Corporation Law: The Revised Corporation Code of the Philippines - Sec 58

THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VI - MEETINGS

Section 58. Voting Trusts.

One or more stockholders of stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust specially required as a condition in a loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the load. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof.

A certified copy of such agreement shall be filed with the corporation and with the Commission; otherwise, the agreement is ineffective and uneforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued pursuant to said agreement. The books of the corporation shall state that the transfer in the name of the trustee or trustees is made pursuant to the voting trust agreement.

The trustee or trustees shall execute and deliver to the transferors, voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock.

The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: Provided, That both the trustor and the trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the provisions of this Code.

Any other stockholder may transfer the shares to the same trustee or trustees upon the term and conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of said agreement.

No voting trust agreement shall be entered into for purposes of circumventing the laws against anti-competitive agreements, abuse of dominant position, anti-competitive mergers and acquisitions, violation of nationality and capital requirements, or for the perpetuation of fraud.

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period. The voting trust certificates as well as the certificate of stock in the name of the trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the trustors.

The voting trustee or trustees may vote by proxy or in any manner authorized under the bylaws unless the agreement provides otherwise.

1. Concept.

  • A voting trust is an agreement whereby one or more stockholders of a stock corporation confer upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time. 
  • A voting trust is created by the transfer of voting shares by shareholders to a voting trustee or trustees, to hold and vote them, until the purpose is fulfilled or for a specified period, usually pursuant to a voting trust agreement. 
  • A voting trust agreement is not governed by the law on agency. 
    • Unlike agency, a voting trust agreement is not revocable at will. 
    • To allow indiscriminate revocation of voting trust agreements may defeat precisely the reason for the creation of the trust. 

2. Purpose. 
  • A voting trust agreement may be used for disparate purposes including: 
  1. It is a device to concentrate shareholder control in one or few persons who, primarily through election of directors, can control corporate affairs;
  2. It is also used in corporate reorganization where it may be used to give control to former creditors reduced to stockholder status;
  3. It may also be used by founders or incorporators to retain control; and 
  4. It may be used to distribute voting power disproportionately to share ownership.
  • No voting trust agreement shall be entered into for the purpose of circumventing the law against anti-competitive agreements, abuse of dominant position, anti-competitive mergers and acquisitions, violation of nationality and capital requirements, or for the perpetuation of fraud. 

3. Limitations. 
  • Specific limitations on voting trust agreements imposed under Section 58 are as follows: 
  1. Voting trust agreements (VTA) must not exceed a period of five years at any time; 
  2.  In the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding five years but it shall automatically expire upon full payment of the loan;
  3. VTA must be in writing and notarized;
  4. VTA shall specify the terms and conditions thereof; 
4. Procedural Requirements. 
  • The voting trust agreement must comply with certain procedural requirements. Thus, the voting trust agreement undergoes the following stages:
  1.  Execution and notarization of the voting trust agreement stating the terms and conditions thereof; 
  2. A certified copy of the VTA shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable; 
  3. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled;
  4. A new certificate/s shall be issued in the name of the trustee or trustees stating that they are issued pursuant to the voting trust agreement; 
  5. The transfer to the trustee/s shall be noted in the books of the corporation as having been made pursuant to a voting trust agreement; and
  6. The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock.

5. Rights of Trustee. 
  • The trustee in a voting trust agreement acquires the right to vote and other rights pertaining to the shares. 
    • The trustee may also exercise the right of inspection of all corporate books and records in accordance with the provisions of the RCCP. 
    • The voting trustee may likewise vote by proxy unless the VTA provides otherwise. 
  • Legal title to the shares is acquired by the trustee; hence, he can be elected as a director in the company. 
    • The trustor (stockholder) does not have such right during the life of the voting trust agreement. 

6. Term.
  • Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the trustors.

7. Distinguished from Proxy. 

A voting trust agreement may be distinguished from a proxy as follows: 
  • Voting Trust Agreement
    1. Irrevocable.
    2. Legal title to the share is transferred to the trustee. 
    3. The certificate of stock shall be cancelled and a new one issued in the trustee's name.
    4. It must be notarized. 
    5. The trustor-shareholder cannot vote. 
    6. It cannot be for a specific meeting. 
    7. The trustee can vote by proxy. 
    8. The trustee votes in his/her own right as holder of legal title.
    9. The trustee can be elected as a director. 
  • Proxy
    1. Generally revocable.
    2. No transfer of title. 
    3. No cancellation of the certificate shall be made.
    4. Need not be notarized. 
    5. The shareholder retains his right to vote.
    6. It can be for a specific meeting.
    7. The proxy cannot further delegate his/her authority to vote and must therefore vote in person. 
    8. The proxy is the agent of the shareholder.
    9. The proxy, as such, cannot be elected as a director.
8. Distinguished from Voting Agreements of Shareholders. 
  • A group of shareholders may actually agree to vote in a certain manner. 
    • For instance, a number of shareholders may form a block in order to elect a director. 
  • In such case, the voting agreement can even be verbal. 
    • It may be quite informal and may vary depending upon the discretion of the parties. 
    • The agreement may even be secret, if that is desirable, since no evidence of the agreement need be deposited with the corporation.
  • It was explained in one case that: 
    • "The statute does not purport to deal with agreements whereby shareholders attempt to bind each other as to how they shall vote their shares. Various forms of such pooling agreements, as they are sometimes called, have been held valid and have been distinguished from voting trusts."
    • They need not comply with the requirements prescribed by law for voting trust agreements. 
  • "Generally speaking, a shareholder may exercise wide liberality of judgment in the matter of voting, and it is not objectionable that his motives may be for personal profit, or determined by whims or caprice, so long as he violates no duty owed his fellow shareholders. The ownership of voting stock imposes no legal duty to vote at all."
    • Consequently, a group of shareholders may, without impropriety, vote their respective shares so as to obtain advantages of concerted action. They may lawfully contract with each other to vote in the future in such way as they, or a majority of their group, from time to time determine.

Comments

Post a Comment

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Sovereign Equality of States/Principle of sovereign equality UN Charter of 1945 All states are equal before international law no matter the size of their territory, population, economy or military. All states have equal rights and duties under international law, and that no state has the right to interfere in the internal affairs of another state. Positive Consequences: All states have a voice in international affairs .   All states have the opportunity to participate in international organizations and to negotiate and conclude treaties. This helps to ensure that the interests of all states are represented in the development of international law and policy. No state has the right to interfere in the internal affairs of another state.  This helps to protect the sovereignty of all states and to prevent the use of force or coercion to achieve political objectives. States have the right to develop their own political, economic, and social systems without interference from othe...
Read more

Commercial Laws 1: R.A. No. 11057 — Personal Property Security Act

  Commercial Law TITLE XVI Personal Property Security Act Micro, Small and Medium Enterprises are sources of growth and innovation. They contribute to and benefit from future growth. Their increased participation in global trade "can have significant impact in reducing poverty through employment creation, productivity improvements and economies of scale." Congress passed the Personal Property Security Act in order to provide Micro, Small and Medium Enterprises (MSMEs) more access to "credit at the least cost through the establishment of a unified and modern legal framework for securing obligations with personal property ." It was explained:  According to the 2015 Philippine Statistics Authority data, there are 896,839 micro-small and medium enterprises (MSMEs) that established in the Philippines.  These MSMEs generated a total of 4,784,870 jobs in 2015 versus 2,181,819 for the large enterprises.  This indicates that the MSMEs contributed almost 61 % o...
Read more

Land Title and Deeds: Chapter 1 — What Lands are Capable of Being Registered

Chapter I What Lands are Capable of Being Registered All lands in the Philippines are presumed to be lands of the public domain, and therefore, owned by the State. This rule finds support in Section 2, Article XII of the 1987 Constitution:  Section 2 . All lands of the public domain , waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State . With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be fo...
Read more