You are on page 1of 2

45:01-54:00

Now the have the expressed form and thats ready, and you could even upload them
as you wish and all you have to do is fill it up.

So assuming now that we have all the articles and the by-laws, we will now submit it
with the SEC. The by-laws is just an internal procedure among the stockholders and
directors of the corporation. It contains the internal rules, what rules would govern
the relationship among stockholders, what rules would govern the relationship
among officers and board of directors. It is not supposed to cover the relationship to
third parties. However, even if the public or third parties are not bound yet there
could be instances when third parties could insist the compliance of the by-laws.
They have the right to insist that the by-laws should be followed among themselves.

So thats how a corporation shall be organized. You have the articles and then by-
laws. The by-laws would contain among others the list of officers of the corporation,
how are they supposed to be elected or selected, who are the directors, how many
and how should they be elected, how often should the stockholders meet, as well as
for the directors and the officers. The management is defined in the by-laws; you
may have the stockholders, board of directors, the board of officers and sometimes
the executive committee or the EX-COM. In here their functions and powers are
defined. So if you will notice the shareholders holds the power. While we said in
partnership that the partners are the managers, in a corporation, management is
vested in the board of directors. So the stockholders have nothing to do on how the
corporation will be run, operated or managed. But the members of the board are
elected by the stockholders themselves, so its an indirect way of managing the
corporation. So that the shareholders still control the board of directors, such that
the latter gets the authority from the election. However, while there is indirect
management, the stockholders cannot interfere on how the corporation shall be
managed. Once they elect the board of directors, the directors are on their own and
the shareholders have no authority to interfere and dictate the board on how the
corporation will be managed. So that here the only way that the shareholders will
have authority and control over the directors is only through the elections. Because
the theory of the law is that the power given to the board of directors does not come
from the shareholders. The power and authority granted to the board comes from
the state itself because it is the state that created the corporation, it is the state that
grants the power to the corporation and to the board. Whatever is the business
judgment of the board, it shall prevail. That is what we call the business-judgment
rule.

Can the stockholders question the decision of the board? No. You have no authority
to question the decision of the board. Not even the court can dictate the board to
manage the business. The board has the sole authority on the management of the
business.
Imagine if the shareholders can interfere in the management of the business and
there are thousands of shareholders, it would be very messy if they still have to
consult all shareholders on by one just to buy a company car.

We do not however mean that the board can do whatever they want, we are only
referring to the management decision of the board. We are not saying that the board
could commit, violate, or even enforce its objective or intention to commit a crime.
We cannot enforce the decision of the board if that decision violates taxation laws,
the board cannot say that it is business decision of the board to pay only 10% of our
taxes. When taxes are due, taxes will have to be paid in accordance with the Internal
Revenue Code. Business-judgment rule refers to business decisions.