Election of Directors or Trustees

Election as the Act That Constitutes the Governing Board

The corporation acquires juridical personality upon the issuance by the Securities and Exchange Commission of the certificate of incorporation, but the conduct of corporate business is lodged in the board of directors or trustees. The election, qualification, and continued eligibility of the board determine who may exercise corporate powers, approve corporate acts, and control corporate property.

For a stock corporation, the governing body is a board of directors elected by stockholders. For a nonstock corporation, the governing body is a board of trustees elected by members. The distinction matters because stockholders vote according to shares, while members of a nonstock corporation ordinarily vote according to membership rights.

The articles of incorporation must state the number of directors or trustees and the names of those who will act as the first directors or trustees until the first regular board is duly elected and qualified. Thus, at the moment of incorporation, the first board need not derive authority from a separate post-registration election; it derives authority from the approved articles and serves only until the regular election produces qualified successors.

Board Seats and Terms

A stock corporation may have not more than fifteen directors. A nonstock corporation may have more than fifteen trustees if its governing documents so provide. The fixed number in the articles controls the number of seats to be filled, and a change in that number ordinarily requires the appropriate amendment of the articles.

Directors are elected for a term of one year. Trustees are elected for a term not exceeding three years. Each director or trustee holds office until a successor is elected and qualified, so failure to hold an election does not, by itself, leave the corporation without a board.

In nonstock corporations, trustees are commonly classified so that only a portion of the board is elected each year for staggered terms, unless the articles or bylaws validly provide another arrangement. The staggered system promotes continuity because the entire board does not ordinarily turn over at one election.

Persons Who May Be Elected

A director must be a natural person who is a holder of at least one share registered in the corporation's books. The share must stand in the director's own name because the statutory qualification is tied to record ownership, not merely to beneficial interest.

A trustee must be a natural person who is a member of the nonstock corporation. Loss of membership causes loss of the trustee qualification in the same way that loss of the required share causes a director to cease as director.

The qualifying share of a director need not represent a large economic stake, but it must be a valid voting or qualifying share recognized in the stock and transfer records. A nominee or representative may sit as director only if that person personally satisfies the statutory shareholding qualification.

Corporations, partnerships, estates, and associations cannot themselves occupy board seats because the board is composed of natural persons. Such juridical persons may own shares or hold membership rights, but they act in elections through duly authorized representatives or proxies.

Disqualifications

A person is disqualified from being elected or appointed as director, trustee, or officer when the person falls under statutory disqualifications, including final conviction for serious offenses, violations of the Revised Corporation Code, violations of securities laws, administrative findings involving fraudulent acts, or comparable foreign judgments or regulatory findings within the applicable period.

The Securities and Exchange Commission and primary regulatory agencies may impose additional qualifications or disqualifications for corporations under their supervision. Banks, insurance companies, public companies, listed companies, and other regulated entities may therefore be subject to stricter fit-and-proper, independence, or governance standards.

A candidate must possess the qualifications and none of the disqualifications at the time of election and must continue to possess them while serving. A later loss of qualification does not merely create an irregularity; it removes the legal basis for continued service on the board.

Who May Vote in the Election

In a stock corporation, the electorate consists of stockholders entitled to vote. Voting rights are determined by the outstanding shares with voting rights as shown in the corporate records, subject to the articles, the bylaws, and the Revised Corporation Code.

Outstanding capital stock generally includes shares covered by binding subscription agreements, whether fully paid or partially paid, but excludes treasury shares. Delinquent shares cannot be voted or represented for any corporate purpose until the delinquency is cured or the shares are otherwise disposed of according to law.

Nonvoting shares do not ordinarily vote in the election of directors unless the articles, the terms of the shares, or a special law validly grant that right. Their statutory voting rights on fundamental corporate matters do not automatically make them voting shares for ordinary board elections.

In a nonstock corporation, the electorate consists of members entitled to vote under the articles and bylaws. Membership may be classified, limited, broadened, or conditioned by the governing documents, but any restriction must be read with the corporation's nonstock purpose and applicable law.

Quorum and Presence for the Election

At an election of directors or trustees, the owners of a majority of the outstanding capital stock, or a majority of the members entitled to vote in a nonstock corporation, must be present or represented. Without the required presence, the meeting cannot validly proceed to elect the board.

Presence may be in person or through a representative authorized by written proxy. When authorized by the bylaws, by the board, or by applicable rules for corporations vested with public interest, stockholders or members may also vote through remote communication or in absentia.

Votes cast through remote communication or in absentia are counted for quorum when the corporation has adopted procedures that reasonably verify the voter's identity, confirm the authority to vote, preserve the integrity of the vote, and comply with the governing rules. The legal effect is participation in the meeting, not a separate referendum outside the meeting.

Nomination of Candidates

Each stockholder or member entitled to vote may nominate any person who has the legal qualifications and none of the disqualifications for the board seat. The power to nominate flows from the right to vote because the election would be hollow if voters could not present qualified choices.

The articles, bylaws, board-approved election rules, and regulatory rules may provide reasonable nomination procedures, deadlines, screening processes, and documentary requirements. Such procedures are valid when they protect orderly elections and corporate governance, but they cannot be used to defeat the substantive right of qualified voters to nominate qualified candidates.

Founders' shares may carry, for a limited statutory period, the exclusive right to vote and be voted for in the election of directors if the articles validly reserve that right. Once the reserved period expires or the right is no longer enforceable, the general voting rules for the election of directors apply.

Manner of Voting in Stock Corporations

The election of directors in a stock corporation uses cumulative voting. A stockholder may vote the number of shares owned multiplied by the number of directors to be elected, and may give all votes to one candidate or distribute them among several candidates.

Cumulative voting protects minority stockholders by allowing them to concentrate votes on fewer candidates instead of being overwhelmed seat by seat by the majority. The right is statutory and cannot be removed by the articles or bylaws of an ordinary stock corporation.

A stockholder with one hundred voting shares in an election for five directors has five hundred votes. The stockholder may cast five hundred votes for one candidate, one hundred votes for each of five candidates, or any other distribution that does not exceed five hundred total votes.

The candidates receiving the highest number of votes are elected up to the number of seats to be filled. Election is therefore by plurality, not by majority vote for each individual candidate, provided that the meeting has the required quorum and the votes are legally cast.

Manner of Voting in Nonstock Corporations

In a nonstock corporation, each voting member ordinarily has one vote, unless the articles or bylaws validly provide otherwise. The governance documents may classify memberships and regulate voting power, but the scheme must be consistent with the nonstock character of the corporation.

Unless the articles or bylaws provide otherwise, a member may cast as many votes as there are trustees to be elected, but may not cast more than one vote for a single candidate. Cumulative voting is therefore not the default rule for trustees in nonstock corporations.

The candidates receiving the highest number of votes are elected as trustees up to the number of seats to be filled. If only a classified portion of the board is up for election, the plurality rule applies only to the seats then open.

Proxy, Representative, Remote, and In Absentia Voting

A stockholder or member may vote through a proxy when proxy voting is allowed by law and not validly restricted in the case of nonstock corporations. The proxy must be in writing, signed by the stockholder or member, and filed in accordance with the bylaws and lawful corporate procedures.

A proxy is an authority to vote, not a transfer of ownership or membership. The principal remains the stockholder or member, and the proxyholder merely exercises the voting authority within the limits of the proxy instrument.

Remote communication allows the voter to participate in the meeting without physical presence. Voting in absentia allows the voter to cast a vote without attending the meeting in the traditional sense, usually through an authorized written, electronic, or system-based procedure.

For corporations vested with public interest, the law is more favorable to remote and in absentia voting because wider participation and transparent governance are treated as public concerns. Election procedures for these corporations must be read with applicable securities, banking, insurance, and regulatory governance rules.

Independent Directors in Corporations Vested With Public Interest

Certain corporations vested with public interest must have independent directors constituting at least twenty percent of the board. These include publicly held or listed corporations and regulated financial, insurance, pre-need, money service, and similar entities identified by law or by the proper regulator.

An independent director must be independent of management and free from relationships that could materially interfere, or appear reasonably to interfere, with independent judgment. Independence is therefore not measured only by the number of shares held, but also by business, family, employment, professional, and financial relationships with the corporation and controlling persons.

Independent directors are still directors. They must be elected by the shareholders entitled to vote in the election, must possess the ordinary director qualifications, must not be disqualified, and must comply with special nomination and screening rules imposed by the Securities and Exchange Commission or the primary regulator.

Comparison of Election Rules

Failure or Irregularity in the Election

If no election is held on the scheduled date, the corporation must report the nonholding of the election and the reasons for it to the Securities and Exchange Commission within the required period. The report should also state a new date for the election, which must be within the period allowed by law.

The nonholding of an election does not automatically dissolve the corporation and does not automatically vacate all board seats. Incumbent directors or trustees remain in a holdover capacity until successors are elected and qualified, because corporate continuity is preferred over paralysis.

The Securities and Exchange Commission may, upon proper showing, order the holding of an election when the corporation unjustifiably fails or refuses to conduct one. The order may include directions necessary to give notice, determine the voting list, receive votes, and complete the election.

An election may be attacked when there is a material defect affecting notice, quorum, voter qualification, proxy authority, vote counting, candidate qualification, or the integrity of remote or in absentia voting. A minor irregularity that does not affect the result or the substantial rights of voters will not ordinarily defeat the election.

Election Distinguished From Filling Vacancies

A regular election fills seats whose terms expire according to the articles, bylaws, and law. Filling a vacancy addresses a seat that becomes empty before the expiration of the term because of death, resignation, removal, disqualification, abandonment, incapacity, increase in board seats, or other cause.

Vacancies may sometimes be filled by the remaining directors or trustees if they still constitute a quorum, but vacancies caused by removal, expiration of term, or an increase in the number of directors or trustees ordinarily require action by stockholders or members. This distinction prevents the board from using vacancy filling to bypass the electorate.

A person elected or appointed to fill a vacancy serves only for the unexpired portion of the predecessor's term, unless the vacancy arises from a newly created seat or a different rule validly applies. The office filled is the same board seat, not a fresh term created by the board's convenience.

Effect of a Valid Election

A valid election, followed by qualification, gives the elected directors or trustees authority to act as the corporation's board. Qualification includes possession of legal qualifications, absence of disqualifications, and compliance with lawful internal or regulatory requirements for assuming office.

The corporation must report the election of directors, trustees, and officers to the Securities and Exchange Commission within the required period. The report is not the source of the board's authority, but it gives public and regulatory notice of who currently manages the corporation.

Once elected and qualified, directors and trustees owe fiduciary duties to the corporation and must act within the scope of corporate powers, the articles, the bylaws, board authority, and applicable law. Their election is therefore both a governance event and the point at which legal accountability for board action attaches.