Court may grant a stockholder the authority to call such a meeting.
DETECTIVE AND PROTECTIVE BUREAU VS. CLORIBEL (26 SCRA 225; 1968)
The Corporation Law says that every director must own at least one (1) share of the capital stock of the corporation.
GOKONGWEI VS. SEC (89 SCRA 336; 1979)
Section 21 of the Corporation Law provides that a corporation may prescribe in its by-laws the qualifications, duties, and compensation of its directors.
A stockholder has no vested right to be elected director for he impliedly contracts that the will of the majority shall govern.
Amended by-laws are valid for the corporation has its inherent right to protect itself.
ROXAS V. DELA ROSA (49 Phil. 609; 1926)
Under the Law, directors can only be removed from office by a vote of the stockholders representing 2/3 of subscribed capital stock, while vacancies can be filled by a mere majority.
A director cannot be removed by a mere majority by disguising it as filling a vacancy.
ANGELES V. SANTOS (64 Phil. 697; 1937)
Court may appoint a receiver when corporate remedy is unavailable when board of directors perform acts harmful to the corporation.
Generally, stockholders cannot sue on behalf of the corporation. The exception is when the defendants are in complete control of the corporation.
CAMPBELL V. LEOW’S INC. (134 A. 2d 852; 1957)
The stockholders have an implied power to remove a director for cause. Even when there is cumulative voting, stockholders can still remove directors for cause.
DELA RAMA V. MA-AO SUGAR CENTRAL CO, INC. (27 SCRA 247; 1969)
A corporation may use its funds to invest in another corporation without the approval of the stockholders if done in pursuance of a corporate purpose. However, if it is purely for investment, the vote of the stockholders is necessary.
Pledgors, mortgagors, executors, receivers, and administrators (Sec. 55)
- Pledgors or mortgagors have the right to attend and vote at stockholders' meetings.
Exception: If the pledgee or mortgagee is expressly given by the pledgor or
mortgagor such right in writing which is recorded on the appropriate corporate books.
- Executors, administrators, receivers and other legal representatives duly appointed
by the court may attend and vote in behalf of the stockholders or members without need of any written proxy.
Joint owners of stock (Sec. 56)
- Generally, consent of all co-owners shall be necessary.
VOTING
Treasury shares (Sec. 57)
- Treasury shares have no voting right for as long as such shares remain in the Treasury.
Proxies (Sec. 58)
- Proxies must be in writing, signed by the stockholder/member, filed before the scheduled meeting with the corporate secretary.
- Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time.
- Voting trusts may be voted by proxy unless the agreement provides otherwise. (Sec. 59)
- It must be noted however that directors or trustees cannot vote by proxy at board meetings. (Sec. 25)
- Note that in Sec. 89, non-stock corporations are permitted to waive the right to use proxies via their AOI or by-laws.
Voting trust (Sec. 59)
- Voting trusts must be in writing, notarized, specifying the terms and conditions thereof, certified copy filed with SEC. Failure to comply with this requirement renders the agreement ineffective and unenforceable.
- As a general rule, voting trusts are valid for a period not exceeding 5 years at any one time, and automatically expire at the end of the agreed period unless expressly renewed.
However, in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may exceed 5 years but shall automatically expire upon payment of the loan.
- Voting trusts may be voted by proxy unless the agreement provides otherwise. (Sec. 59)
Pooling agreement
- Pooling agreements refer to agreements between 2 or more SHs to vote their shares the same way. They are different from voting trust agreements in that they do not involve a transfer of stocks but are merely private agreements between 2 or more SHs to vote in the same way.
- Sec. 100, par. 2 of the Corporation Code provides for pooling and voting agreements in close corporations. Although there is no equivalent provision for widely-held corporations, Justice and Prof. Campos are of the opinion that SHs of widely-held corporations should not be precluded from entering into voting agreements if these are otherwise valid and are not intended to commit any wrong or fraud on the other SHs that are not parties to the agreement.
Non-voting shares (Sec. 6)
- Preferred or redeemable shares.
ITF shares
And/or shares (Sec. 56)
- Any one of the joint owners can vote said shares or appoint a proxy thereof.
Proxy Device
Sec 58. Proxies. – Stockholders and members may vote in person or by proxy in all meetings of stockholders or members.
Proxies shall be in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time.
Character: agency relationship; revocable at will (by express revocation, by attending the meeting) and by death, except when coupled with interest or is a security.
IN RE GIANT PORTLAND CEMENT CO. (21 A.2d 697; 1941)
Even if stocks are sold, the stockholder of record remains the owner of the stocks and has the voting right until the by-law requiring recording of transfer in the transfer book is complied with. Thus, a proxy given by the stockholder of record even if he has already sold the share/s of stock remains effective.
STATE EX REL EVERETT TRUST V PACIFIC WAXED PAPER, (159 A.L.R. 297; 1945)
The general rule is that a proxy is revocable even though by its express terms it is irrevocable. The exceptions are:
(a) when authority is coupled with interest; (b) where authority is given as part of a security and is necessary to effectuate such a security. It is coupled with interest when there is interest in the share themselves (such as a right of first refusal in case of sale) and the rights inherent in the shares (such as voting rights; capacity to obtain majority).
DUFFY V LOFT (17 Del. Ch. 376, 152 A. 849; 1930)
Where a stockholder‘s meeting was validly convened, the proxies must be deemed present even if the proxies were not presented, provided: (a) their existence is established; (b) the agents were so designated to attend and act in SH‘s behalf;
(c) the agents were present in the meeting.
Q: Is it valid for the corporation to pay the expenses for proxy solicitation?
A: In the case of Rosenfeld v. Fairchild Engine and Airplane Corp. (128 N.E. 2d 291; 1955), it was held that in a contest over policy (as opposed to a purely personal power contest), corporate directors have the right to make reasonable and proper expenditures, subject to the scrutiny of the courts when duly challenged, from the corporate treasury for the purpose of persuading the SHs of the correctness of their position and soliciting their support for policies which the directors believe, in all good faith, are in the best interests of the corporation. The SHs, moreover, have the right to reimburse successful contestants for the reasonable and bona fide expenses incurred by them in any such policy contest, subject to like court scrutiny.
However, where it is established that such monies have been spent for personal power, individual gain or private advantage, and not in the belief that such expenditures are in the best interest of the stockholders and the corporation, or where the fairness and reasonableness of the amounts allegedly expended are duly and successfully challenged, the courts will not hesitate to disallow them.
ROSENFELD V. FAIRCHILD (128 N.E. 2d 291; 1955)
In a contest over policy, as compared to a purely personal power contest, corporate directors have the right to make reasonable and proper expenditures. Reason: in these days of giant corporations with vast numbers of SH‘s, if directors are not allowed to authorize reasonable expenses in soliciting proxies, corporate business may be hampered by difficulty in procuring quorum; or corporations may be at the mercy of persons seeking to wrest control for their purposes if the directors may not freely answer their challenge. But corp expense may be disallowed by courts where money was shown to have been spent for personal power, individual gain or private advantage, or where fairness and reasonableness of amount spent has been successfully challenged.
Voting Trust
Devices Affecting Control
A Voting Trust Agreement (VTA) is an agreement whereby the real ownership of the shares is separated from the voting rights, the usual aim being to insure the retention of incumbent directors and remove from the stockholders the power to change the management for the duration of the trust.
Advantages
Accumulates power. Small shareholders are given the chance to have a representation in the BOD or at least a spokesperson during stockholders‟ meetings.
Continuity of management.
More effective than proxies because it is irrevocable.
Ensures that the required number of stockholders is met thereby facilitating smooth corporate operations.
Disadvantages
Stockholders give up rights (voting and naked title)
Susceptible to abuse
Not used in widely held corporations
Rights given up by the shareholder in a VTA in exchange for the fiduciary obligation of the trustee:
Voting rights
Proprietary rights/naked title/legal ownership
Incidental rights such as to attend meetings, to be elected, to receive dividends)
Rights retained by the shareholder Beneficial or equitable ownership
Right to revoke VTA in case of breach by trustee
Regain full ownership after the lapse of the period
Right to an accounting by the trustee after the period of the VTA
How is a voting trust created?
(1) A VTA is prepared in writing, notarized, and filed with the corporation and SEC.
(2) The certificates of stock covered by the VTA are cancelled and new ones (voting trust certificates) are issued in the name of the trustee/s stating that they are issued pursuant to the VTA.
(3) The transfer is noted in the books of the corporation.
(4) The trustee/s execute and deliver to transferors the voting trust certificates. (Note that these certificates shall be transferable in the same manner and with the same effect as certificates of stock.)
(5) At the end of the period of the VTA (or the full payment of the loan to which the VTA is made a condition, as the case may be), in the absence of any express renewal, the voting trust certificates as well as the certificates of stock in the name of the trustee/s shall be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.
EVERETT V. ASIA BANKING (49 Phil. 512; 1926)
This case illustrates how VTA can give rise to effective control and how it can be abused. Original stockholders can set aside the VTA when their rights are trampled upon by the trustee.
MACKIN, ET AL. V. NICOLLET HOTEL (25 F. 2d 783; 1928)