Approval via referendum
Corporations and their boards are constituent groups functioning collectively in the discharge of their functions. This is because the corporate powers are vested in the board of directors and/or the stockholders as a body and not as individuals (De Leon, The Corporation Code, p. 465). The law has enumerated the corporate powers which can be exercised by the stockholders, which would also require the affirmative action by the board. On the other hand, the board on its own performs functions for the normal transaction of business.
Discussing first the board of directors, it performs its functions through regular or special meetings (Sec. 53, Corporation Code). The issue being presented here is whether the board, in case it is not able to muster a quorum in a meeting , can legally pass a resolution coursed through the non-attending directors who merely affix their conformity thereto. This may be referred to as an adoption of a resolution via referendum.
The general rule is that where the law requires a meeting for a particular transaction, any action taken by the corporation without a meeting properly held for such purpose is void (De Leon, ibid., p. 466). The law proceeds upon the theory that directors or trustees shall meet and counsel with each other, and that any determination affecting the corporation shall only be arrived at after a consultation at a meeting of the board upon notice to all, attended by at least a quorum of its members (Ibid., citing SEC Opinion dated March 10, 1972). In other words, without a meeting, the elements of consultation, discussion or even debate attendant in a deliberative assembly are lost.
Without a board resolution formally adopted in a board meeting with the required number of votes cast thereat, a regulatory agency would have reason to decline the acceptance thereof. Similarly, a third-party having an agreement with the corporation can demand the same formal resolution before proceeding with the contract. The problem of course is correctible. The matter can be taken up anew in a succeeding board meeting where the presence of a quorum should be assured. While, as mentioned, third parties may insist on a legally compliant board resolution, it is also believed basic that the non-attending directors who affixed their conformity to a resolution sent to them by referendum should be under estoppel in questioning the transaction that they consented to.
In the case of acts subject to approval by the stockholders, the general rule also is that their approval should be given during a meeting specially called for the purpose. However, an exception to this rule has been noted. Section 16 of the Corporation Code provides that “the articles of incorporation may be amended by a majority voted of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.” As may be noted, the amendment to the articles may be allowed upon the “vote or written assent of the stockholders.” Thus, the stockholders may either vote or just express their written assent to the amendment. To express such assent, a meeting is not necessary (De Leon, ibid., p. 466). The above comments presuppose that there are no provisions in the articles or by laws allowing voting through other means. Whether such provisions are allowable is another issue by itself.
***** The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph