Corporation Law: The Revised Corporation Code of the Philippines - Sec 47

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES

Republic Act No. 11232 

TITLE V - BYLAWS

Section 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 owner of two-thirds (2/3) of the outstanding capital stock or two-third (2/3) of the members in a nonstock corporation mat 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 trustee to amend or repeal the bylaws or adopt new bylaws shall be considered as revoke 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.

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 majority of the directors or trustees.

The amended or new bylaws shall only be effective upon the issuance by the Commission of certification that the same is in accordance with this Code and other relevant laws.

1. Two Ways to Amend By-Laws.

  • There are two ways of amending the By-Laws under Section 47 of the RCCP. 
  • Amendment can be made:
    • by the stockholders/members together with the Board, or 
    • by the Board only after due delegation by the stockholders/ members
 a. Amendment by the Board and Stockholders.

  • The general rule is that amendments shall be approved by a majority vote of the Board of Directors or Trustees and by 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.
  • In the absence of an express provision denying the right to vote by proxy in the Articles of Incorporation or By-Laws, proxies may validly amend the corporation's By-Laws.
b. Delegation to the Board.

  • The Board alone can amend the By-Laws if there is prior delegation of such power by the stockholders/members. 
  • 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 the By-Laws or to adopt new By-Laws.

c. Revocation of Delegated Power. 

  • It is provided, however, that any power delegated to the Board of Directors or Trustees to amend or repeal the By-Laws or adopt new By-Laws shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporations, shall so vote at a regular or special meeting. 
  • Senator Salonga observed that the evident intent of the legislature is to make delegation of the power in favor of the directors to amend, repeal or adopt a new set of By-Laws rather difficult and the revocation of the authority, easy. 
    • "The revocation of the delegated authority may be taken at any properly constituted meeting, whether general or special, and in case of a special meeting it would not even seem necessary to call it for the purpose. The legislative intent is to distribute on a wider level, within the corporate structure, the power to exercise effective control."
d. Stockholders Meeting Required. 
  • A stockholders' meeting is necessary both for:
    • the delegation of the power to amend the By-Laws and 
    • the revocation of the delegated power. 
  • The legislative intent appears to be that as the delegation of power is an unusual act, the law has properly made it difficult to do so. 
  • The provision should be strictly construed against delegation. 
    • Thus, if the revocation of the delegated power requires a stockholders' meeting, there is no reason why a meeting is not also required in the delegation of such power. 
    • If the rule is otherwise, the delegation will be made much easier than its revocation that is inconsistent with the intent of the provision to make the delegation more difficult to obtain.
2. Modification of Requirements in the By-Laws. 
  • The required vote of the stockholders and members under Section 47 must be followed in order for the amendment to be valid. 
  • For instance, although the By-Laws may provide for a different quorum, it must still be in accordance with the RCCP that specifically provide for the minimum requirements of stockholder or membership votes in case of amendments. 
  • These minimum requirements cannot, for example, be lowered to a mere vote of 25% or 1/4 of the outstanding capital stock or members. 
  • The By-Laws may, however, provide for a greater number of votes but a unanimous vote is never required.
3. Filing with SEC.
  • Section 47 provides that the amended By-Laws shall be filed with the SEC. 
  • Section 47 likewise provides that the amended or new By-laws shall only be effective upon the issuance by the SEC of a certification that the same is accordance with the RCCP and other relevant laws. 
    • "This is in keeping with the policy of making the By-Laws, along with the articles of incorporation, a matter of public record so that any person can, at all responsible times, inspect the records. of the Commission relating to corporations. The public is rightly entitled to a fair and full disclosure of corporate matters affecting, or likely to affect, its interest."
  • If the SEC approves the amended By-Laws (and the Articles of Incorporation), the approval has the presumption of regularity. 
  • The regularity of the performance of the functions of government officials is presumed and strong evidence is necessary to rebut this presumption.

PROBLEMS:
At the annual stockholders' meeting of MS Corporation, the stockholders unanimously passed a resolution authorizing the Board of Directors to amend the corporate By-Laws so as to disqualify any stockholder who is also a director or stockholder of a competing business from being elected to the Board of Directors of MS Corporation. The By-Laws were accordingly amended. GK, a stockholder of MS Corporation and a majority stockholder of a competitor, sought election to the Board of Directors of MS Corporation. His nomination was denied on the ground that he was ineligible to run for the position. Seeking a nullification of the offending disqualification provision, GK consults you about its validity under the Corporation Code of the Philippines. (B.P. Blg. 68) What would your legal advice be?
I will advise GK that he cannot have the disqualification provision in the amended By-Laws nullified, provided that the SEC has already issued a certification that the same is in accordance with the RCCP. The stockholders' approval of the delegation of authority to the Board to amend the By-Laws meets the 2/3-vote requirement under Section 48 of the Corporation Code (now Section 47 of the RCCP). Moreover, it is well-settled that the provision in the amended By-Laws, disqualifying any stockholder who is also a director or stockholder of a competing business from being elected to the Board of Director is valid. The disqualification is not inconsistent with the provisions of the Corporation Code.

The Board of Directors of C Corporation, engaged in the manufacture of food products, acting on a standing authority of the stockholders to amend the By-Laws, amended the By-Laws so as to disqualify any stockholder, who is also a stockholder and director of the competitor, from being elected to its Board of Directors. S, a stockholder holding sufficient shares to assure him a seat in the Board filed a petition with the Securities and Exchange Commission for the declaration of nullity of the amended By-Laws and the cancellation of the Certificate of Filing of amended By-Laws. He alleged, among others, that as stockholder, he had acquired rights inherent in the stock ownership such as the right to vote and be voted upon in the election of directors. Reason upon the merits of the stockholder's petition. 
The petition has no merit. The Board amended the By-Laws upon authority of the stockholders. As long as the authority to amend the By-Laws was delegated to the Board by the owners of at least 2/3 of the outstanding capital stock, the delegation is valid and so is the amended By-Laws approved by the Board pursuant to such delegation. Moreover, the amendment in the By-Laws of C Corporation is reasonable and valid. The doctrine is based on the principle that a director cannot serve two masters so to speak. There is a danger that the director will give preference to one corporation. The disqualification is only a measure of self protection against directors who may betray the corporation by giving preference to the other. (See Gokongwei, Jr. v. SEC, April 11, 1979, 89 SCRA 336) (1981 Bar, See also 2001 Bar)

Mr. S worked with PV Corporation as administrator from May 1, 1981 to December 31, 1983. His contract of employment was not renewed after it expired but he continued working for PV Corporation even without a written contract. In 1987, PV amended its By-Laws making the position of an administrator co-terminus with the term of the Board of Directors, which appointed him. Mr. S was thereafter terminated allegedly because his term was not renewed after the same expired. Mr. S filed a complaint for illegal dismissal and PV resisted the complaint arguing that Mr. S was validly dismissed pursuant to the amended By-Laws. Is the position of PV Corporation tenable?
No, the position of PV Corporation is untenable. Amendments to the By-Laws cannot impair the obligation of existing contracts or any vested right. Petitioner is a regular employee who is entitled to security of tenure; hence, his services may only be terminated for causes provided by law. Such security of tenure cannot be adversely affected by any amendment in the By-Laws. (Salafranca v. Philamlife [Pamplona} Village Homeowners Association, Inc., 300 SCRA 169)





Comments

Post a Comment

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Sovereign Equality of States/Principle of sovereign equality UN Charter of 1945 All states are equal before international law no matter the size of their territory, population, economy or military. All states have equal rights and duties under international law, and that no state has the right to interfere in the internal affairs of another state. Positive Consequences: All states have a voice in international affairs .   All states have the opportunity to participate in international organizations and to negotiate and conclude treaties. This helps to ensure that the interests of all states are represented in the development of international law and policy. No state has the right to interfere in the internal affairs of another state.  This helps to protect the sovereignty of all states and to prevent the use of force or coercion to achieve political objectives. States have the right to develop their own political, economic, and social systems without interference from othe...
Read more

Commercial Laws 1: R.A. No. 11057 — Personal Property Security Act

  Commercial Law TITLE XVI Personal Property Security Act Micro, Small and Medium Enterprises are sources of growth and innovation. They contribute to and benefit from future growth. Their increased participation in global trade "can have significant impact in reducing poverty through employment creation, productivity improvements and economies of scale." Congress passed the Personal Property Security Act in order to provide Micro, Small and Medium Enterprises (MSMEs) more access to "credit at the least cost through the establishment of a unified and modern legal framework for securing obligations with personal property ." It was explained:  According to the 2015 Philippine Statistics Authority data, there are 896,839 micro-small and medium enterprises (MSMEs) that established in the Philippines.  These MSMEs generated a total of 4,784,870 jobs in 2015 versus 2,181,819 for the large enterprises.  This indicates that the MSMEs contributed almost 61 % o...
Read more

Land Title and Deeds: Chapter 1 — What Lands are Capable of Being Registered

Chapter I What Lands are Capable of Being Registered All lands in the Philippines are presumed to be lands of the public domain, and therefore, owned by the State. This rule finds support in Section 2, Article XII of the 1987 Constitution:  Section 2 . All lands of the public domain , waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State . With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be fo...
Read more