Ms. Pura D. Almario

May 13, 1991 Ms. Pura D. Almario No. 14 Dagot Street Manresa, Quezon City M a d a m : This refers to your letter of April 15, 1991 requesting opinion on the queries posed therein. LexLib As stated, FMT Industrial Consultants, Inc. (FMTICI) owns and holds 99.99% of the capital stock of Findlay Miller Timber Company. It is the contention of the current president of FMTICI that under Article VII of the by-laws of the corporation, he alone is empowered to attend, act and vote at stockholders' meeting of Findlay Miller Timber Company, and only upon his invitation may the other stockholders attend such meetings. Your queries are: 1. Do the stockholders of FMTICI have the right to attend and vote in the stockholders meetings of the timber company? 2. Do the stockholders of FMTICI also have the right to attend Board of Directors meetings of the timber company? 3. In conferring authority to attend, act and vote at the stockholders' meetings of the timber company on any person or persons, will the choice of the Board of Directors under Article VII of the by-laws of FMTICI be determined by the vote of the majority stockholdings of the directors or by the majority of directors? By virtue of statute in many jurisdictions, which generally follow the Model Business Corporation Act, shares standing in the name of another corporation whether domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such other corporation may prescribe or, in the absence of a by-law provision, as its board of directors may determine. (5 Fletcher Cyclopedia Corporations, Ch. 13, Sec. 2040, 1976 Revised Volume, p. 172) The by-laws, therefore, would be controlling. The FMTICI's by-laws provide, thus: " Unless otherwise ordered by the Board of Directors ,the President shall have full power and authority in behalf of the corporation to attend, to act at, and to vote at any meeting of stockholder of any corporation in which this corporation may hold stock, and at such meeting shall possess and may exercise all rights and powers incident to the ownership of such stock which any owner thereof might have possessed and exercise if present. The Board, by resolution, from time to time confer like powers upon any other person or persons ." (Emphasis supplied) It is clear from the above provision that the Board of Directors of FMTICI, if it so desires, may authorize other person/s other than the President to attend meetings of its subsidiaries and vote for and in behalf of the corporation. Thus, in reply to your first query, the board of directors of the parent company determines its representatives to attend and vote in the stockholders meeting of its subsidiary. Accordingly, the stockholders of FMTICI cannot demand as a matter of right to attend and vote in the stockholders meeting of the timber company. Anent your second query, the stockholders of the parent company cannot demand representation in the board meetings of its subsidiary. The board of directors of a corporation is entrusted with the management of its business and property for the benefit of all the stockholders and occupy the position of trustees for the collective body of stockholders in respect to such business. It is the duty of the Board to administer the corporate affairs for the common benefit of all the stockholders and exercise best care, skill and judgment in the management of the corporation business solely in the interest of the corporation. (3 Fletcher, Cyc. Corps.,Sec. 638 at 142-143, 1975 Rev. Vol.) "All powers directly conferred by statute or impliedly granted by necessity must be exercised by the directors who are constituted by the law as the agency for the doing of corporate acts." (Ballantine on Corporations, sec. 42, at 119) Shareholders entrust their investments in the corporate business to the management of the board of directors, thus, establishing a fiduciary relationship between them. Accordingly, it is the prerogative and discretion of the board of directors of a parent or holding corporation to choose its nominees in the board of directors of its subsidiary. ( SEC letter dated March 13, 1991 addressed to Bautista Picazo Buyco Tan & Fider ) In relation to your third query, quoted hereunder is Section 25 of the Corporation Code which provides in part: "SECTION 25. Corporate officers, quorum ....Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business ,and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board. xxx xxx xxx." (Emphasis supplied) Corollary thereto, Section 5 of Article II of the by-laws of FMTICI states as follow: "A majority of the Board of Directors shall constitute a quorum for all purposes and at all meetings and the decision of a majority of such quorum shall be a valid corporate act." Accordingly, the required vote of the directors necessary and sufficient to confer authority to represent and vote the shareholdings of FMTICI at the stockholders meeting of its subsidiary is majority of the number of the board of directors constituting a quorum. LibLex Please be advised accordingly. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner