How vacancies in the Board of Directors/Trustees are filled (Section 28, Revised Corporation Code)

Summary

Attorney Chris Batan Lasko's YouTube channel simplifies the law in under 10 minutes per video. This episode focuses on filling vacancies in a board of directors or trustees under the Revised Corporation Code, Section 28. It explains the causes of vacancies, the importance of understanding them to determine the filling process, and the various scenarios including death, resignation, removal, or increase in board size. The video also covers the role of quorum, the process for emergency board filling, and the temporary measures to prevent substantial corporate damage.

Takeaways

• 📚 The video is aimed at simplifying the law, specifically discussing how to fill vacancies in the board of directors or trustees.
• 🔍 The script references Section 28 of the Revised Corporation Code, which outlines the process for filling board vacancies.
• 🚫 Vacancies can occur due to various reasons, including the expiration of a term, removal, death, resignation, or selling of shares by a director.
• 🔑 The method of filling a vacancy depends on the cause and whether the remaining board can constitute a quorum.
• 🔢 A quorum is defined as one half plus one of all the board members, which is crucial for determining who can fill a vacancy.
• 👥 If the remaining board can form a quorum, they can fill the vacancy by a majority vote of the remaining directors.
• 📉 If the board cannot form a quorum due to vacancies, the stockholders or members must elect a replacement.
• 📆 Vacancies caused by term expiration must be filled by an election held on or before the day of term expiration.
• 🔄 If a director is removed, the vacancy must be filled by the stockholders or members, reflecting their power to both remove and elect directors.
• 📈 Vacancies due to an increase in the number of directors or trustees are filled through a regular or special election by the stockholders or members.
• ⏱ In urgent situations where the remaining directors cannot form a quorum, the vacancy may be temporarily filled by a unanimous vote among the remaining directors from among the corporation's officers.
• 📝 The term of an emergency director or trustee is limited to the remaining term of the director they replaced, and the corporation must notify the commission of the emergency board's creation.

Q & A

What is the purpose of the video by Attorney Chris Batan Lasko?

The purpose of the video is to simplify the law, specifically discussing the process of filling vacancies in the board of directors or the board of trustees under the Revised Corporation Code.

What are the common causes of vacancies in the board of directors or trustees?

Common causes of vacancies include the expiration of a term, removal of a director or trustee, death, resignation, selling of all shares by a director, or an increase in the number of directors or trustees.

Why is it important to determine the cause of a vacancy in the board?

Determining the cause of a vacancy is important because it dictates the method by which the vacancy should be filled, as outlined in Section 28 of the Revised Corporation Code.

How can a vacancy caused by the death or resignation of a director or trustee be filled?

A vacancy caused by death or resignation can be filled either by the remaining members of the board, provided they still constitute a quorum, or by the stockholders or members of the corporation.

What is a quorum and how does it relate to filling a vacancy in the board?

A quorum is one half plus one of all the members of the board of directors. It is important for filling a vacancy because if the remaining board constitutes a quorum, they can fill the vacancy themselves.

What happens if the remaining board members do not constitute a quorum after a vacancy?

If the remaining board members do not constitute a quorum, the vacancy must be filled by an election conducted by the stockholders or members of the corporation.

How is a vacancy caused by the term expiration of a director filled?

A vacancy due to term expiration is filled by a vote from the stakeholders or members of the corporation, following the election process previously discussed in another video.

What is the role of the stockholders or members in filling a vacancy caused by the removal of a director or trustee?

The stockholders or members must fill a vacancy caused by the removal of a director or trustee, as they are the ones with the power to remove directors or trustees and thus should also fill the resulting vacancy.

How are vacancies caused by an increase in the number of directors or trustees filled?

Vacancies due to an increase in the number of directors or trustees are filled through an election during a regular or special meeting, conducted by the stockholders or members.

What is the term of office for a replacement director or trustee?

A replacement director or trustee holds office for the remaining term of the director whom they have replaced, as per Section 28 of the Revised Corporation Code.

What can be done if there is an urgent matter that requires board action but the remaining directors do not constitute a quorum?

In such a situation, the vacancy can be temporarily filled by a unanimous vote of the remaining directors from among the officers of the corporation, limited to the emergency action necessary to prevent substantial and irreparable loss or damage to the corporation.

Outlines

00:00

📚 Introduction to Filling Vacancies in Corporate Boards

Attorney Chris Batan Lasko introduces his virtual classroom on YouTube, where he aims to simplify the law in under 10 minutes. The video focuses on the process of filling vacancies in the board of directors or trustees. He explains the various reasons for board vacancies, such as term expiration, removal, death, resignation, or selling of shares by a director. The importance of understanding the cause of a vacancy is emphasized as it determines the method of filling it, as outlined in Section 28 of the Revised Corporation Code.

05:03

🔍 Methods for Filling Vacancies in Corporate Boards

This paragraph delves into the specific methods for filling board vacancies based on the cause. If a vacancy arises from death or resignation, it can be filled by either the remaining board members or the stockholders, depending on whether a quorum remains. A quorum is defined as half plus one of the total board members. If the remaining board does not constitute a quorum, such as when more than half the directors die, the vacancy must be filled by an election by stockholders or members. The paragraph also covers the process for filling vacancies due to term expiration, removal, or an increase in the number of directors or trustees, which typically involves elections.

10:03

🚨 Emergency Measures for Board Vacancies Causing Loss to the Corporation

The final paragraph addresses a situation where a board vacancy prevents the remaining directors from constituting a quorum and an urgent matter requires immediate action to prevent significant damage to the corporation. Section 28 of the Revised Corporation Code allows for an emergency measure where the vacancy can be temporarily filled by a unanimous vote of the remaining directors from among the corporation's officers. The designated director or trustee's term is limited to the emergency action and ends when the emergency is resolved or when a replacement director or trustee is elected, whichever is earlier. The corporation must notify the commission within three days of creating an emergency board, stating the reason for its creation.

Keywords

💡Vacancy

A 'vacancy' in the context of the video refers to an empty position or role within a board of directors or trustees due to various reasons such as expiration of term, removal, death, resignation, or selling of shares. The video emphasizes the importance of understanding the cause of a vacancy as it dictates the process of filling it. For instance, if a director's term expires, the vacancy must be filled by a vote from the stakeholders or members.

💡Board of Directors

The 'board of directors' is a group of individuals elected by the shareholders of a corporation to oversee the corporation's management. The video discusses how to handle vacancies within this board, which is crucial for maintaining proper governance and decision-making within a corporation. The script mentions that if the board cannot constitute a quorum due to vacancies, it might lead to an inability to act on urgent matters.

💡Board of Trustees

Similar to the board of directors, a 'board of trustees' is responsible for the governance of an entity, often in non-profit organizations. The video script explains that the process of filling vacancies in a board of trustees follows similar principles as those for a board of directors, with the method of filling the vacancy depending on the cause of the vacancy.

💡Quorum

A 'quorum' is defined as the minimum number of members of a body that must be present at a meeting to conduct business. In the video, the concept of a quorum is essential in determining who can fill a vacancy. If the remaining board members constitute a quorum, they can fill the vacancy themselves; otherwise, it must be filled by the stockholders or members through an election.

💡Director

A 'director' is an individual who serves on the board of directors and is responsible for making strategic decisions for the corporation. The video script discusses various scenarios that can lead to a director's vacancy, such as death, resignation, or removal, and the subsequent process of filling that vacancy.

💡Trustee

A 'trustee' is a member of a board of trustees and has a fiduciary duty to act in the best interest of the organization they represent. The script explains that vacancies caused by a trustee's death or resignation can be filled by the remaining board members if a quorum is maintained, or by the stockholders or members if not.

💡Removal

In the context of the video, 'removal' refers to the process of officially removing a director or trustee from their position before their term has expired. The script states that if a vacancy is caused by removal, it must be filled by the stockholders or members, as they are the ones who have the power to remove directors or trustees.

💡Resignation

'Resignation' is the act of voluntarily leaving a position or office. The video explains that a director or trustee's resignation can create a vacancy on the board. If this occurs, the vacancy can be filled either by the remaining board members if a quorum exists, or by the stockholders or members through an election if a quorum is not met.

💡Stockholders

In the video, 'stockholders' are the owners of shares in a for-profit corporation. They have the power to elect directors and fill vacancies on the board, particularly in cases where the remaining board members do not constitute a quorum or when a director's term expires.

💡Members

'Members' in the script refers to individuals who have a stake in an organization, often in non-profit entities. They have the power to elect trustees or directors and fill vacancies, similar to stockholders in a for-profit corporation. The method of election is discussed in another video, which is linked in the script.

💡Emergency Board

An 'emergency board' is a temporary measure discussed in the script when the remaining directors cannot constitute a quorum and an urgent matter requires immediate action to prevent significant damage to the corporation. The remaining directors can unanimously vote to temporarily fill the vacancy from among the corporation's officers to address the emergency.

Highlights

Introduction to simplifying the law in under 10 minutes.

Discussion on filling vacancies in the board of directors or trustees.

Section 28 of the Revised Corporation Code as the reference for filling vacancies.

Causes of board vacancies, including expiration of terms, removal, death, resignation, and selling of shares.

Importance of understanding the cost of the vacancy for determining the filling process.

Filling vacancies caused by death or resignation through remaining board members or stockholders.

Determining the filling authority based on whether the remaining board constitutes a quorum.

Procedure for filling a vacancy when the remaining board has a quorum.

Election by stockholders or members for filling vacancies when the board lacks a quorum.

Filling vacancies caused by term expiration through stakeholder voting.

The process for filling vacancies due to the removal of directors or trustees by stockholders or members.

Filling vacancies caused by an increase in the number of directors or trustees through elections.

Term of office for replacement directors or trustees is the remaining term of the replaced director.

Handling urgent matters when the remaining directors do not constitute a quorum.

Temporary filling of vacancies in emergency situations as per Section 28.

Procedure for the creation of an emergency board and its term limitations.

Notification requirements to the commission for the creation of an emergency board.

Summary of the process for filling board vacancies based on the cause and remaining quorum.

Encouragement for viewers to like, subscribe, and turn on notifications for new uploads.

Transcripts

foreign

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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 everyone welcome to mbl classroom

so for this video i want us to talk

about how to fill in vacancies

if there are such vacancies in the board

of directors or the board of trustees

now where do you see how you fill in the

vacancies where do you see that in the

right revised corporation code you see

that under section 28 of your revised

corporation code yes it's quite a long

provision so let's talk about this and

let's simplify that particular provision

of your revised corporation code so

first let's talk about what causes

a vacancy in the board

your vacancy may be due to expiration of

a term of a director or trustee or it

may be caused by removal of a director

or trustee

vacancies may also be caused by death of

a director or a trustee or by

resignation of a director or a trustee

another would be

a

a vacancy caused by a director selling

all his shares in the corporation

because as such he automatically ceases

to be uh to be a director another reason

for

when there is a vacancy is when the

corporation decides to increase the

number of directors or trustees and so

there is now a vacancy for

the increased number of directors or

trustees

so these are the reasons or causes of

vacancies in the board either board of

directors or board of trustees so why is

it important to know the cost of the

vacancy it's important to know the cost

of the vacancy because then it will

determine how you are going to fill in

the vacancy and that is what section 28

is actually about so let's talk about

the different causes of the vacancy and

how

the vacancy may be filled if such is the

cost

if the vacancy is caused by

death or

resignation of a director or trustee

how do we fill in the vacancy

if those are the the causes of the

vacancy death of a director or

resignation

there are two ways of filling in that

vacancy

it could either be filled by the

remaining members of the board or it

could be failed by the stockholders

now how do we know when it can be filled

by

the remaining board of directors or

trustees or if it should be filled by

the stockholders or the members

you have to look into whether the

remaining board of directors or board of

trustees would still constitute a quorum

what do we mean by this

if you have watched the other videos

where i discussed what a quorum is a

quorum is actually one half plus one of

all or based on all the members of the

board of directors

so for example if there are 10 directors

in the board then your quorum is one

half plus one that makes it that makes

it six members

now supposing

the there is only there is rather the

death of two directors

out of the ten

the remaining directors would then be

only eight

do they still constitute the quarrel

the answer is yes because clearly eight

is more than six which is the quorum of

ten directors

your section 28 tells you that if

the remaining board still constitutes a

quorum then they can fill in the vacancy

in our example

there are two vacancies due to death

so your remaining board can actually

fill in the

vacancy now how will the remaining board

fill in the vacancy just like any other

approval of a corporate act it has to be

at least majority of the remaining board

who will fill in the

vacancy

if however

the remaining board does not constitute

a quorum for example still ten directors

but five directors died perhaps they

went on a trip and the airplane crashed

and all five

of the directors died leaving only five

directors of the board

clearly five is less than six which is

the quorum

how then do we fill that vacancy we have

to fill it by

election and the election must be done

by your stockholders or members if it

would be your non-stop corporation

of course election will be done in the

manner that i have already discussed in

another video i will put the link up

here so you may be reminded of how an

election is done what if the vacancy is

caused by term expiration of course it

will have to be voted on by the

stakeholders or members to fill in the

vacancy again we follow the manner and

the method of election that i have

already discussed in another video again

the link i will place up there

of course if it is term expiration then

the election must be held not later than

the day of expiration of the term

now how about if the vacancy is caused

by removal of a director or a trustee

if it is due to removal of a director or

trustee

it must be filled by the stockholders or

members why because

your stakeholders or your members are

the only ones who have the power to

remove directors or trustees and so they

must also just also be the one who can

fill in such vacancy due to removal of

directors or trustees the election may

be held in that same meeting where there

is a

an election for removal of such director

or trustee now how about if the vacancy

is caused by the increase of directors

or trustees

this also will have to be filled in

by a regular or rather an election

during a regular meeting or a special

meeting called for that purpose again

who can fill such vacancy it is your

stockholders or

members

now supposing that a director or a

trustee has already been voted on to

replace

the director who was removed or the

director who died or the director who

resigned

the replacement is called the

replacement director or trustee

now what is his term of office for how

long will he

become a director or a trustee in the

corporation your section 28 says that he

will only hold office or will become a

director or trustee only for the

remaining term of the director whom he

has replaced again the director who has

been removed the director who has died

or the director who has resigned

now

how about

if

there exists a vacancy

and then it leaves

the remaining directors not constituting

a quarrel we said that that must be

filled by the stockholders or members in

an election

but supposing there is an urgent matter

that must be acted on by the board

but because they do not constitute the

quorum they could not act on such

on such matter

now what if not acting on such matter

will cause great damage or loss to the

corporation

what can the corporation do so that this

loss may be avoided again

the there is a vacancy

and it costs the remaining directors not

to constitute a quorum for example there

are ten directors and five directors die

leaving only five

not constituting a forum anymore

again as i've mentioned there is an

urgent matter that must be acted upon

because if they do not act on it it will

it will cause great loss or damage to

the corporation

but calling for an election

by your stockholders or your members

will take time

is there a remedy on the part of the

corporation where they could still act

on that particular matter to avoid loss

or damage to the corporation the answer

is yes there is a remedy and if this

provided for under section 28 of your

revised corporation code let me read

that particular

paragraph in that provision it says

however when the vacancy prevents the

remaining directors from constituting a

quorum an emergency action is required

to prevent grave substantial and

irreparable loss or damage to the

corporation

the vacancy may be temporarily filled

from among the officers of the

corporation by unanimous vote of the

remaining directors or

trustees

the action by the designated director or

trustee shall be limited to the

emergency action necessary and the term

shall cease within a reasonable time

from the termination of the emergency or

upon election of the replacement

director or trustee whichever comes

earlier the corporation must notify the

commission within three days from the

creation of the emergency board stating

they're in the reason for its creation

that particular paragraph in section 28

tells you

that the remaining board even though not

constituting a quorum can actually make

or fill the vacancy in our example five

out of ten directors have died leaving

five the five can actually fill in the

vacancy but the law requires that there

must be a unanimous vote meaning all

five must vote for the other five who

will

fill in

and we call them the emergency board

of course your your section 28 also

tells you that the term of the emergency

board will expire when the emergency

action has already been

has already been acted on

or the there is already the election um

by your stockholders or

members whichever will come

earlier

so i hope you know now how

vacancies and the board of directors

archers t or trustees are to be filled

in again

very important you have to determine

first what is the cost of the vacancy

before you can determine how the vacancy

will be filled i hope you have learned

again another thing or two in this video

and i will see you in the next

so if you find this video helpful please

click like subscribe and that

notification bell so that you will be

notified of new video uploads

thank you for watching see you next time

in mbl classroom

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