By-Laws

By-laws are regulations, ordinances, rules or

laws adopted by an association or corporation
for its internal governance, including rules for
routine matters such as calling meetings. [SMC
v. Mandaue, G.R. No. 152356 (2005)]
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, 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, 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.
Salient Points:

Adoption of By-Laws

May be done either:

1. Prior to incorporation - approved and signed by all the
incorporators and submitted to SEC together with Articles of
Incorporation; or

2. After incorporation - The requirement of adoption of by-laws

one (1) month after receipt of the notice of issuance of certificate
of incorporation has been deleted in the RCC. [Sec. 45]

By-laws must now be filed together with the articles of

incorporation. It can no longer be filed within one month from
notice of issuance of the certificate of incorporation.
REQUISITES OF VALID BY-LAWS

Approval requirement: Must be approved by the affirmative vote of the

stockholders representing at least a MAJORITY of the outstanding capital
stock, or majority of members. [Sec. 45]

If filed pre-incorporation: Must be approved and signed by all

incorporators.

Record-Keeping: Must be kept in the principal office of the corporation,

subject to inspection by any director, trustee, stockholder or member of
the corporation in person or by a representative at reasonable hours on
business days. [Sec. 45]

Filing with SEC: A copy of the by-laws 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. [Sec. 45]
Function of By-laws
- supplement the articles of incorporation. They
provide the details not important enough to be stated in
the articles.

The function of by-laws is to define the rights and duties

of corporate officers and directors or trustees, and of
stockholders or members towards the corporation and
among themselves with reference to the management of
corporate affairs and to regulate transaction of the
business of the corporation in a particular way. By-laws
are a source of authority for corporate officers and agents
of the corporation.
Binding effect of Bylaws:

1. As to the corporation and its officers – Bylaws, as the self-

imposed private laws of a corporation, have, when valid,
substantially the same force and effect as laws of the
corporation as have the provisions of its charter insofar as
the corporation and the persons within it are concerned.
They are in effect written into the charter and in this
sense, they become a part of the fundamental law of the
corporation.
2. The corporation and its directors/trustees and officers are
bound by and must comply with them unless and until
they are changed, amended, or repealed in accordance
with Section 47. But subordinate employees without actual
knowledge of the bylaws are not bound
Binding effect of Bylaws:

3. As to stockholders or members
- As a general rule, the stockholders or members of a
corporation are presumed to know the provisions of the
corporation’s by-laws.

4. As to third persons
The weight of authority is that they are not bound by the
by-laws of a corporation since the bylaws operate merely as
internal rules among the stockholders. The exception is when
the third person has knowledge of its provisions either
actually or constructively at the time the transaction in
question was entered into.
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 or trustees and
the mode or manner of giving notice thereof;
SEC. 46. Contents of Bylaws. – A private corporation may provide the
following in its bylaws:

(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.
Salient Points:

1. The modes by which a stockholder, member, director, or trustee may

attend meetings and cast their votes must now be provided in the
bylaws.

2. The Revised Corporation Code provides that the by-laws may

included a provision in which the modes by which a stockholder,
member, director, or trustee may attend meetings and cast their
votes. This is in congruence to the Revised Corporation Code’s
allowance of voting in absentia.

3. The Revised Corporation Code gives the corporation the power to

prescribe in the AOI or BYLAWS a number greater than the majority
of the members of the board of director or trustees to constitute a
quorum.
Salient Points:

4. Place of meeting
- Board of director’s or trustees’ meeting may be held at the place
determined in the bylaws (can be anywhere in the world)
- Stockholders’ or members’ meeting must always be held at the
city or municipality where the principal office of the corporation is
located or if practicable in the principal office of the corporation.

5. Proxies
- with respect to proxies of stockholders and members, the by-laws
may provide for a) the form of such proxies and b) the manner of voting
them subject to Section 56.

6. Disqualification for position of director.

- the bylaws may validly provide for disqualification for the position
of directors (ex. No person shall be a director if he or she is engage in a
business similar to that of the corporation)
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 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 of the
members shall so vote at a regular or special meeting.
SEC. 47. Amendment to Bylaws. –

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 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
Effected by:

majority vote of the members of the board and majority vote of owners of the
Outstanding Capital Stock or members, in a meeting duly called for the purpose.
[Sec. 47]
APPROVED BY BOARD OF DIRECTORS
(MAJORITY VOTE)

APPROVED BY STOCKHOLDERS/MEMBERS
(MAJORITY VOTE of owners of the
Outstanding Capital Stock)

Delegation of Amendment of By-Laws to the Board

of Directors or Trustees
Effected by:
By vote of stockholders representing 2/3 of the Outstanding Capital Stock or
2/3 of the members.
Filing with SEC
Whenever the bylaws are amended or new bylaws are adopted, the
corporation shall file with the Commission:
(1) Such amended or new bylaws; and,
(2) 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. [Sec. 47]

Effectivity of Amended By-Laws

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. [Sec. 47]
MEETINGS
KINDS OF MEETINGS

1. Meetings of stockholders or members

a. Regular or those held annually on a date fixed in the
bylaws, or if not so fixed, on any date after April 15 of
every year as determined by the board of directors or
trustees. It is held principally for the purpose of electing
another set of directors or trustees;
b. Special or those held at any time deemed necessary or
as provided in the bylaws
2. Meetings of directors or trustees
a. Regular or those held by the board monthly, unless the
by-laws provide otherwise; or
b. Special or those held by the board at any time upon the
call of the PRESIDENT or as provided in the by laws.
 REGULAR MEETING VS. SPECIAL MEETING
REGULAR MEETING SPECIAL MEETING
When Annually on a date fixed by the by-laws. Any time deemed
necessary or as provided
If not fixed, on any date AFTER April 15 of in the by-laws [Sec. 49]
every year as determined by the BOD/BOT
[Sec. 49]
Written General Rule : Sent at least 21 days prior to General Rule : At least 1
Notice the meeting week written notice
(CALL)
Exception : A different period is required by Exception : A different
the bylaws, law or regulation. period is provided in the
by-laws, law or regulation
Written notice may be sent to all [Sec. 49]
stockholders or members of record through
electronic mail or such other manner as the
SEC shall allow [Sec. 49]
Quorum General Rule: Stockholders representing majority of the outstanding
capital stock or majority of the members.
Exception: The Code or the by-laws provide otherwise. [Sec. 51]
REGULAR MEETING VS. SPECIAL MEETING
REGULAR MEETING SPECIAL MEETING
Notice of meetings shall be sent through means of communication
provided in the by-laws and must contain :
1. Time ;
2. Place ;
3. Purpose;
4. Agenda ;
5. Proxy form which shall be submitted to the corporate secretary within
a reasonable time before the meeting ;
6. When attendance, participation and voting are allowed by remote
communication or in absentia, the requirements and procedures to be
followed when a stockholder/members elects either option ;
7. When the meeting is for election of directors/trustees, the
requirements and procedure for nomination and election [Sec. 50]
 REGULAR MEETING VS. SPECIAL MEETING
REGULAR MEETING SPECIAL MEETING
Where Stock Corporations (STOCKHOLDERS)
General Rule : Principal office of the corporation as set forth in the AOI

Exception : If not practicable, in the city or municipality where the

principal office of the corporation is located.

Note : Any city or municipality in Metro Manila, Metro Cebu, Metro

Davao and other Metropolitan areas shall be considered a city or
municipality [Sec. 50].

Non-stock Corporations
Any place even outside the place where the principal office of the
corporation is located, as long as within Philippine territory and proper
notice is sent to all members. [Sec. 92]
Requisites for a valid meeting of STOCKHOLDERS or MEMBERS
1. It must be held at the proper place
2. It must be held at the stated date and at the appointed
time or at a reasonable time thereafter
3. It must be called by the proper person
4. There must be a previous notice
5. There must be a quorum

If the meeting is held at an unauthorized place or without

proper notice and not all the stockholders or members are
present, those who have a right to complain may take steps to
set aside any action taken at such meetings even though a
majority of the stockholders or members were present in the
absence of waiver, estoppel, or ratification.
Voting Requirement (minimum requirement)

1. To amend the Articles of Incorporation

- A majority of the board of directors (BOD) or board of trustees (BOT)
and vote or written assent of 2/3 of the Outstanding Capital Stock (OCS)
or of the members (M)
2. To elect director or trustees
- A majority of the OCS or M entitled to vote
3. To remove director or trustees
-2/3 of the OCS or of the M entitled to vote
4. To call a special meeting to remove director or trustees
- Majority of the OCS or of the M entitled to vote
5. To ratify a contract of a director/trustee or officer with the corporation
- 2/3 of the OCS or of the M
6. To extend or shorten corporate term
- Majority of the BOD or BOT and 2/3 of the OCS or of the M
7. To increase or decrease the capital stock
- Majority of the BOD and 2/3 of the OCS
8. To incur, create or increase bonded indebtedness
- Majority of the BOD or BOT and 2/3 of the OCS or of the M
Voting Requirement (minimum requirement)

9. To sell, lease, exchange, mortgage, pledge or otherwise dispose of all or

substantially all of the corporate assets
- Majority of the BOD or BOT and 2/3 of the OCS or the M

10. To invest corporate funds in another corporation or business or for any

purpose other than the primary purpose
- a majority of the BOD or BOT and 2/3 of the OCS or M

11. To issue stock dividends

- a majority of the quorum of the BOD and 2/3 of the OCS

12. To enter into a management contract

- a majority of the quorum of the BOD or BOT and a majority of the OCS
or of the M of both the managing and the managed corporation, and in
some case, 2/3 of the total OCS entitled to vote or of the members with
respect to the managed corporation
Voting Requirement (minimum requirement)

13. To adopt by-laws

-majority of the OCS or M

14. To amend or repeal the bylaws or adopt new bylaws

- majority of the BOD of BOT and the OCS or of the M

15. To delegate to the board of directors or trustees the power to amend or

repeal the bylaws or adopt new bylaws
- 2/3 of the OCS or of the M

16. To revoke the preceding power delegated to the BOD or BOT

- majority of the OCS or of the M

17. To fix the issued price of no par value shares

- a majority of the quorum of the BOD if authorized by the AOI or in the
absence of such authority, by a majority of the OCS
Voting Requirement (minimum requirement)

18. To effect or amend a plan of merger or consolidation

- a majority of the BOD or BOT and 2/3 of the OCS or of the
M of the constituent corporations;

19. To dissolve the corporation

- a majority vote of the BOD or BOT and 2/3 of the OCS or of
the M

20. To adopt a plan of distribution of assets of a nonstock

corporation
- a majority vote of the BOT and 2/3 of the members having
voting rights
SEC. 52. Regular and Special Meetings of Directors or Trustees;
Quorum. – Unless the articles of incorporation or the bylaws
provides for a greater majority, a majority of the directors or
trustees as stated in the articles of incorporation shall
constitute a quorum to transact corporate business, and every
decision reached by at least a majority of the directors or
trustees constituting a quorum, except for the election of
officers which shall require the vote of a majority of all the
members of the board, shall be valid as a corporate act.

Illustration:
DOUBLE MAJORITY:
15 DIRECTORS in the Articles of Incorporation
7 Directors to constitute a quorum (1/2 of BOD + 1) or (15/2 + 1 = 7)
4 votes is needed to transact corporate business
Meetings of directors or trustees of
corporations may be held anywhere in or
outside of the Philippines, unless the bylaws
provide otherwise. Notice of regular or special
meetings stating the date, time and place of the
meeting must be sent to every director or
trustee at least two (2) days prior to the
scheduled meeting, unless a longer time is
provided in the bylaws. A director or trustee
may waive this requirement, either expressly or
impliedly.
SEC. 53. Who Shall Preside at Meetings. – The
chairman or, in his absence, the president
shall preside at all meetings of the directors
or trustees as well as of the stockholders or
members, unless the bylaws provide
otherwise.
SEC. 55. Voting in Case of Joint Ownership of Stock. –
The consent of all the co-owners shall be necessary
in voting shares of stock owned jointly by two (2) or
more persons, unless there is a written proxy, signed
by all the co-owners, authorizing one (1) or some of
them or any other person to vote such share or
shares: Provided, That when the shares are owned in
an “and/or” capacity by the holders thereof, any one
of the joint owners can vote said shares or appoint a
proxy therefor.
Manner of VOTING of STOCKHOLDERS or MEMBER

1. Directly ( in person) or

2. Indirectly, through representative –

a. By means of Proxy
b. By a trustee under a voting trust agreement
c. By executors, administrators, receivers, or
other legal representatives duly appointed by
the court.
SEC. 57. Manner of Voting; Proxies. – Stockholders and
members may vote in person or by proxy in all meetings of
stockholders or members.

When so authorized in the bylaws or by a majority of the

board of directors, the stockholders or members of
corporations may also vote through remote communication
or in absentia: Provided, That the votes are received before
the corporation finishes the tally of votes.

A stockholder or member who participates through remote

communication or in absentia, shall be deemed present for
purposes of quorum.
Meaning of PROXY

1. A proxy, as the term is used, designates the formal written authority

given by the owner or holder of the stock, who has a right to vote it, or
by a member, as principal, to another person, as agent, to exercise the
voting rights of the former.
2. It is also used to apply to the holder of the authority or person
authorized by an absent stockholder or member to vote for him at a
stockholders’ or members’ meeting.
3. The term is also applied to refer to the instrument which evidences the
authority of the agent.

A proxy is thus a special form of agency.

Purpose and Use of PROXIES

1. Presence of quorum in meetings
2. Exercise of right to vote though absent
3. Voting and management control
Meaning of PROXY

Who may be a Proxy?

- Section 57 imposes no limitation as to the
persons who may be appointed as proxy. Hence, a
stockholder or member may appoiont any person he
sees fit to represent him.

- Th same person may act as proxy for one or

several stockholders or members

DIRECTORS or TRUSTEES cannot attend or vote by

proxy at BOARD MEETINGS but they may act as
proxies in stockholders’ meetings.
Limitations on Proxies of Stockholders or Members

1. Proxies must be in writing signed by the stockholder

or member and filed before the scheduled meeting
with the corporate secretary. Oral proxies are NOT,
therefore, valid.
2. Unless otherwise provided in the proxy, it is valid
only for the meeting for which it is intended. The
authority may be general or limited; and
3. A continuing proxy must be for a period not
exceeding FIVE (50 years at any one time;
otherwise, it shall not be valid and effective after
such period.
4. Proxies are considered as REVOCABLE.
SEC. 58. Voting Trusts. – One or more stockholders of a 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
specifically 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 loan. 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 unenforceable. The
certificate or certificates of stock covered by the voting trust
agreement shall be cancelled and new ones shall be issued in the
name of the trustee or trustees, stating that they are 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.
Voting Trust Agreement
- an agreement in writing whereby one or more
stockholders of a stock corporation transfer their
shares to any person or persons or to a corporation
having authority to act as a trustee for the purpose
of vesting in such person or persons or corporation as
trustee or trustees voting or other rights pertaining to
the shares for a certain period not exceeding that
fixed by the Code and upon the terms and conditions
stated in the agreement.
Voting Trust Agreement
- A voting trust agreement transfers only voting or
other rights pertaining to the shares subject of the
agreement, or control over the stock, not the
properties or assets of the corporation. Under such
agreement, title to the shares conveyed is transferred
to the trustee on the books of the corporation. The
certificates of stock covering said shares are
surrendered and cancelled and new certificates are
issued in the name of the voting trustee in which new
certificates as well as in the entry of transfer on the
books it shall appear that they are issued pursuant to
said agreement.
Voting Trust Agreement
- By its very nature, a voting trust agreement
results in the separation of the voting rights of a
stockholder from his other rights. In such agreement,
the transferring stockholder of a stock corporation
parts with the voting power ONLY but retains the
equitable or beneficial ownership of the stock. A
voting trustee is only a share owner vested with
colorable and fictitious title for the sole purpose of
voting upon stocks that he does not own.
Powers or rights of voting trustees

1. The trustee or trustees shall possess the right to vote and

other rights pertaining to the shares so transferred and
registered in his or their names subject to the terms and
conditions of and for the period specified in the
agreement
2. The trustee or trustees may vote in person or by proxy
unless the agreement provides otherwise;
3. They may exercise, like the transferor, the rights of
inspection of all corporate books and records; and
4. The trustee is the legal title holder or owner of the
transferred under the agreement. He is. Therefore,
qualified to be a director.
Limitations of Voting Trust Agreement

1. No voting trust agreement shall be entered into:

a. For a period exceeding five (5) years at any one time (i.e., for every
voting trust) except in the case of a voting trust specifically
requiring a longer period as a condition in a loan agreement, in
which case the period may exceed five (5) years but shall
automatically expire upon full payment of the loan;
b. The agreement must be in writing and notarized and specify the
terms and conditions thereof;
c. A certified copy of said agreement must be filed with the
corporation and with the Securities and Exchange Commission;
otherwise, it is ineffective and unenforceable;
d. Unless expressly renewed, all rights granted in the agreement
shall automatically expire at the end of the agreed period, but in
the case of a voting trust required as a condition in a loan
agreement, it shall continue until full payment of the loan.
 PROXY VS. VOTING TRUST AGREEMENT
1. A proxy has no legal title to the shares of the stockholder giving the agency, while
a trustee acquires legal title to the shares of the transferring stockholder;
2. A proxy, unless coupled with interest, is revocable at anytime, while a voting trust
agreement, if validly executed, is intended to be irrevocable for a definite and
limited period of time;
3. A proxy can only act at the specified stockholders’ or members’ meeting (if the
proxy is not continuing in nature), while a trustee is not limited to any particular
meeting;
4. A proxy votes only in the absence of the owner of the stock, while a trustee can
vote and exercise all the rights of the transferring stockholder even when the
latter is present;
5. A proxy is usually of shorter duration than a voting trust agreement, although
under the law the maximum duration of both cannot exceed five (5) years at any
one time;
6. A proxy need not be notarized nor a copy filed with the SEC, while voting trust
agreement must be notarized and a certified copy filed with the SEC; and
7. A proxy does not have a right of inspection of corporate books, while a trustee has
such righ.