SEC-OGC Opinion No. 22-02: Quorum; Board of Trustees

In SEC-OGC Opinion dated 02 March 2022, the opinion of the Securities and Exchange Commission (“SEC”) was sought with respect to the following matters:

1. To confirm the validity of the election of the Board of Trustees (“Board”) of  the De La Salle University- Parents of University Students Organization- Manila Inc. (“DLSU-PUSO”); and
2. To confirm the validity of the authority of DLSU-PUSO to act and/or conduct business transactions as a corporate body.

It is the position of the organization that the decision of the general membership to elect only six (6) trustees is valid notwithstanding the fact that the By-Laws of the DLSU-PUSO provides for a minimum and maximum number of trustees to sit in the Board. Article 7 of DLSU-PUSO’s Articles of Incorporation (“AOI”) states that the number of trustees of the organization shall be twenty-five (25), subject to increase or decrease depending upon the enrollment in different colleges in the university. 

The SEC ruled in the negative as to the issue of whether the general membership may validly elect only six (6) members to constitute a Board of Trustees to validly conduct business.

In support of its ruling, the SEC cited its previous opinions where it discussed the effect of an election of less than the required number of directors in a corporation, to wit:

“The number of directors that a corporation can legally have is that which is fixed in the articles of incorporation. Any decrease thereof can be effected only by amending the articles of incorporation pursuant to Section 16 of the Corporation Code. As to the effect of an election of less than the required number of directors, cited hereunder is a previous ruling which establishes a precedent on the matter:

“An election of a less number of directors than the number which the meeting was called to elect is valid as to those actually elected”.

Thus, the stockholders or members of a corporation may opt to elect a number of directors less than the number of directors as fixed in the articles of incorporation. Such a situation would merely give rise to vacancy in the board, which may be filled up in a subsequent special meeting duly called for the purpose.”

Based on the foregoing, while the members of the DLSU-PUSO may opt to elect only six (6) members to sit in the Board of Trustees which is less than the number provided in its AOI and By-Laws, the SEC is of the opinion that it may not validly act as a corporate body because it failed to satisfy the required number of trustees to constitute a quorum. It further stressed that since the election of six (6) members creates vacancy in the board, the same may only be filled up in a subsequent special meeting duly called for the purpose. 

The SEC previously opined that the formula in determining what constitutes “majority of the directors/trustees” as quorum would be one-half plus one of the number of directors/ trustees as fixed in the AOI notwithstanding the existence of vacancies in the board at the time. In this regard, it is required to have at least fourteen (14) trustees to be able to constitute quorum and for the Board to validly act as a corporate body.

Following the foregoing discussions, the currently elected six (6) member Board cannot act as a corporate body, and as such, cannot validly transact business for the organization. In which case, the SEC advised that the DLSU-PUSO may call a special meeting wherein the members of the organization have to nominate and elect new members to sit in the Board in order to fill in the required vacancies for the Board to be able to constitute a quorum again.