independent director? What is the reason behind the law requiring that there must be such
independent directors in corporations vested with public interest? The reason for that is your
independent director is supposed to be a watchdog in the corporation considering that the corporation
is invested with public interest. So they see to it that everything is in order that everything is done to
protect the corporation and its stakeholders. Now there are other reasons where an independent, a
particular person rather, is being elected as an independent director. It could be by virtue of his
expertise, and he could lend some advice to the other directors in the corporation who are taking active
part in the management part of the business because their also corporate officers. Or for reputational
purposes, as when a stockholder may be a known philanthropist and so give a good reputation for the
corporation he could be elected as one of the directors making him an independent director.

What are corporations covered that are required to have an independent director?

The board of the following corporations vested with public interest shall have independent directors
constituting at least twenty percent (20%) of such board:

(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”, namely those whose securities are registered with the Commission, corporations
listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two
hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its
equity shares;

(b) Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations engaged in
money service business, preneed, trust and insurance companies, and other financial intermediaries;
and

(c) Other corporations engaged in businesses vested with public interest similar to the above, as may be
determined by the Commission, after taking into account relevant factors which are germane to the
objective and purpose of requiring the election of an independent director, such as the extent of
minority ownership, type of financial products or securities issued or offered to investors, public interest
involved in the nature of business operations, and other analogous factors.

So those are the covered corporations, the corporations that are vested with public interest that are
required to have independent directors and must have 20% of the board.

Now let’s move to the qualification to become a trustee

What are the qualifications to become a trustee?

There is just actually one qualification to become a trustee. That you are a member in good standing of
such non-stock corporation.