How is the election of directors or trustees conducted? (Section 23, Revised Corporation Code)

Summary

In this video, attorney Chris Batan Lasko explains the process of electing directors and trustees in both stock and non-stock corporations. He discusses the importance of a quorum, the voting methods used, and how to determine the number of votes each shareholder or member is entitled to. Lasko also covers the different methods of casting votes, including straight voting, cumulative voting, and remote voting. The video aims to simplify the election process in corporations, making it accessible and easy to understand for viewers.

Takeaways

• 📚 The video discusses how to simplify and understand legal concepts, particularly related to corporate elections.
• 🔍 The video explains the quorum requirement for conducting elections of directors or trustees in stock and non-stock corporations.
• 📈 In a stock corporation, a quorum is the majority of the outstanding capital stock, calculated as one-half plus one based on ownership.
• 🧮 For non-stock corporations, a quorum is determined by counting the number of members, with a majority being one-half plus one.
• 🗳️ Voting in stock corporations is based on the number of shares owned, with each share providing a certain number of votes.
• 📊 The video explains the three voting methods: straight voting, cumulative voting in favor of one candidate, and cumulative voting by distribution.
• 💡 Straight voting involves distributing votes equally among selected directors, while cumulative voting allows concentrating all votes on one candidate.
• 👥 Cumulative voting by distribution permits flexible allocation of votes among chosen directors based on personal preference.
• 📜 Election winners are determined by the plurality of votes, meaning the candidates with the highest number of votes are elected.
• 📲 Remote voting or voting in absentia is allowed when authorized by bylaws or approved by the board, particularly for corporations with public interest.

Q & A

What is the main purpose of Attorney Chris Batan Lasko's YouTube channel?

The main purpose of Attorney Chris Batan Lasko's YouTube channel is to simplify the law by discussing concepts and principles of law in under 10 minutes.

What does Section 23 of the Revised Corporation Code state about the requirements for holding elections?

Section 23 of the Revised Corporation Code states that at all elections of directors or trustees, there must be present either in person or through a representative authorized by written proxy, the owners of the majority of the outstanding capital stock or, if there is no capital stock, a majority of the members entitled to vote.

What is the definition of a quorum in the context of elections of directors or trustees?

A quorum is the minimum number of people required to be present to conduct legitimate business in an election of directors or trustees.

How is the majority determined for the presence of stockholders in an election in a stock corporation?

The majority is determined by the ownership of outstanding capital stock, which means one half plus one of the total outstanding capital stock must be present for the election to be held.

Can stockholders be present in an election either in person or through a representative?

Yes, stockholders can be present in an election either in person or through a representative who is authorized to act by written proxy.

What is the basis for determining the majority in a non-stock corporation?

In a non-stock corporation, the majority is determined by counting the number of members, with one half plus one of the total number of members constituting the quorum required for an election.

How is the basis for voting determined in a stock corporation?

In a stock corporation, the basis for voting is the ownership of shares, where each share entitles the shareholder to a certain number of votes, multiplied by the number of directors to be elected.

What is the difference between straight voting and cumulative voting in the context of electing directors?

Straight voting involves equally distributing the number of votes a shareholder is entitled to cast among the directors being elected. Cumulative voting allows the shareholder to either concentrate all votes on one candidate or distribute them among chosen candidates as they see fit.

How are the winners of a director or trustee election determined?

The winners of a director or trustee election are determined by the plurality of votes, meaning those who have garnered the highest number of votes are elected.

Is it necessary to be physically present to cast a vote in a corporation election?

No, it is not necessary to be physically present to cast a vote. Remote voting or voting in absentia is allowed when authorized by the bylaws or approved by the majority of the board of directors, except in corporations vested with public interest where such authorization is not required.

What does the term 'cumulative voting in favor of one candidate' mean in the context of elections?

Cumulative voting in favor of one candidate means that a shareholder can use all of their votes for just one nominee, allowing minority stockholders a chance to ensure representation on the board.

Outlines

00:00

🎓 Introduction to the Channel and Election Concepts

The speaker, Attorney Chris Batan Lasko, introduces his YouTube channel, where he aims to simplify legal concepts, particularly focusing on the election of directors and trustees in corporations. He briefly reviews previous videos on the roles and terms of office of directors and trustees, then begins to discuss how elections are conducted in stock and non-stock corporations according to Section 23 of the Revised Corporation Code.

05:00

📊 Determining a Quorum in Stock Corporations

The speaker explains that a quorum, the minimum number required to conduct business, is essential for holding elections in corporations. For stock corporations, a quorum is defined as the majority of outstanding capital stock, determined by ownership percentage rather than the number of stockholders. He provides an illustration showing how the ownership of capital stock by a few stockholders can satisfy the quorum requirement, allowing elections to proceed even if other stockholders are absent.

10:02

👥 Quorum and Voting in Non-Stock Corporations

In non-stock corporations, a quorum is determined by the number of members present, not by ownership of shares since there are none. The speaker illustrates how the majority is calculated as one-half plus one of the total members. He also explains the voting process, where each member is entitled to one vote per trustee being elected. The summary of different voting methods—straight voting, cumulative voting for one candidate, and cumulative voting by distribution—is also discussed in detail.

15:04

🗳 Voting Methods and Determining Election Results

The speaker details three voting methods: straight voting, where votes are equally distributed among chosen candidates; cumulative voting in favor of one candidate, where all votes are given to a single candidate to ensure minority representation; and cumulative voting by distribution, where votes are allocated as desired among multiple candidates. He also explains how election results are determined by the plurality of votes, with the highest vote-getters winning the election, similar to senatorial elections. Lastly, he covers remote voting and voting in absentia, noting that these methods are allowed under certain conditions and are particularly applicable in corporations with public interest.

Keywords

💡Quorum

A quorum is the minimum number of members or shareholders required to be present to conduct legitimate business, such as holding an election. In the context of the video, it is crucial to have a quorum before proceeding with the election of directors or trustees in a corporation.

💡Majority

Majority refers to one-half plus one of the total members or shares. In the video, it is emphasized that a majority of outstanding capital stock or members is necessary to constitute a quorum and hold an election in a stock or non-stock corporation.

💡Outstanding capital stock

Outstanding capital stock represents the total shares issued by a corporation that are currently held by shareholders. The video discusses how, in a stock corporation, the majority required for a quorum is based on the ownership of outstanding capital stock, not the number of shareholders.

💡Proxy

A proxy is an authorized representative who can act on behalf of a shareholder or member in a meeting or election. In the video, it is mentioned that shareholders can either attend the election in person or through a proxy, provided the proxy is authorized in writing.

💡Stock corporation

A stock corporation is a type of corporation that issues shares of stock to represent ownership. The video explains the election process in such corporations, where voting power is based on the number of shares owned.

💡Non-stock corporation

A non-stock corporation is an organization that does not issue shares of stock, but rather has members who contribute to its operation. The video discusses how voting and quorum requirements differ in non-stock corporations compared to stock corporations.

💡Cumulative voting

Cumulative voting is a method where shareholders can allocate all their votes to one candidate or distribute them among multiple candidates. The video outlines this method to allow minority shareholders to have a stronger influence in the election of directors.

💡Straight voting

Straight voting is a method where a shareholder distributes their votes equally among the chosen candidates. The video contrasts this with cumulative voting, explaining how each method affects the election outcome.

💡Remote voting

Remote voting allows shareholders to cast their votes without being physically present at the meeting. The video highlights this as a new amendment in the revised corporation code, making it easier for shareholders to participate in elections.

💡Trustees

Trustees are individuals elected to serve on the board of a non-stock corporation, similar to directors in a stock corporation. The video explains how the election process and voting methods apply to trustees in non-stock corporations.

Highlights

Introduction to the role of board of directors and trustees in stock and non-stock corporations.

Discussion on the term of office and qualifications for directors and trustees.

Explanation of the election process for directors and trustees, referencing Section 23 of the Revised Corporation Code.

Definition of a quorum and its importance in the election of directors or trustees.

Clarification that the quorum in a stock corporation is based on the majority of outstanding capital stock ownership, not the number of stockholders.

Illustration of how ownership percentage determines the quorum in stock corporations.

Explanation that in non-stock corporations, the quorum is determined by counting the number of members.

Overview of voting methods in stock corporations, including straight voting, cumulative voting in favor of one candidate, and cumulative voting by distribution.

Explanation of how voting is based on ownership in stock corporations, with examples of how votes are calculated.

Discussion of voting in non-stock corporations, where votes are based on membership.

Explanation of straight voting, where votes are equally distributed among selected directors.

Explanation of cumulative voting in favor of one candidate, allowing minority stockholders representation.

Explanation of cumulative voting by distribution, where votes are distributed as desired among selected directors.

Explanation of how winners are determined by plurality of votes, not necessarily majority.

Introduction of remote voting and voting in absentia, including the conditions under which they are allowed.

Transcripts

foreign

[Music]

hi i am attorney chris batan lasko

this is my virtual classroom welcome to

my youtube channel

in this channel i shall aim to simplify

the law i will discuss concepts and

principles of law in under 10 minutes

hello again welcome back to mbl

classroom

now in two of my videos i have already

talked about what the role of your board

of directors and your board of trustees

are in a stock

or in a non-stop corporation in another

video also we have talked about the term

of office of the directors or the

trustees and we have also talked about

the qualifications of becoming a

director or a trustee in this video i

want us to talk about the election of

the directors and trustees how is that

conducted how is the election conduct

conducted

so let's begin

your section 23 of your revised

corporation code actually tells you what

will happen in an election

and what are the requisites before the

election can actually take place

let's read the particular paragraph of

section 23

it says

at all elections of directors or

trustees there must be present either in

person or through a representative

authorized to act by written proxy

the owners of majority of the

outstanding capital stock or if there be

no capital stock a majority of the

members entitled to vote that particular

paragraph in section 23

actually tells you of the number

that is required to be present for you

to be able to hold elections in a stock

corporation and in a non-stock

corporation

in that particular paragraph it is

important that we understand what a

quorum is and how we apply that in the

election of your directors or trustees

so in an election

of directors or trustees

there must be a quorum

what is a quorum

it is the minimum number required to be

able to conduct legitimate business

in an election of directors or trustees

it is the minimum required to be present

to be able to have an election

so what is the core room required in a

stock corporation

it is according to your section 23 of

your revised corporation code it is

majority of the outstanding capital

stock

what do we mean by majority

that is

one half

plus one

and your section 23 also tells you that

the basis is ownership

in other words you do not count the

number

of stockholders rather you look at the

ownership

what do we mean by this

let me give you an illustration

so for example

this stockholder

has 30 percent ownership or 30 percent

stake in the stock holdings of the

corporation

and then you have this stockholder

having 25 percent ownership

and then you have several other

stockholders

having minimal ownership totaling

45

ownership

now your section 23 tells you

that to determine the majority

who must be present

in the election for them to be able to

have such election it must be majority

of the outstanding capital stock

again we look at the ownership and not

the number of people to determine

majority so in that illustration

the stockholder

owning 30 percent and the stockholder

owning 25

even if they are the only two who are

present in the election the election can

actually already go on

because they are the owners of majority

of the outstanding capital staff

now do they actually need to be present

in the election

your section 23 says they can be either

in person

or they can authorize someone they can

authorize a representative

through

a written proxy who can represent them

the same as those who would want to

participate again either in person or by

written proxy

again when we determine the quorum to be

able to hold the elections we look at

the ownership

in other words

if these two having the 30

and the 25 ownership if they are not

present in the election even if the rest

are there those constituting 45

ownership

they cannot hold the elections

because they do not constitute the

majority of the outstanding capital

stock

that is how we determine the majority in

a stock corporation

how about in a non-stock corporation

how do we determine the majority

remember in a non-stock corporation

there is no share

there are however

members

you do not call them stockholders again

because they do not own shares

so supposing

look at this illustration you have 20

members in a non-stop corporation

how do we determine the majority the

same one-half plus one

but this time because there is no

outstanding capital stock and we only

have members then we count the number of

members

what is one half of 20

that is

10

but we said majority is one half plus

one

so

the majority then is 11 members out of

20.

they must be present

to constitute the quorum to be able to

have the elections

that is how we determine the majority in

a non-stock corporation

so that is how you determine a quorum

again

you have to have a quorum first before

you can proceed with the election

now

if you are in a quorum so

you proceed with an election

how do we vote

what is the basis for voting

and what are the

different methods of casting your vote

in a stock corporation because you are a

shareholder

the basis for voting is your ownership

in other words

if you have

five shares

then you are entitled to five votes

multiplied by

the number of directors to be elected

in other words

if there are let's say

10 seats

or 10 directors to be elected

and you have five shares of stock in

that corporation

then you have

five

multiplied by 10 equal to

50 votes so you are entitled 50 votes

that is the basis

for computing the number of votes that

you can cast in a

stock corporation another example let's

say you have 100 shares of stock in the

corporation and you are to

choose or elect 10 directors how many

votes are you entitled to cast again

look at the number of shares that you

have multiplied by the number of

directors to be elected so you have 100

shares

multiplied by 10

equal

1000.

so

1000 votes

you will be entitled to cast

that is how you determine the number of

votes that you are entitled to cast in

the election of directors in a stock

corporation

how about in non-stock corporations

how about election of trustees

you do not have shares of stock there is

no stock

so the basis now would be you being a

member

so you being a member you're entitled to

one

multiplied by the number of trustees to

be elected so if there are 10 trustees

to be elected then that's 1 times 10

equals

your

10 votes so you are entitled to 10

votes so that is how you compute the

votes that you may cast in a non-stock

corporation

now what are the different methods of

casting your vote

there are generally three i will just

talk about the simple

um

way by which you

you cast your vote in an electron so

there are three as i've mentioned

what are these three methods you have

straight voting

cumulative voting in favor of one

candidate and cumulative voting by

distribution so these are the three

methods let's talk about each one what

is straight voting straight voting

happens when you equally distribute

the number of votes that you are

entitled to cast to the

directors that you are voting for

so supposing you are to cast or to to

elect rather 10 directors out of 15 who

have been nominated

so

if you have 100 shares in that

corporation

and you are to elect 10 directors as we

have already mentioned earlier that's

100 times 10 that is equal to a thousand

votes that you may cast

now again you are to elect 10 directors

and in our example there are 50 nominees

so you will you will choose 10 out of

the 15.

and from those whom you were already

able to choose the 10

your 1000 votes will be equally

distributed among them

so

1 000 votes divided by

10 directors that you are choosing to

elect out of the 15 so each of the 10

that you have chosen will get

100 votes each

how about cumulative voting in favor of

one candidate again we go back to

computing how many votes you're entitled

to cast so again if you have 100 shares

and you are to elect

10 directors out of 15

if you follow cumulative voting in favor

of one candidate that means that you

will have to choose only one out of the

15 who are being nominated so again how

many votes still you go back to your

number of shares multiplied by the

number of directors that has to be

elected so you have your 100 shares

multiplied by 10

that's 1 000 votes now instead of

distributing it equally

uh among the 10 out of the 15 that you

would have chosen under straight voting

in community voting in favor of one

candidate you accumulate all the 1 000

votes that you are entitled to pass to

only one candidate so you put in all

your 1000 votes to just one now why is

this made available under your revised

corporation code

this is made available so that your

minority stockholders will have a chance

to have a representation they can put in

all their votes to one of their nominee

so that they are given a chance to be

represented in the board

now how about cumulative voting by

distribution

still the same

you first

look into how much

votes are you entitled to cast again you

have 100 shares multiplied by the number

of directors to be elected so let's say

um still 10 directors and then there are

15 vying for the position so you choose

10 out of the 15.

now

having uh how you have to compute again

your

your 100 shares multiplied by 10

directors again that gives you 1 000

votes

then community voting by distribution

would tell you that you will distribute

it in the way that you would want it to

be distributed so let's say for example

you have chosen 10 out of the 15

the

1000 votes you can distribute it in a

way

where perhaps one director will get 200

votes one director will get 50 votes

another director will get 400 400 votes

and so on and so forth so long as you

only cast

up until your 1 000 votes

so that is cumulative voting by

distribution

now how do we determine who won the

election who do we determine which

would

be considered now as the directors or

trustees after an election is over

you look at the plurality of votes in

other words

the highest number of votes it's just

like our election for senators

the senator does not need to get

majority votes

but you determine who are the winners by

looking at the highest 10 votes if you

are to elect 10 directors or 10 trustees

to the board so again you look at those

who have garnered the highest number of

votes

now we have already talked about the

methods of voting but how do you

actually cast your vote do you have to

be present when you cast your vote

not necessarily

this is a new amendment this is an

amendment to the revised corporation

code allowing remote voting or voting in

absentia for purposes of determining a

quarrel they are considered as present

voting through remote communication or

in absentia is allowed when it is

authorized by the bylaws or if it's not

in the by-laws it is approved by

majority of the board of directors

such requirement however that it must be

authorized by the bylaws or approved by

majority of the board of directors such

requirement is not necessary in

corporations vested with public interest

what do we mean then this means that

even if it's not in the bylaws even if

it's not approved by majority of the

board

your stockholders in corporations vested

with public interest can actually or

rather are entitled to remote voting

so that's it for this video i hope you

understand nowadays the general concept

of how an election is done

in the election of directors or trustees

in a stock or non-stop corporation i

hope you have learned something from

this video and i will see you in the

next

so if you find this video helpful please

click like subscribe and that

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thank you for watching see you next time

in mbl classroom

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