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RFBT 2 Corporations Module 1 Lesson 3.5

1. Corporate officers must be elected immediately after the election of directors. Required officers are a president, secretary, and treasurer. Officer positions must be stated in the bylaws. 2. Self-dealing directors are those who enter into contracts with the corporation where they have a personal interest. Such contracts are voidable unless certain requirements are met, including that the contract is fair and reasonable. Interlocking directors are those serving on multiple boards; contracts between such companies are also voidable unless fair and reasonable. 3. The doctrine of corporate opportunity holds that directors cannot acquire business opportunities that rightfully belong to the corporation for their own profit. They must account to the corporation for any profits obtained from such opportunities

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306 views4 pages

RFBT 2 Corporations Module 1 Lesson 3.5

1. Corporate officers must be elected immediately after the election of directors. Required officers are a president, secretary, and treasurer. Officer positions must be stated in the bylaws. 2. Self-dealing directors are those who enter into contracts with the corporation where they have a personal interest. Such contracts are voidable unless certain requirements are met, including that the contract is fair and reasonable. Interlocking directors are those serving on multiple boards; contracts between such companies are also voidable unless fair and reasonable. 3. The doctrine of corporate opportunity holds that directors cannot acquire business opportunities that rightfully belong to the corporation for their own profit. They must account to the corporation for any profits obtained from such opportunities

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Gabriel Trinidad Soniel
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University of the Cordilleras

College of Accountancy

RFBT2(Law on Corporations, Partnerships and Cooperatives)

LESSON no. 3.5

Module 1

CORPORATIONS

Corporate Officers, Self-Dealing Directors and Interlocking Directors

Corporate Officers

Officer Residency Requirement Citizenship Residency


President Must be a director Need not be Need not be
Must be a stock a Filipino a resident of
holder of at least 1 Citizen the
share Philippines
Secretary May or may Must be a Must be a
not be a Filipino resident of
director Citizen the
Philippines
Treasurer May or may Need not be Must be a
not be a a Filipino resident of
director Citizen the
Philippines
Compliance Officer If the corporation is vested with public interest
Other Corporate Qualification must be provided in the bylaws
Officers

Immediately after the election of the directors or trustees, they must formally organize
and elect corporate officers. A corporation shall have a president, secretary, a treasurer,
and such other officers that may be provided for in the bylaws.

The position of a corporate officer must be expressly mentioned in the bylaws in order to
be considered as a corporate officer. Corporate officers only act within the scope of
their authority, if not it is not binding to the corporation.

Any 2 or more positions may be held by the same person except that no one shall act as
a president and secretary or president –treasurer at the same time. (Sec 24. RCC)

Self-Dealing Directors or Trustees or Officers


A director or trustee or officer of a corporation is considered as a Self-Dealing
director/trustee/ officer if he, his spouse, or his relative within the 4th degree enters into a
contract with the corporation.

General Rule: A contract of the corporation with one or more of its directors, trustees,
officers or their spouses and relatives within the 4th civil degree of consanguinity or affinity
is VOIDABLE (Sec. 31, RCC).

Exception: (when a contract between a self-dealing director, trustee, or officer is valid)

ALL OF THE FOLLIWING REQUIREMENTS MUST BE PRESENT:

1. That the self-dealing director or trustee’s presence in the board meeting in which
the contract was approved was not necessary to constitute a quorum for such
meeting;

2. That the vote of such director or trustee was not necessary for the approval of the
contract;

3. That the contract is fair and reasonable under the circumstances;

4. In case of corporations vested with public interest, material contracts are


approved by at least 2/3 of the entire membership of the board, with at least a
majority of the independent directors voting to approve the material contract;
and

5. That in case of an officer, the contract has been previously authorized by the
board.

Ratification by Stock holders on self-dealing directors, or trustees, or officers.

Where any of the first three (3) conditions set forth in the preceding paragraph is absent,
in the case of a contract with a director or trustee, such contract may be ratified by the
vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or trustees involved is
made at such meeting and the contract is fair and reasonable under the circumstances.

Interlocking Directors

Interlocking directors are those who are directors in one corporation and are also
directors in another corporation at the same time.

A contract between two or more corporations having interlocking directors shall not be
invalidated on that ground alone. It is merely VOIDABLE Provided the following requisites
concur:
1. The contract is not fraudulent
2. The contract is fair and reasonable

If these 2 requisites are not present then the contract is void.

When the Interlocking Director has Substantial Interest in one of the Corporations

If the interest of the interlocking director in one corporation is substantial (Stock holdings
more than 20% of the OCS) and his interest in the other corporation or corporations is
merely nominal (20% or less) in another corporation, the contract is valid provided:
1. That the self-dealing director or trustee’s presence in the board meeting in which
the contract was approved was not necessary to constitute a quorum for such
meeting;

2. That the vote of such director or trustee was not necessary for the approval of the
contract;

3. That the contract is fair and reasonable under the circumstances;

4. In case of corporations vested with public interest, material contracts are


approved by at least 2/3 of the entire membership of the board, with at least a
majority of the independent directors voting to approve the material contract;
and

5. That in case of an officer, the contract has been previously authorized by the
board.

Ratification by Stock holders on Interlocking Directors with Substantial Interest.

Where any of the first three (3) conditions set forth in the preceding paragraph is absent,
in the case of a contract with a director or trustee, such contract may be ratified by the
vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or trustees involved is
made at such meeting and the contract is fair and reasonable under the circumstances.

DOCTRINE OF CORPORATE OPPORTUNITY

When a director, by virtue of his office, acquires for himself a business opportunity which
should belong to the corporation, thereby obtaining profits to the prejudice of the
corporation, he shall have the duty to account to the latter for all profits by refunding the
same even though he risked his own funds in the venture. (Sec. 33, RCC)

The doctrine of corporate opportunity provides that a director who acquires a business
opportunity for himself where it should have been for the corporation, shall have the duty
to account all profits he derived from such business to the corporation. It is immaterial if
he used his personal funds in such business, since he is still required by the law to refund
all to the corporation.
This doctrine rests fundamentally on the unfairness, in particular circumstances, of an
officer or director taking advantage of an opportunity for his own personal profit when
the interest of the corporation justly calls for protection. (Gokongwei v. SEC et al., G.R.
No. L-45911, April 11, 1979)

RATIFICATION

The director need not account to the corporation if his act was ratified by
2/3 of the OCS.

References:

Revised Corporation Code

Domingo,A. (2019). Business Laws and Regulations: partnership, Revised Corporation,


Cooperative Law, Laws, Principles, and Jurisprudence (2019 Edition). Itogon, Benguet:
Coaching for Results Publishing.

DISCLAIMER

The information provided in RFBT 2 in this module is for educational purposes only.

All information found herein is provided in good faith and we make no representation or
warranty, express or implied, as regards to the accuracy, adequacy, validity, reliability,
availability, or completeness of thereof. We do not assume ownership of any of the
information provided herein.

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