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<p>Corporate governance is an essential consideration for every corporation legally registered in the Philippines.</p>
<p>The positions on the Board of Directors and the Board of Trustees come with specific qualifications and responsibilities stipulated in R.A. 11232, the Revised Corporation Code of the Philippines</p>
<p>This article tackles the Board of Directors and the Board of Trustees, their distinctions, composition, qualifications (and disqualifications), and method of meeting.</p>

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<p id="caption-attachment-7845" class="wp-caption-text" style="text-align: center;">The board of directors or board of trustees are responsible for making major business and policy decisions</p>
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<p>The governing body of a corporation is the Board of Directors or the Board of Trustees, depending on whether it is a stock or non-stock corporation.</p>
<p>A Board exercises corporate powers on behalf of the corporation, which exists as a person only in contemplation of law.</p>
<p>In general, the board of directors or trustees exercises the corporate powers, conduct all business, and control all properties of the corporation.<a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftn1" name="_ftnref1"><sup>[1]</sup></a>&nbsp;As corporations are impersonal, they rely on individuals to act and contract on its behalf.<a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftn2" name="_ftnref2"><sup>[2]</sup></a></p>
<p>Thus, the Board of Directors or Board of Trustees are the governing body of the corporation chosen by the stockholders or members.</p>
<p><a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftnref1" name="_ftn1">[1]</a>&nbsp;Section 22 of R.A. 11232.</p>
<p><a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftnref2" name="_ftn2">[2]</a>&nbsp;De Leon, H.S., and De Leon, Jr., H.M. (2016). The Law on Partnerships and Private Corporations. REX Book</p>
<p>Store.</p>

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<p id="caption-attachment-7846" class="wp-caption-text" style="text-align: center;">A stockholder can authorize a person to be his proxy to vote a director in his behalf</p>
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<p>The Board of Directors is the entity elected by the stockholders to manage the affairs of the corporation. The Board as a group exercises a corporation&rsquo;s corporate powers, which include conducting business matters and control of its assets.</p>
<p>As the board of directors is chosen by the stockholders, they represent the interests of the company&rsquo;s investors by making major decisions and monitoring the company&rsquo;s financial status, among other responsibilities.</p>
<p>&ldquo;Physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors&rdquo;<a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftn1" name="_ftnref1"><sup>[1]</sup></a>.</p>
<p>R.A. 11232 provides that corporations vested with public interest must also have independent directors. 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 (Section 22)</p>
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<p>Section 22 of R.A. 11232 provides that corporations vested with public interest shall have independent directors constituting at least twenty percent (20%) of such board. These corporations include those that:</p>
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<li>Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as &ldquo;The Securities Regulation Code&rdquo;, namely those whose securities are registered with the Commission.</li>
<li>Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in the money service business, pre-need, trust, and insurance companies, and other financial intermediaries</li>
<li>Other corporations engaged in business 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 like business operations, and other analogous factors.</li>
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<p>Independent directors are elected by the shareholders during the election of directors. Independent directors are otherwise subject to the same rules and regulations regarding their qualifications, disqualifications, voting requirements, duration of term and term limit, the maximum number of board memberships, and other requirements.</p>
<p><a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftnref1" name="_ftn1">[1]</a>&nbsp;Republic of the Philippines vs. Coalbrine International Philippines, Inc., G.R. No. 161838, April 7, 2010</p>
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<p id="caption-attachment-7848" class="wp-caption-text" style="text-align: center;"><img src="https://haspcms-fcb-lawyer.s3.ap-southeast-1.amazonaws.com/tinyeditor_uploads/6K0N788ogu0HiTHsM06e0V3MHe7YUpnMaTcmJ5C6.webp">The Board of Trustees is the counterpart of the Board of Directors in a Nonstock corporation</p>
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<p>The Board of Trustees, on the other hand, is the governing body of&nbsp;<a href="https://lawyerphilippines.org/how-to-put-up-a-foundation-in-the-philippines/">non-stock corporations</a>&nbsp;such as foundations, charities, corporations organized for education, and homeowners&rsquo; associations.</p>

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<p id="caption-attachment-7849" class="wp-caption-text" style="text-align: center;">Integrity, honesty, independent decision-making and objectivity are personal characteristics a board member must possess</p>
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<p>Section 23 of R.A. 11232 provides for the election of the Board of Directors.&nbsp;<a href="https://lawyerphilippines.org/incorporators-the-board-of-directors-and-corporate-officers-in-philippine-corporations/">Stockholders or members</a>&nbsp;have the right to nominate any director who possesses all of the qualifications and none of the disqualifications set forth in the Code.</p>
<p>The Board of Directors are voted either in person or in absentia during a regular meeting as set forth in the By-Laws of the corporation.</p>
<p>They are elected for a period of one (1) year from among the registered stockholders.</p>

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<p id="caption-attachment-7850" class="wp-caption-text" style="text-align: center;">A vote of the stockholders or members representing at least two-thirds (2/3) can remove a directors or trustee from office.</p>
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<p>A director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name in the books of the corporation.</p>
<p>A person is disqualified from being a director, trustee or officer of any corporation if, within 5 years before election or appointment, the person was:</p>
<p>(a)&nbsp; Convicted by final judgment:</p>
<p>(1) Of an offense punishable by imprisonment for a period exceeding six (6) years;</p>
<p>(2) For violating the Revised Corporation Code; and</p>
<p>(3) For violating the Securities Regulation Code;</p>
<p>(b) Found administratively liable for any offense involving fraudulent acts; and</p>
<p>(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or<br>misconduct similar to those enumerated in paragraphs (a) and (b) above.</p>

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<p id="caption-attachment-7851" class="wp-caption-text" style="text-align: center;">The role of the board is to determine the goals of the company.</p>
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<p>The powers, obligations, and duties of the Board include:</p>
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<li>Amend the Articles of Incorporation with the assent of stockholders representing 2/3 of the outstanding capital stock (Section 15)</li>
<li>Organize and elect the Corporate Officers, such as the President, Treasurer and Secretary (Section 24)</li>
<li>Power to Increase or Decrease Capital Stock or Incur, Create or Increase Bonds (with the assenting of stockholders representing 2/3 of the outstanding capital stock) (Section 37)</li>
<li>Sell and dispose of Assets with the assent of at least ? of members, in a stockholders&rsquo; or members&rsquo; meeting (Section 39)</li>
<li>Power to Invest Corporate Funds in Another Corporation or Business with the assent of at least 2/3 of the outstanding capital stock (Section 41)</li>
<li>Power to Declare Dividends with the assent of at least 2/3 of the outstanding capital stock (Section 42)</li>
<li>Power to Enter into a Management Contract (Section 43)</li>
<li>Amend the By-Laws (Section 47)</li>
<li>To declare due and payable to the corporation unpaid subscriptions and to collect the same subject to the provisions of the subscription contract (Section 66)</li>
<li>By resolution, order the sale of delinquent stock (Section 67)</li>
<li>During regular meetings, furnish and present to stockholders or members a financial report of the operations of the corporation for the preceding year (Section 74)</li>
<li>Power to approve a plan of merger or consolidation of two or more corporations (Section 75)</li>
<li>Dissolve the corporation with the assent of at least 2/3 of the outstanding capital stock (Section 134)</li>
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<p id="caption-attachment-7852" class="wp-caption-text" style="text-align: center;"><img src="https://haspcms-fcb-lawyer.s3.ap-southeast-1.amazonaws.com/tinyeditor_uploads/XnuM545udUN4vKLA8I8oqVBXihIncUb8EBlI89OC.webp" width="930" height="444">Members of the board can be foreigners provided that the requirements for incorporators under the Corporation Code are complied with</p>
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<p>A member of the Board of Directors must also be a shareholder. Therefore, foreign nationals may hold the director role in industries that allow full or partial foreign ownership.<a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftn1" name="_ftnref1"><sup>[1]</sup></a>&nbsp;The Foreign Investment Negative List provides the list of industries in which foreign equity is allowed.</p>
<p>Foreigners can be elected as members of the board of directors proportional to their allowable participation or share in the capital of corporations engaged in activities reserved to Filipinos. &nbsp;For example, a partially foreign owned corporation engaged in the ownership of land must comply with the 40% foreign ownership threshold. When a corporation&rsquo;s Articles of Incorporation states that its Board of Directors is composed of 5 members, therefore only 2 foreigners may be elected as members of the Board following the 40% foreign ownership restriction .</p>
<p>However, a foreigner cannot be appointed as an officer &mdash; such as president, vice president, treasurer, secretary &mdash; of a corporation engaged in any nationalized or partly nationalized activity.</p>
<p>For example, the Constitution provides that the participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such a corporation must be citizens of the Philippines.</p>
<p><a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftnref1" name="_ftn1">[1]</a>&nbsp;Promulgating the Tenth Regular Foreign Investment Negative List,&nbsp;<a href="https://boi.gov.ph/sdm_downloads/executive-order-184-promulgating-the-tenth-regular-foreign-investment-negative-list/">Executive Order 184</a></p>

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<p id="caption-attachment-7853" class="wp-caption-text" style="text-align: center;"><img src="https://haspcms-fcb-lawyer.s3.ap-southeast-1.amazonaws.com/tinyeditor_uploads/fis6MkyZ6NCuVGky4kGb8fvG4NCE1uygFm1uaxiQ.webp" width="954" height="460">SEC Memorandum Circular No. 6 series of 2020 provided the guidelines for videoconference meetings</p>
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<p>Amidst the pandemic, SEC has instituted guidelines on the attendance of participation of Director and Trustees in regular and special meetings through teleconferencing, video conferencing and other remote or electronic means.<a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftn1" name="_ftnref1"><sup>[1]</sup></a></p>
<p>Corporations are given latitude to develop internal procedures for the conduct of board meetings through remote communication. Notice of the meeting and casting of votes may be done through email, messages services, or such other manner as prescribed in the internal guidelines.</p>
<p>Directors or trustees who intend to participate in a remotely shall notify the presiding officer and&nbsp;<a href="https://lawyerphilippines.org/corporate-secretary-in-the-philippines/">corporate secretary</a>&nbsp;in advance.</p>
<p>The directors or trustees participating remotely shall be deemed present for the purpose of attaining quorum.</p>
<p><a href="https://lawyerphilippines.org/board-of-directors-and-board-of-trustees-in-the-philippines/#_ftnref1" name="_ftn1">[1]</a>&nbsp;SEC Memorandum Circular No. 6, Series of 2020</p>

Board of Directors and Board of Trustees in the Philippines