Subject : Term of Office of the Board of Trustees

December 7, 2004 SEC OPINION NO. 46-04 Subject : Term of Office of the Board of Trustees Philippine Association of Corporate State Auditors, Inc. Commission on Audit Quezon City Attention: Ms. Lourdes Almario President Gentlemen : This refers to your letter dated September 22, 2004 questioning the CRMD Memorandum issued on May 11, 2004 which limits the term of office of officers of non-stock corporation to one (1) year only based on Section 23 of the Corporation Code ("Code") or three (3) years per Section 92 of the same Code and likewise requesting that the application for amendment of the by-laws of Philippine Association of Corporate State Auditors, Inc. ("PACSA") be approved accordingly. Section 92 of the Corporation Code states: "Section 92. Election and term of trustees . Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporation, which may be more than (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office for the unexpired period. No person shall be elected as trustee unless he is a member of the corporation. Unless otherwise provided for in the articles of incorporation or the by-laws, officers of a non-stock corporation may be directly elected by the members." "From the above phrase "unless otherwise provided in the articles of incorporation or by-laws" it is clear that a non-stock corporation may provide a desired term of office of the Board in the articles of incorporation or by-laws. The proposed amendment, however, shall be effective only upon approval of the Commission pursuant to Section 48 of the Corporation Code." 1 However, while the term of trustees of non-stock corporations may vary under the articles of incorporation or by-laws, lifetime or unlimited term of the board of trustees is not allowable. "A lifetime term of office absolutely deprives other members of the corporation of the opportunity to become officers of the corporation." 2 Hence, the proposed amendment in your by-laws fixing the term of office of PACSA directors conforms with the abovequoted legal provision. cCaIET Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. SEC Opinion dated August 3, 1993, addressed to Mr. Gerardo Gonzales. 2. SEC Opinion dated December 16, 1991, addressed to Ms. Celedonia M. Aquino.