Corporation Law: The Revised Corporation Code of the Philippines - Sec 45 and Sec 46

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES

Republic Act No. 11232 

TITLE V - BYLAWS

Section 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 on 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 maybe adopted and filed prior to incorporation; in such case, such bylaws shall be approved and signed by all 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 any other corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by laws or amendments are in accordance with law.


Section 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 trustees 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;

(h)The manner of election or appointment and the term of 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 maybe provided in the bylaws pursuant to Section 181 of this Code.


1. Concept. 

  • The By-Laws of a corporation are the rules and regulations or private laws enacted by the corporation to regulate, govern, and control its own actions, affairs and concerns and of its stockholders or members and directors and officers in relation thereto and among themselves in their relation to the corporation.
  • Stated differently, By-Laws are relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and those having the direction, management and control, in whole or in part, of its affairs and activities.
  • The By-Laws are in effect written into the charter and in this sense, they become part of the fundamental law of the corporation, and the corporation, its directors, officers and members are bound by and must comply with them.
  • The provisions of the By-Laws should be distinguished from resolutions of the Board. A provision in the By-Laws is a permanent rule of action and mode of conduct of corporate affairs while a Board resolution ordinarily applies only to a single act of a corporation.
    • Thus, the internal government of the corporation should be in the By-Laws not in a mere resolution. For example, additional qualifications of directors can be provided for in the By-Laws and they cannot be in a mere resolution.
    • Where the resolution of the directors is inconsistent with the By-Laws, the By-Laws will prevail.
2. Nature of Power.
  • The Supreme Court explained in one case that every corporation has the inherent power to adopt By-Laws for its internal government and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.
  • At common law, the rule was that the power to make and adopt By-Laws was inherent in every corporation as one of its necessary and inseparable legal incidents.
  • And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of self-government being essential to enable the corporation to accomplish the purpose of its creation.
3. Effect of Non-Adoption.
  • Unlike the provisions of Section 46 of the Corporation Code, Section 45 of the RCCP does not specify the period within which the By-Laws should be filed. 
  • Nevertheless, even under the prior law, it is also settled that the corporation is not automatically dissolved if no By-Laws are adopted within the period of one (1) month from receipt of official notice of the issuance by the SEC of its certificate of incorporation under Section 46 of the Corporation Code. 
  • The Supreme Court rejected a view that there is automatic dissolution of the corporation for non-submission of the By-Laws explaining that the records of the Batasang Pambansa when Section 46 of the Corporation Code (now Section 45 of the RCCP) was deliberated upon show no such intent. 
    • The 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.
    • The Supreme Court likewise explained that the law itself reflects the intent to attach a directory, and not mandatory, meaning for the word "must" in the first sentence of Section 46 of the Corporation Code.
  • It was observed that: "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 statute in expressed terms confers upon the corporation the power to adopt By-Laws, the failure to exercise the power will be ascribed to mere non-action which will not render void any acts of the corporation which would otherwise be valid."
    • This principle is consistent with the rule that the By-Laws can be filed after incorporation.
    • Hence, even without the By-Laws, the corporation exists as a juridical entity and can exercise the powers of a corporation. 
    • With respect to One Person Corporations, the RCCP is explicit that the filing of the By-Laws is not required.
  • The Supreme Court likewise relied on Fletcher who observed that: 
    • 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 of the members is to adopt them. This would seem to follow as a matter of principle from the office and functions of By-Laws. Viewed in this light, the adoption of By-Laws is a matter of practical, if not one of legal, necessity. 
    • Moreover, the peculiar circumstances attending the formation of a corporation may impose the obligation to adopt certain By-Laws, as in the case of a close corporation organized for specific purposes. And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and adopt By-Laws and specify to some extent what they shall contain and the manner of their adoption. 
    • The mere fact, however, of the existence of power 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.
  • Section 45 of the RCCP and Section 45 of the Corporation Code do not expressly provide for the consequences of the non-filing of the By-Laws. However, such omission has been rectified by Presidential Decree No. 902-A, Section 6 on the jurisdiction of the SEC of which states that the SEC has the power to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations for failure to file the By-Laws within the required period. 
  • However, since Section 45 of the RCCP does not provide a period within which the By-laws should be submitted, the SEC should issue the appropriate regulation for such purpose.
    • Thus, there can be no automatic corporate dissolution even under Section 6 of Presidential Decree No. 902-A simply because the incorporators failed to abide by the required filing of By-Laws embodied in Section 46 of the then 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. 
    • The Supreme Court reiterated in Sawadjaan v. Court of Appeals11 that a corporation, which has failed to file its By-Laws within the prescribed period, does not ipso facto lose its powers as such.
      • The procedures and remedies provided for under SEC rules governing the revocation of certificates of incorporation must be complied with. 
      • At the very least, a corporation that failed to submit the By-Laws "may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporation may be a party.
  • It was also stressed 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 are also conditions subsequent.
4. Procedure. 
  • The By-Laws may be adopted before or after incorporation. 
  • In all cases, the By-Laws shall be effective only upon the issuance by the SEC of a certification that the By-Laws are in accordance with the RCCP. 
a. Pre-Incorporation. 
  • The By-Laws shall be approved and signed by all the incorporators and submitted to the SEC together with the Articles of Incorporation. 
b. Post-Incorporation. 
  • After incorporation, the By-Laws shall be adopted by the corporation by the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock. In a non-stock corporation, the affirmative vote 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 and shall be kept in the principal office of the corporation and 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, countersigned by the secretary of the corporation, shall be filed with the SEC and shall be attached to the original Articles of Incorporation.
5. Requisites.
  • In addition to the procedural requirements for the adoption of the By-Laws and the required approval of the SEC, the following limitations are imposed for the validity of the By-Laws: 
  1. It must be consistent with the Constitution, RCCP, other pertinent laws and regulations;
  2. It must be consistent with the Articles of Incorporation; 
  3. It must not be contrary to morals or public policy;
  4. It must not disturb vested rights, impair contract or property rights of stockholders or members or create obligations not sanctioned by law. 
5.01. Must Not Be Contrary to Law. 
  • The By-Laws may be necessary for the "government" of the corporation but these are subordinate to the RCCP and related statutes.
  • In other words, the By-Law must not be contrary to the provisions of the RCCP and other laws. 
    • For example, a provision in the By-Laws creating a permanent seat in the Board of Directors is contrary to the provisions of the RCCP because the Code requires annual election of directors.
  • Similarly, the By-Laws cannot transfer executive responsibility to the managing directors or executive vice presidents as a means of evading the director's liability. Otherwise, it will undermine or neutralize the rationale for including provisions on director's liability in the RCCP. 
  • The fact that the provisions of the By-Laws, which are contrary to law, have not been questioned for several years cannot forestall the challenge to their validity. 
    • Neither can the By-Laws provisions attain validity through acquiescence because, if they are contrary to law, it is beyond the power of the members of the association to waive their invalidity.
  • Any action to have a provision of the By-Laws declared null and void for being contrary to law is imprescriptible.
    • However, amendment of the By-Laws is likewise an available remedy to correct the void provision of the By-Laws.
5.02. Must Not be Contrary to Articles of Incorporation.
  • The Articles of Incorporation should be given more weight than the By-Laws. 
    • This is reflected in Section 47 of the Corporate Code that provides that the contents of the By-Laws are subject to the provisions of the Articles of Incorporation.
  • While not carried over in the present text of Section 46 of the RCCP, it is believed that the same rule applies under the RCCP. 
    • Hence, in case of conflict, the provisions of the Articles of Incorporation shall prevail.
    • For example, the number of directors in the Articles of Incorporation shall be controlling and the By-Laws cannot provide for a different number.
  • The By-Laws cannot specify powers that are not expressly provided for or implied from the Articles of Incorporation. 
    • For example, if the power to guarantee debts of other corporations is not provided for in the Articles of Incorporation, the same cannot likewise be provided for in the By-Laws. 
    • In other words, the mere fact that the power to guarantee debts of other entities is provided for in the By-Laws will not cure the ultra uires nature of the act. ByLaws are subordinate to the corporate charter.
  • In this connection, there are matters that need to be stated in the Articles of Incorporation instead of the By-Laws. 
    • For instance, the number of shares, par value of shares, authorized capital stock, subscribed capital, and other fundamental provisions should be stated in the Articles instead of the By-Laws. Stating them in the By-Laws is not enough.
5.03. Must Not be Contrary to Morals and Public Policy. 
  • The provisions of the By-Laws must not be contrary to morals or public policy. 
  • Consequently, the provisions must be reasonable and must not be discriminatory, arbitrary, or oppressive upon the shareholders. 
  • For example, while additional qualifications can be provided for in the By-Laws, the same should be applicable to all shareholders and not merely to one or a group of shareholders. 
5.04. Vested Rights.
  • The provisions of the By-Laws must not disturb vested rights. 
  • For example, in Thomson u. Court of Appeals, the Supreme Court disallowed the absolute restriction imposed on the right to transfer shares of stock or proprietary membership in a corporation. 
  • In Salafranca v. Philamlife (Pamplona), the Court declared that amended By-Laws should not undermine the security of tenure of an employee by declaring non-existent an employee's position. 
    • In the said case, the provisions of the By-Laws were amended to provide that the position of the complainant was co-terminus with that of the directors. 
    • The Supreme Court said that the same cannot affect the rights of the complainant who was a regular employee who is entitled to security of tenure.
6. Binding Effect.
  • The provisions of the By-Laws are binding not only upon the corporation but also on its stockholder, members and those having direction, management and control of its affairs.
  • However, the provisions of the By-Laws are not binding on subordinate employees having no actual knowledge of the provisions thereof. 
  • As to third persons, the By-Laws provisions are also not binding unless there is actual knowledge. 
    • Third persons are not even bound to investigate the contents of the By-Laws because they are not bound to know that By-Laws are merely provisions for the government of a corporation. 
    • Notice to third persons will not be presumed.
    • Since the By-Laws operate merely as internal rules among the stockholders, directors and officers, they cannot affect or prejudice third persons who dealt with the corporation.
  • For example, provisions of the By-Laws on delinquency sale shall not be binding on a pledgee who was not aware of such provisions
    • It was alleged in one case that under the By-Laws, the corporation has the right to sell the shares that were the subject of the pledge for failure to settle the delinquent accounts of the shareholders. 
    • However, it was ruled that this provision cannot prejudice the rights of the pledgee who was without notice.
  • The Supreme Court ruled in PMI Colleges v. NLRC, that the provisions in the By-Laws enumerating the contract signatories of the corporation are not binding on third persons who signed a contract with the corporation as represented by the Chairman. 
    • The contract is binding even if the Chairman is not one of those enumerated as contract signatory.
7. Contents.
  • Section 46 of the RCCP provides for a list of matters that may be included in the By-Laws. 
    • However, paragraph (k) of Section 46 provides that the By-Laws may provide 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.
  • The By-Laws may provide for the time, place and manner of calling and conducting regular or special meetings of the directors or trustees and the time and manner of calling and conducting regular or special meetings of the stockholders or members. 
    • In default of provisions in the By-Laws, the rules provided for in Sections 49 and 50, as well as in Section 52 of the RCCP, shall govern. 
  • The By-Laws may provide for the required quorum in meetings of stockholders or members and the manner of voting therein.
    • In the absence of a provision in the By-Laws fixing a different quorum, the quorum shall consist· of the stockholders representing a majority of the outstanding capital stock or a majority of the members in case of non-stock corporations.
  • Certain mandatory formalities for proxies are provided for under Section 57 of the RCCP and Sections 20 to 20.5 of the Securities Regulation Code. 
    • However, the By-Laws may still provide for the form of proxies of stockholders and members and the manner of voting them so long as the same are not inconsistent with the provisions of law.
  • The qualifications, duties and guidelines for setting the compensation of directors or trustees and officers may be provided for in the By-Laws. 
    • The corporate officers, other than the President, Treasurer or Corporate Secretary, may be specifically identified in the By-Laws.
  • The By-Laws may provide for the time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof. In the absence of provisions in the By-Laws, the rules provided for under Section 49 of the RCCP apply.
  • The manner of election or appointment and the term of office of all officers other than directors or trustees appear in the By-Laws. 
    • The manner of election of directors may not be provided for because the provision on election of directors is mandatory. 
    • For, instance, the By-Laws of a stock corporation cannot dispense with cumulative voting. 
    • The By-Laws can also not provide that certain shareholders shall have two votes per share. 
  • The penalties for violation of the By-Laws may be provided for therein. 
    • If there is no penalty provided for in the By-Laws, the corporation is not precluded from using any other remedy provided by law. For instance, a corporation can still file an appropriate action in court based on tort.
  • In the case of stock corporations, the manner of issuing stock certificates may likewise be provided for. 
    • However, as stated earlier, the same cannot restrict or affect vested rights of stockholders. 
    • Thus, stockholders may not be deprived of their right to transfer their shares.
8. When By-Laws Prevail. 
  • A Board resolution must be consistent with the provisions of the By-Laws; otherwise, the resolution may be invalidated.
  • In the same manner, while directors may adopt internal rules, such internal rules must be consistent with the provisions of the By-Laws.
  • Agreements among shareholders must also be consistent with the provisions of the By-Laws.

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