TITLE V- BYLAWS

TITLE V
BYLAWSS

What are by-laws? Explain its nature.

laws enacted
By-laws signifies the rules and regulations or private
affairs and
by the corporation to regulate, govern and control own actions,
its
concerns and its stockholders or members and directors and officers
with
relation thereto and among themselves in their relation to it. In other words,
rules of action adopted
by-laws are the relatively permanent and continuing
and that of the individuals
by the corporation for its own government
and control of its affairs,
composing it and having the direction, management,
in whole or in part, in the management and control
of its affairs and activities.

What is the purpose ofa by-law?

The purpose of a by-law is regulate the conduct and define the
to
themselves.
duties of the members towards the corporation and among
They are self-imposed and, although adopted pursuant statutory authority
to
have no status as public law. (9 Fletcher 4166, 1982 Ed.)1

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
majority ofthe directors or trustees and
copy thereof, duly certified by a
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,

bylaws may be adopted and filed prior to incorporation; in such case,
such bylaws 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,
 TITLE V- BYLAWS

educational institution, or other special corporations governed by

special laws, unless accompanied by a certificate of the appropriate
amendments are in
government agency to the effect that such bylaws or
accordance with law.

It should be stressed in this connection that substantial compliance

with conditions subsequent will suffice to perfect corporate personality.
business are
Organization and commencement of transaction of corporate
but conditions subsequent and not prerequisites for acquisition of corporate

personality.
is also a condition
To reiterate, the adoption and filing of by-laws
subsequent2

Are third persons bound by by-laws?

It is the generally accepted rule that third persons are not bound by
either actually
by-laws, except when they have knowledge of the provisions
or constructively.
In the case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme
Court held that the by-law restricting the transfer of shares cannot have any
no knowledge of
effect on the transferee of the shares in question as he "had
such by-law when the shares were assigned to him. He obtained them in good
to the contract
faith and for a valuable consideration. He was not a privy
.and the Botica Nolasco, Inc.
created by the by-law between the shareholder. .

Said by-law cannot operate to defeat his right as a purchaser.3

By-laws are subordinate to the Articles of Incorporation

of the corporation
By-laws may be necessary for the "government"
as well as to the
but these are subordinate to the articles of incorporation
cases where by-laws
Corporation Code and related statutes. There are, in fact,
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 notnecessary either to the
existence ofa corporation or to the valid
exercise of the powers conferred upon it, certainly
in all cases where the
and even
charter sufficiently provides for the government of the body;
where the governing statute in express terms confers upon the corporation
will be
the power to adopt by-laws, the failure to exercise the power
acts of the
ascribed to mere nonaction which will not render void any
corporation which would otherwise be valid
TITLE V- BYLAWS

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its
life, and that until by-laws have been adopted the corporation may not be
able to act for the purposes of its creation, and that the first and most
important duty ofthe members is to adopt them. This would seem to follow
the office and functions of by-laws. Viewed in
as a
matter of principlefrom
this light, the adoption ofby-laws is a matter ofpractical, ifnot one oflegal,
necessity. Moreover, the peculiar circumstances attending theformation of
a corporation may impose the obligation to adopt certain by-laws, as in the
case ofa close corporation organized for specific purposes. And the statute
or generallawsfrom which the corporation derives its corporate existence
may expressly require it to make and adopt by-laws and specijjy to some
extent what they shall contain and the manner of their adoption. The mere
fact, however, ofthe existence ofpower in the corporation to adopt by-laws
does not ordinarily and of necessity make the exercise of such power
essential to its corporate life, or to the validity of any of its acts.

Althouahthe Cornoration Codereauires the filing ofhy-laws.it doesnot

expressly provide for theconseauences ofthenon-filina ofthe samnewithin the
period provided for in Section 46 (Now Section 45, Revised Corporation
Code). However, such omission has been rectified by Presidential Decree No.
902-A, the pertinent provisions on the jurisdiction of the SEC of which state:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission

shall possess the following powers:
XXX XXX XXxx
(1) To suspend, or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law,
including the following:
XXX
5. Failure to file by-laws within the required period;
XXX

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 (Now Section
45, Revised
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
TITLE V BYLAWS -

must be given the chance to explain their neglect or omission and remedy the
same.4

By-laws are indispensable to corporations

As the "rules and regulations or private laws enacted by the
and
corporation to govern and control its own actions, affairs
regulate,
concerns and its stockholders or members and directors
and officers with
relation thereto and among themselves in their relation to it," by-laws
are
be
indispensable to corporations in this jurisdiction. These may not
corporate birth but certainly, these are required by law for
an
essential to
failure to
orderly governance and management of corporations. Nonetheless,
file them within the period required by law by no means tolls the automatic
dissolution of a corporation.5

Effect of substantial compliance with by-laws (condition subsequent)

It should be stressed in this connection that substantial compliance
with conditions subsequent will suffice to perfect corporate personality.
Organization and commencement of transaction of corporate business are
but conditions subsequent and not prerequisites for acquisition of corporate
personality. The adoption and filing of by-laws is also a condition
subsequent. xxx a Corporation commences its corporate existence and
juridical personality and is deemed incorporated from the date the Securities
and Exchange Commission issues certificate of incorporation under its
official seal.6

ADOPTION OF BY-LAWS
I. Before incorporation (Pre-incorporation)
The by-laws must be signed and approved by all the incorporators
and filed with the SEC together with the articles of incorporation.
IL. After incorporation (Post-incorporation)
The affirmative vote of the stockholders representing atleast a
majority of the outstanding capital stock, or of at least a majority of the
members shall be necessary. The by-laws shall be signed by the
stockholders or members voting for them.

Articles of incorporation vs. By-laws

Articles olincorporaLon
88880888088 By-laws
It is a condition precedent in the | It is a condition subsequent. Its
acquisition of corporate existence. absence merely furnishes a ground
for the revocation of the franchise
or certificate of registration.
TITLE V BYLAWS

It constitutes the charter It is the rules and regulations

or
fundamental law of the corporation. adopted by the corporation.
It is executed before incorporation. | It is executed before or after
incorporation.
It is amended by a majority of the It may be amended by a majority
board of directors or trustees and vote of the board of directors and
stockholders representing 2/3 of majority vote of outstanding capital
the outstanding capital stock, or 2/3 stock or a majority of the members
of the members in case of non-stock | in non-stock corporation.
Corporation.
The power to amend or repeal the | The power to amend or repeal by-
articles of incorporation cannot be laws or adopt new by-laws may be
delegated by the stockholders or | delegated by the 2/3 of the
members to the board of directors outstanding capital stock or 2/3 of
or trustees. the members in the case of non-
| stock corporation.
Effectivity of by-laws
Upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are in accordance with the Revised Corporation
Code.

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;
( 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
that an independent director or trustee representations
may have which
shall, in no case, be more than the number
the Commission; prescribed by
 TITLE V - BYLAWS

() The time for holding the annual election of directors or

trustees and the mode or manner of giving notice
thereof;
(h) The manner of election or appointment and the term of
office ofall officers other than directors or trustees;
) The penalties for violation of the
0)
bylaws;
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 agreementmay be
provided in the bylaws pursuant
to Section 181 of this Code.

Note:
A private corporation may provide in its bylaws the modes by whichia
stockholder, member, director, or trustee may attend meetings and cast their vote:

Note:
A private corporation may provide in its bylaws the maximum number of
other board representations that an independent director or trustee may have
which shal, in no case, be more than the number prescribed by the SEC.

Note:
Arbitration agreement may be provided in the bylaws.
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 ofa
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 nonstock 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 ofthemembers shall so vote ata regular or special meeting.

Whenever the bylaws are amended or new bylaws are adopted,

the corporation shall file with the Commission such amended or new
bylaws and, if applicable, the stockholders' or members' resolution
TITLE V - BYLAWS

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.

AMENDMENT OF BY-LAWS

General Rule:
The board of directors or trustees, by a majority vote thereof, and the
owners of at least a majority of the outstanding capital stock, or at least a
majority of the members of a non-stock corporation, at a regular or special
meeting duly called for the purpose, may amend or repeal any by-laws or
adopt new by-laws.

Exception:
The owners of 2/3 of the outstanding capital stock or 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 any by-laws or adopt new by-laws.
Note:
Any power delegated to the board of directors or trustees to amend or
repeal any by-laws or adopt new by-laws shall be considered as revoked whenever
stockholders owning or representing a majority
a majority of the members in
of the outstanding capital stock or
non-stock corporations, shall so vote at a regular or
special meeting.
Note:
The amended or new
by-laws shall only be effective upon the issuance by
the SEC ofa certification that the same in
accordance with the Revised Corporation
Code and other relevant laws.

Binding effects of the by-laws

1. As to directors or trustees, officers, and stockholders or members
They are bound and must comply because they are presumed to
know the provisions of the
2. As to third
by-laws.
persons
They are not bound unless they have
knowledge of the by-laws.