Shareholder Missing or Deceased in a Philippine Company: What to Do When You Cannot Reach Quorum

Count the shares first: is it quorum you lack, or votes?

"We cannot hold a meeting" is really two separate problems, and you need to know which one you have. The first is quorum. For a stockholders' meeting to be validly held, the shares present in person or by proxy must usually reach a majority of the outstanding capital stock, unless the bylaws say otherwise. The second is the voting threshold. Ordinary matters such as electing directors or approving the annual report need a lower vote. Fundamental matters such as amending the articles, changing the capital, merging or dissolving require a higher proportion set by law.

The same absent shareholder therefore matters a great deal for some decisions and not at all for others. Before doing anything, check four things:

• The stock and transfer book. Use the shares actually recorded there, not the percentages people remember. If the book itself is missing, compare the latest General Information Sheet on file with the stock certificate stubs.
• The bylaws. Read the clauses on quorum, notice, proxies and remote attendance. Template bylaws differ from one another more than owners expect.
• Subscribed versus paid. Find out whether this shareholder has fully paid for the shares.
• What you actually need to do. A routine annual meeting and election is one thing. Amending the articles, selling the business or closing the company is another.

If the absent shares are under half and the business is ordinary, send notice as the bylaws require and hold the meeting. The absence does not prevent valid resolutions. The hard cases are two: the absent holder owns more than half, or the matter needs their block to reach a higher threshold. The rest of this guide deals with those.

The first few days: build a paper trail, and four things never to do

In the first few days you have one goal: a written record, good enough to be tested later, showing that the company looked for this person and gave proper notice. Whether you go on to hold a meeting, ask a court for help or explain the situation to the Securities and Exchange Commission, that record is where everything starts.

1. Send written notice to the postal and email addresses recorded in the stock and transfer book, using a method that produces proof of delivery. Keep screenshots of calls and messages as well.
2. Contact family members, whoever introduced them to the business, and any shared accountant or lawyer. Note the date and the answer each time.
3. If you are told the person has died, ask the family for a copy of the death certificate, and ask whether there is a will and who is handling the affairs.
4. Take stock of the company: who the bank signatories are, whether the corporate secretary is still in office, and when this year's General Information Sheet and financial statements fall due.

At the same time, do not do any of the following, however neatly it would seem to solve the problem:

• Do not sign or imitate their signature on a proxy, a written consent or a deed of transfer.
• Do not backdate minutes so that a meeting appears to have happened before they vanished or died.
• Do not strike out or move their shares in the stock and transfer book on your own authority.
• Do not state an attendance in any filing that is not true.

Each of these can amount to falsification or a false filing, and the resolution itself will not stand. If the shareholder or the heirs later appear, the damage is not limited to one meeting. Every change that was built on it becomes open to challenge, along with the people who signed.

A missing shareholder: notice, proxies, remote attendance and a few narrow exits

When a shareholder simply cannot be found, the law does not remove their shares from the total because they have gone quiet. The available routes, from lightest to heaviest, are these:

1. Confirm that you need them at all. If they hold under half and the business is ordinary, send notice of the meeting in the manner and within the period the bylaws require, and the other shareholders meet as usual. Proper notice plus enough shares present makes a valid resolution.
2. You find them, but they cannot attend. They may sign a proxy so that someone else attends and votes. Current company law also allows remote participation and voting in absentia where the bylaws or the board authorise it. For a proxy signed abroad, notarisation and an apostille or consular authentication are usually needed, depending on the purpose and on who must accept the document.
3. Check whether the shares are paid up. Shares that were subscribed but not paid, and that have been declared delinquent after a lawful call for payment, cannot vote and are not counted for quorum until paid. The procedure is strict. The board must make the call properly and keep the record, and it cannot be reconstructed after the fact.
4. They cannot be found and cannot be bypassed. The remaining option is for a lawyer to assess a court application, for example asking a court to make arrangements for the calling of a meeting or the management of the company. It is slow and the outcome is not fixed.

One point needs to be stated plainly. There is no rule that shares pass to the company or to the other shareholders once a holder has been out of contact for some number of years. Shares are that person's property. They change hands only by their own transfer, by an agent acting under a valid authority, or by a court ruling. If the two of you were really in a nominee arrangement, the nature of the problem is different; see when a nominee shareholder turns hostile.

A deceased shareholder: the shares belong to the estate, so who votes them?

When a shareholder dies, the shares become part of the estate. They do not pass automatically to the family, and they do not revert to the company. Until the succession is completed, who may attend and vote for those shares depends on how the estate is being settled.

• Where a court is involved, the executor or administrator appointed by the court represents the estate and exercises the shareholder's rights, normally without a separate proxy. The company is entitled to see the court's appointment before accepting this.
• Where the heirs settle among themselves, estate tax must first be filed and settled and the tax authority's clearance for transfer obtained. Only then are the shares transferred to the heirs and entered in the stock and transfer book. Until that entry is made, an heir is generally not yet a shareholder as far as the company is concerned, and a vote cast in a personal capacity is easy to attack.
• Where the deceased was a foreigner or the heirs live abroad, questions arise about which country's succession law applies and how foreign documents are authenticated, and everything takes longer. The basic rules are set out in estate and inheritance basics for foreigners in the Philippines.

For the company, the careful course is to ask the family in writing who is handling the estate and by which route, and to send meeting notices both to the registered address and to the known heirs. Until someone produces a valid document showing authority, do not accept a signature from anyone on the strength of being a son or a spouse. The mechanics of the transfer itself are in how share transfers work in the Philippines, and the tax clearance stage described there applies here as well.

Watch the foreign-equity position too. If a Filipino shareholder's shares pass to a foreign heir, the company's ownership mix may change. In a restricted industry, have a lawyer work this out before any transfer is recorded.

Keeping the company running while no meeting can be held

A stockholders' meeting that cannot be held does not stop the company. Day-to-day business runs through the board and management, not through the shareholders in meeting. Plan the interim along these lines:

• Directors stay in office. If the annual meeting cannot be held and no election takes place, the sitting directors and officers normally continue in a holdover capacity until successors are elected and qualify. This keeps everyday signing authority intact.
• Do not let filings lapse. File the General Information Sheet and annual financial statements on time and state the current position truthfully. How to report when the annual meeting was not held, and whether an explanation must be attached, depends on the Commission's current requirements. For what happens when filings stop, see what to do when a company is tagged delinquent or revoked.
• Speak to the bank early. If the missing or deceased person was also a bank signatory, follow the order set out in what to do when a bank signatory is gone and the account is stuck.
• If they were also a director, see what to do when the board falls below strength for filling the seat.

Be clear about what cannot be done in the meantime. Anything that needs a higher shareholder vote stays out of reach until the votes exist. That includes amending the articles, increasing or reducing capital, selling all or substantially all of the assets, merging and voluntary dissolution. Do not try to substitute a board resolution for a shareholders' resolution. It will not be accepted by the bank, by the Commission or by a later buyer. If the company is unable to take necessary decisions for a long period, the right step is to have a lawyer assess court intervention, not to keep waiting.

Not being held up by one person again, and what Yixing can do

An absent shareholder can paralyse a company mostly because nobody asked, at the start, what would happen if this person were no longer around. These steps can be taken in advance:

• Write rules on remote attendance, electronic notice and proxies into the bylaws, so that a shareholder living abroad can attend lawfully.
• Sign a shareholders' agreement that says what happens to the shares, and what right of first refusal the others have, if a shareholder disappears, loses capacity or dies. Have a lawyer review it.
• Once a year, check the address, email and emergency contact recorded for each shareholder.
• Do not let one person be shareholder, director, corporate secretary and bank signatory all at once. For a secretary who cannot be reached, see what to do when the corporate secretary or treasurer is unreachable.
• Individual shareholders should put their own will and succession arrangements in order. It is the most practical thing they can do for their partners.

Yixing Travel Consultancy (SEC Registration No. CS202009551, Bureau of Immigration Accredited Agency No. CA-202624381-1) provides company setup and amendment services. We help put the stock and transfer book and meeting papers in order, prepare and file the General Information Sheet and other routine reports, carry out transfer filings and registration updates once the legal plan for a succession or transfer has been settled, and assess how a change in structure affects foreign personnel's visas. Determining who inherits, estate proceedings, court applications and disputes between shareholders are matters for licensed counsel, to whom we can introduce you. We are a private firm with no affiliation to any government office, and we cannot promise any outcome. For your specific case consult a licensed lawyer; this article is not legal advice.