CORPORATION LAW

BY-LAWS

TITLE V
BY-LAWS
SEC. 45. Adoption of Bylaws. – For the adoption of bylaws by the corporation, the affirmative vote of the
stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the
members in case of nonstock corporations, shall be necessary. The bylaws shall be signed by the stockholders
or members voting for them and shall be kept in the principal office of the corporation, subject to the
inspection of the stockholders or members during office hours. A copy thereof, duly certified by a majority of
the directors or trustees and countersigned by the secretary of the corporation, shall be filed with the
Commission and attached to the original articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to
the Commission, together with the articles of incorporation. In all cases, bylaws shall be effective only upon the
issuance by the Commission of a certification that the bylaws are in accordance with this Code.

The Commission shall not accept for filing the bylaws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance company, public utility, educational
institution, or other special corporations governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such bylaws or amendments are in accordance with law.

SEC. 46. Contents of Bylaws. – A private corporation may provide the following in its bylaws:
(a)The time, place and manner of calling and conducting regular or special meetings of the directors or trustees;
(b)The time and manner of calling and conducting regular or special meetings and mode of notifying the
stockholders or members thereof;
(c)The required quorum in meetings of stockholders or members and the manner of voting therein;
(d)The modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes;
(e)The form for proxies of stockholders and members and the manner of voting them;
(f)The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the maximum number of other board representations
that an independent director or trustee may have which shall, in no case, be more than the number prescribed
by the Commission;
(g)The time for holding the annual election of directors of trustees and the mode or manner of giving notice
thereof;
(h)The manner of election or appointment and the term of office of all officers other than directors or trustees;
(i)The penalties for violation of the bylaws;
(j)In the case of stock corporations, the manner of issuing stock certificates; and
(k)Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for
the promotion of good governance and anti-graft and corruption measures.
An arbitration agreement may be provided in the bylaws pursuant to Section 181 of this Code.

SEC. 47. Amendment to Bylaws. – A majority of the board of directors or trustees, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of the members of a nonstock corporation, at a
regular or special meeting duly called for the purpose, may amend or repeal the bylaws or adopt new bylaws.
The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-
stock corporation may delegate to the board of directors or trustees the power to amend or repeal the bylaws
or adopt new bylaws: Provided, That any power delegated to the board of directors or trustees to amend or
repeal the bylaws or adopt new bylaws shall be considered as revoked whenever stockholders owning or
representing a majority of the outstanding capital stock or majority of the members shall so vote at a regular or
special meeting.
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Whenever the bylaws are amended or new by-laws are adopted, the corporation shall file with the Commission
such amended or new bylaws and, if applicable, the stockholders’ or members’ resolution authorizing the
delegation of the power to amend and/or adopt new bylaws, duly certified under oath by the corporate
secretary and a majority of the directors or trustees.
The amended or new bylaws shall only be effective upon the issuance by the Commission of a certification that
the same is in accordance with this Code and other relevant laws.

 Fleisher vs Botica Nolasco (47 Phil 583)

By-laws are internal rules and cannot bind, effect or prejudice third persons without knowledge.

HELD: A stock corporation in adopting by-laws governing the transfer of shares of stock should take into
consideration the specific provisions of the Corporation Law. The by-laws of corporations should be made
to harmonize with the provisions of the Corporation Law. By-laws must not be inconsistent with the
provisions of the Corporation Law. By-laws of a corporation are valid if they are reasonable and calculated
to carry into effect the objects of the corporation provided they are not contradictory to the general
policy of the laws of the land. Under a statute authorizing by-laws for the transfer of stock of a
corporation, it can do no more than prescribe a general mode of transfer on the corporate books and
cannot justify an unreasonable restriction upon the right to sell.

It is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose,
and always within the charter limits. They must always be strictly subordinate to the constitution and the
general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare.
They must not disturb vested rights or impair the obligation of a contract, take away or abridge the
substantial rights of stockholder or member, affect rights of property or create obligations unknown to
the law. 

 Loyola Grand Villas Assn. vs. CA (276 SCRA 681)

Failure to file by-laws does not result in automatic dissolution.

HELD: This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file
the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the
records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue
propounded by petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the statute itself, Section
46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the
word “must” in the first sentence thereof. Note should be taken of the second paragraph of the law which
allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code
rules out mandatory compliance with the requirement of filing the by-laws “within one (1) month after
receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission.” It necessarily follows that failure to file the by-laws within that period does not imply the
“demise” of the corporation.

By-laws may be necessary for the “government” of the corporation but these are subordinate to the
articles of incorporation as well as to the Corporation Code and related statutes. There are in fact cases
where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus:
“In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases
where the charter sufficiently provides for the government of the body; and even where the governing
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statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise
the power will be ascribed to mere nonaction which will not render void any acts of the corporation which
would otherwise be valid.”

Even under the foregoing express grant of power and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in
Section 46 of the Corporation Code. There is no outright “demise” of corporate existence. Proper notice
and hearing are cardinal components of due process in any democratic institution, agency or society. In
other words, the incorporators must be given the chance to explain their neglect or omission and remedy
the same.

As the “rules and regulations or private laws enacted by the corporation to regulate, govern and control
its own actions, affairs and concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it,” by-laws are indispensable to corporations
in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law
for an orderly governance and management of corporations. Nonetheless, failure to file them within the
period required by law by no means tolls the automatic dissolution of a corporation.

 Govt vs. El Hogar Filipino (supra)

Incorporation of an invalid by-law provision is not a misdemeanor. It does not justify the dissolution of
the corporation.

HELD: The circumstance that one of the provisions contained in the by-laws of a building and loan
association is invalid as conflicting with the express provision of statute is not a misdemeanor on. the part
of the corporation for which the association can be penalized by the forfeiture of its charter. The directors
of a building and loan association may lawfully fill vacancies occurring in the board of directors in
conformity with a by-law to this effect. Such officials,' as well as the original directors, hold until
qualification of their successors. The shareholders of a corporation may in the by-laws define the
qualifications of directors and require that shares of a specified value shall be put up as security for their
action. A provision in the by-laws disabling the directors from receiving loans from the association is also
valid.

 Gokongwei vs. SEC (89 SCRA 336)

The by-laws may disqualify a stockholder from being elected into office if he has a substantial interest
in a competitor corporation to avoid any possible adverse effects of conflicting interest of a director.

HELD: The validity or reasonableness of a by-law of a corporation is purely a question of law. Whether the
by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense
unreasonable and therefore unlawful is a question of law. This rule is subject, however, to the limitation
that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the
judgment of those who are authorized to make by-laws and who have exercised their authority.

In this jurisdiction, under Section 21 of the Corporation Law, a corporation may prescribed in its by-laws
“the qualifications, duties and compensation of directors, officers and employees. This must necessarily
refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides
that “every director must own in his right at least one share of the capital stock of the stock corporation
of which he is a director It is obviously to prevent the creation of an opportunity for an officer or director
of San Miguel Corporation, who is also the officer or owner of competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or corporate
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interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned
amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial
sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his
duty, to satisfy his loyalty to both corporations and place the performance of his corporate duties above
his personal concerns. There is another important consideration in determining whether or not the
amended by- laws are reasonable. The Constitution and the law prohibit combinations in restraint of
trade or unfair competition. Thus, Section 2 of Article XIV of the Constitution provides: “That State shall
regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint
of trade or unfair competition shall be allowed.”

While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence
that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be
due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered
by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of
directors to act with fairness to the stockholders.

Requirements and procedure for adoption of by-laws:

1. The by-laws must not be inconsistent with the Code;

2. If adopted prior to incorporation:
a. Approved and signed by all the incorporators;
b. Submitted together with the articles of incorporation to the SEC;
3. If adopted subsequent to incorporation:
a. Adopted within one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the SEC;

b. Affirmative vote of the stockholders representing at least a majority of the outstanding capital
stock, or of at least a majority of the members in case of non- stock corporations,

c. Signed by the stockholders or members voting for them

d. Kept in the principal office of the corporation, subject to the inspection of the stockholders or
members during office hours.
e. A copy thereof, duly certified to by a majority of the directors or trustees countersigned by the
secretary of the corporation, must be filed with the SEC which shall be attached to the original
articles of incorporation.

4. Certification of the appropriate government agency concerned to the effect that such by- laws or
amendments are in accordance with law.

5. Issuance by the Securities and Exchange Commission of a certification that the by-laws are not
inconsistent with this Code.

Contents of by-laws:

1. The time, place and manner of calling and conducting regular or special meetings of the directors
or trustees;
2. The time and manner of calling and conducting regular or special meetings and mode of notifying
the stockholders or members thereof;
3. The required quorum in meetings of stockholders or members and the manner of voting therein;
4. The modes by which a stockholder, member, director, or trustee may attend meetings and cast
their votes;
5. The form for proxies of stockholders and members and the manner of voting them;
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6. The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the maximum number of other board
representations that an independent director or trustee may have which shall, in no case, be
more than the number prescribed by the Commission;
7. The time for holding the annual election of directors of trustees and the mode or manner of
giving notice thereof;
8. The manner of election or appointment and the term of office of all officers other than directors
or trustees;
9. The penalties for violation of the bylaws;
10. In the case of stock corporations, the manner of issuing stock certificates; and
11. Such other matters as may be necessary for the proper or convenient transaction of its corporate
affairs for the promotion of good governance and anti-graft and corruption measures.
12. An arbitration agreement may be provided in the bylaws pursuant to Section 181 of this Code.

Elements of a valid by laws:

1. It must not be contrary to law, public policy or morals.

2. It must not be inconsistent with the articles of incorporate.

3. It must be general and uniform in its effect or applicable to all alike or those similarly situated.

4. It must not impair obligations

5. It must be reasonable.

By-laws are subordinate to the articles of incorporation, the Corporation Code and other statutes which form part
of the corporate charter.

By-laws become effective only upon the approval of the SEC