Modules 12 & 13 UNREASONABLE, no legal provision,

misapplication of funds, prejudicial

MODULE 12: BY-LAWS
5. Consistent with AOI
Sec 45 (Express power)
6. Reasonable
By-laws – Rules and regulations or private laws
enacted to regulate, govern and control its own
actions, affairs and concerns and of its Birthday – upon the issuance by the SEC of a
stockholders or members and directors and officers certification that the by‐laws are not inconsistent
in relation thereto and among themselves in their with the AOI.
relation to it.
Corporate sole or Religious corps – governed by
- may include supplementary details to AOI or its own doctrines, equivalent to its by-laws
continuing rules on internal government
Needs not adopt by-laws, provided that by-laws
contents are already in AOI or doctrines
Procedures in adopting ORIGINAL by‐laws. Non-filing of By-laws – Ground for suspension
or revocation of its Certificate of registration
1. Pre-incorporation – shall be approved and
signed by all the incorporators and - Will not result to automatic dissolution of Corp
submitted to the SEC, together with AOI.
- Suspension or revocation happens only provided
2. Post-incorporation
that there had been a hearing decreeing it.
a. Majority of OCS in a regular or
special meeting, where NON- - Effect: Will become a DE FACTO Corporation.
VOTING SHARES may also vote
(Sec 6)
b. Signed by the stockholders or Sec 46 Contents of By-Laws
members voting for them
c. Kept in the principal office of the 1. Time, place and manner of calling and
corporation and subject to the conducting regular or special meetings of
inspection of the stockholders the directors or trustees;
d. A copy, certified by BOD and 2. Time and manner (Place – Sec 50) of
countersigned by secretary MUST calling and conducting regular or special
be filed with the SEC and attached meetings and mode of notifying the
to original AOI. stockholders or members
3. Certificate of the appropriate 3. Required quorum in meetings of
government agency – Additional stockholders or members and the manner
requirement for bank, banking institution, of voting therein;
building and loan association, trust 4. Modes by which a stockholder, member,
company, insurance company, public utility, director, or trustee may attend meetings
educational institution, or other special and cast their votes;
corporations upon filing by-laws (original 5. Form for proxies of stockholders and
and amendment) members and the manner of voting them;
6. Directors’ or trustees’ qualifications,
responsibilities, the guidelines for setting the
Elements of Valid By-Laws compensation duties and of directors or
trustees and officers, and the maximum
1. Not contrary to existing law and Code number of other board representations
2. To morals and public policy – governing that an independent director or trustee may
policies in a community, to public good have
3. Not impair obligations of contract – 7. Time for holding the annual election of
destroy vested rights and obligations of directors of trustees and the mode or
stockholders, creditors manner of giving notice thereof;
4. General and uniform in their operation, 8. Manner of election or appointment and the
not discriminative against certain term of office of all OFFICERS other than
individuals – must affect everybody alike, directors or trustees;
under same circumstances 9. Penalties for violation of the bylaws;
10. In the case of stock corporations, the
XPN: by-law disqualifying competitor
manner of issuing stock certificates; and
stockholder from seat in BOD
11. Such other matters as may be necessary
By-law granting continuous compensation to
directors whose term has expired for past
services rendered gratuitously –
May be added as contents: Sec 49
12. An arbitration agreement, pursuant to Regular and Special Meetings of Stockholders
Section 181 of this Code.
13. Directors need to own more than one share Regular Special
Annually on a date Held at any time or as
to be a director. (additional qualification)
fixed in the bylaws, or provided by by-laws
any date after April 15
upon call by BOD
Sec 47
Written notice to be At least one (1) week,
Ways of Amendment or repealing of OLD, or
sent at least 21 DAYS unless by-laws
adoption of NEW by-laws before meeting, unless
1. Majority of OCS and Majority of BOD by-laws
2. Delegation to the Board at a meeting– 2/3
Notice may be sent
OCS
through e-mail or forms
a. Revocation at a meeting – Majority
allowed by SEC
OCS
Notice of meeting may be waived (express or
implied) individually. General waivers in AOI or
Additional Requirements by-laws are NOT ALLOWED.
1. Filing of amended or NEW by-laws with the Attendance to meeting – waiver XPN: when for
SEC objection purposes
2. With resolution authorizing the delegation
of the power, duly certified under oath by Certain things must be No specific report
the corporate secretary and a majority of presented by directors required
the directors or trustees.
Other matters may be Stockholder may
Birthday – upon the issuance by the Commission proposed to be propose the holding of
of a certification that the same is in accordance included in the agenda a special meeting and
with this Code items to be included in
agenda

AOI By-laws Postponement:

Condition precedent Condition subsequent Written notice and
Contract between: Contract between reason MUST be sent
Corp and SH SH and Corp to all stockholders of
SH among themselves SH themselves record at least two (2)
Corp and State weeks prior to meeting
Hence, disclose info to Internal use only date, unless by-laws.
public
Strictly executed before Before or after Stock and transfer Closed at least 7 days
incorporation book is closed at least before meeting
Amendment: Majority Majority + Majority twenty (20) days
before meeting
of BOD, 2/3 OCS
Power to amend can’t Can be delegated
be delegated 2/3 OCS
General rule: If a transaction that is required by the
MODULE 13: MEETINGS law to hold a meeting for, was decided upon
without a meeting, the decision for that transaction
Sec 48 is VOID.
Kinds of meeting Exceptions: Under Section 15, amendment of AOI
may be approved through WRITTEN ASSENT only
Regular Special
(no meeting)
Stockholder Annually, for Upon call,
s election of BOD Any time, may Directors must present in regular meetings:
Date set by by- be provided
laws or any by by-laws 1. Minutes of most recent regular meeting
date AFTER a. Description of the voting and vote
April 15 upon tabulation procedures
call by BOD b. Record of the questions asked and
BOD Monthly Any time answers given
c. Matters discussed and resolutions
reached
 d. Voting results for each agenda and other Metropolitan areas are
e. Attendance considered
f. Such other
THIS RULE IS MANDATORY. Meaning, the by-
laws can't dictate the place and time of meetings
2. Members’ list or material info about SH
and their voting rights (Unless in non-stock corps)
3. Detailed, descriptive, balanced and
comprehensible assessment of the Failure to comply with the required place:
corporation’s performance (material Will not invalidate the meeting if all stockholders
change in the corporation’s business, are present or duly represented therein.
strategy)
4. Financial report for the preceding year,
Statement on the adequacy of the
Notice of meetings
corporation’s internal controls, statement
of all external audit and non-audit fees  Sent thru means provided by by-laws
5. Dividend policy (payment or nonpayment)  State the time, place and purpose
6. Director or trustee profiles: qualifications  Accompanied by:
and relevant experience, length of service, 1. Agenda
trainings, continuing education, and their 2. Proxy form (Submitted to secretary)
board representations in other corporations; 3. Requirements and procedures for
7. Director or trustee attendance report, at remote voting
each of the meetings of the board and its 4. Requirements and procedure for
committees and in regular or special nomination and election of BOD
stockholder meetings;
8. Performance reports for the board and GR: All proceedings, if within the powers of Corp,
the criteria and procedure for assessment; shall be valid even if the meeting is improperly
9. Director or trustee compensation report held or called.
10. Director disclosures on self-dealings and
Provided: All the stockholders are present or duly
related party transactions
represented and not one of them expressly states
11. Profiles of directors nominated or
at the beginning objection to the transaction
seeking election or reelection.
because the meeting is not lawfully called.

When there’s NO person authorized or the

Sec 51
person authorized unjustly refuses to call a
meeting: Quorum – consist of the stockholders representing
a majority of the outstanding capital stock or a
1. SEC, upon petition of a stockholder showing
majority of the members
of good cause therefor, may issue an order
directing the petitioning stockholder to (50% + 1)
call a meeting
2. Petitioning stockholder shall preside In absence of quorum, no valid corporate act.
thereat until at least a majority of the Response: adjourn
stockholders present have chosen
Also, there are particular matters that should be
voted by 2/3 OCS. Hence, at least 2/3 must be
Modes of voting: present.

1. In person,
2. Through a proxy, or Effect of withdrawals during meeting – If quorum
3. When so authorized in the bylaws, through is reached in the onset, will not prevent corporate
remote communication or in absentia. valid act.
Provided that, the required vote is reached.
Sec 50
Place and Time of Meetings of Stockholders Sec 52
1. Principal office of the corporation based on Regular and Special Meetings of Directors
AOI
2. if not practicable, in the city or municipality Quorum GR – majority of the directors in AOI
where the principal office XPN – When AOI or by-laws provides for a
a. Any city or municipality in Metro greater majority
Manila, Metro Cebu, Metro Davao,
Note: Quorum (or greater majority) is needed to Sec 54
transact any business.
What is the rule in case of pledged or
mortgaged shares?
Majority of quorum – required vote for any GR: In case of pledged or mortgaged shares in
decision or valid Corp act in a BOD meeting stock corporations, the pledgor or mortgagor shall
have the right to attend and vote at meetings of
Majority of all members of BOD – only exception,
stockholders
needed for election of officers
XPN: The pledgee or mortgagee is expressly
given by the pledgor or mortgagor such right in
ILLUSTRATION: writing which is recorded on the appropriate
corporate books.
9 Directors in the AOI
5 were present in a meeting, which purpose is to
elect officers. Representatives Appointed by the Court

If 3 (only majority of quorum) voted to elect - Executors, administrators, receivers, and other
someone, election is INVALID. legal representatives (like guardians)

Needed vote is 5 (majority of members 9) - May attend and vote in behalf of the
stockholders without need of any written proxy.
For a corporate act, however, only votes of 3 are
needed.
Sec 55 Joint Ownership of Stock (E.g.: Spouses)

Regular Special Voting rules

Monthly, unless by- Any time upon the call
1. Consent of all the co-owners shall be
laws of the president or by-
necessary in voting shares
laws
2. Unless there is a written proxy, signed by
Held anywhere in or outside of the Philippines, all the co-owners, authorizing (1) one or
unless the bylaws some of them or any other person to vote
3. When the shares are owned in an “and/or”
Notice must be sent at least two (2) days prior to capacity – any one of the joint owners can
meeting, unless by-laws provide longer time vote said shares or appoint a proxy

Notice may be waived also

Sec 57 Manner of voting; Proxies
Majority of board or by-laws – authorization
Remote Modes of voting for Physically Absent needed for stockholders to be allowed to vote
Directors: through remote communication
1. videoconferencing, SH voting thru remote – considered present for
2. teleconferencing, quorum.
3. or other alternative modes

Directors or trustees cannot attend or

Proxy – a written authorization, empowering
vote by proxy at board meetings. another person (proxy) to represent a shareholder
and vote in his stead in the stockholder’s meeting

Director having interest in any related party - Special form of agency

transaction – RECUSE from voting on the - Proxy is a fiduciary
approval of the related party transaction

Requirements for a Valid Proxy:

Sec 53
1. In writing, and shall be signed by the
Who Shall Preside at Meetings? stockholder or member concerned
1. Chairman 2. The proxy shall be filed before the
2. President – if chairman is absent scheduled meeting with the corporate
3. By-laws – if there is a specific provision secretary;
 Note: For public companies, the SEC 1. Election of the BOD/BOT
requires that proxy forms be submitted at 2. Voting in case of joint ownership of stock
least 5 days before the meeting. 3. Voting by trustee under VTA
3. GR: Unless otherwise provided (continuing 4. Pledge or mortgage of shares
in nature) in the proxy, it shall be valid only 5. As provided for in the by‐laws
for the meeting for which it is intended; and
4. No proxy shall be valid and effective for a Revocation of Proxy:
period longer than 5 years at any one time. Form: A proxy may be revoked in writing, orally or
(Sec.57) by conduct.
GR: One who has given a proxy the right to vote
Is the power to appoint a proxy a personal may revoke the same at any time.
right? XPN: Said proxy is coupled with interest even it
Yes. The right to vote is inseparable from the may appear by its terms to be irrevocable.
right of ownership of stock. Therefore, to be
valid, a proxy must have been given by the person
who is the legal owner of the stock and is entitled to Sec 58
vote. Voting trust agreement (VTA) – an agreement
KEY NOTE: If the by-laws restrict an SH in whereby one or more stockholders transfer their
choosing his/her proxy, that provision WILL BE shares of stocks to a trustee who acquires for a
VOID. period of time the voting rights (and/or any other
specific rights) over such shares;
Because even the LAW doesn't impose such
restriction. - In return, trust certificates are given to the
stockholder/s, which are transferable like stock
**No restriction on who could be a proxy. certificates, subject, to the trust agreement.
Notwithstanding: In non‐stock corporations the - fictitious transfer
right to vote by proxy, or even the right to vote
itself may be denied to members in the articles of Specific Limitations on VTA
incorporation or the by‐laws as long as the denial is 1. GR: Entered into a period not exceeding
not discriminatory. five (5) years at any time
XPN: When required as a condition in a
loan agreement, where it could be longer
Proxy Durations than 5 years but shall automatically expire
upon full payment of the loan.
GR: Specific proxy – authority granted to the
2. Must be in writing and notarized, and shall
proxy holder to vote only for a particular meeting on
specify the terms and conditions thereof.
a specific date.
3. Certified copy of such agreement shall be
XPN: Continuing proxy – grants authority to a filed with the corporation and with the
proxy to appear and vote for and in behalf of a Commission, for it to be effective and
shareholder for a continuing period which should enforceable (MANDATORY).
not be more than 5 years at any one time. 4. No voting trust agreement shall be entered
into for purposes of circumventing the laws
- For which a shorter duration may be provided by against anti-competitive agreements, abuse
by-laws of dominant position, anti-competitive
Can this be renewed? Yes, but also for not more mergers and acquisitions, violation of
than 5 years (For both specific and continuing) nationality and capital requirements, or for
the perpetuation of fraud.
5. Voting trust agreement filed with the
Extent of authority of a proxy: corporation shall be subject to
examination by any stockholder
General proxy – A general discretionary power to 6. Unless expressly renewed, all rights granted
attend and vote at annual meeting. in a voting trust agreement shall
automatically expire at the end of the
Limited proxy – Restrict the authority to vote to
agreed period, unless for loan agreement.
specified matters only and may direct the manner
in which the vote shall be cast Other Procedural requirements for VTA to be
valid:
1. The certificate/s of stock covered by the
When may the right to vote by proxy be
VTA shall be cancelled
exercised?
 2. A new certificate shall be issued in the Voting right is divorced Right to vote is
name of the trustee/s stating that they are from the ownership of inherent in or
issued pursuant to the VTA stocks inseparable from the
3. Transfer shall be noted in the books of the right to ownership
corporation, that it is made pursuant to said
VTA. Not exceed 5 years Shorter, not longer
4. Trustee/s shall execute and deliver to the except for condition for than 5 years
loan agreement
transferors voting trust certificates, which
shall be transferable in the same manner
Law on trust Law on agency
and with the same effect as certificates of
stock Irrevocable Revocable anytime
5. After expiration of VTA, voting trust except one with
certificates as well as the certificates of interest
stock in the name of the trustee or trustees
shall thereby be deemed cancelled and new Interest - pakinabang,
certificates of stock shall be reissued in e.g. when SH pledges
the name of the trustors. his COS to the
proxy/creditor
Proxy is then coupled
interest, and his
Status of voting trustee – has rights to the
agency can't be
shares, not to corporate properties or assets, revoked until his credit
purpose of voting and other rights is fulfilled/paid
Rights of trustees
Transfer of legal title No transfer
1. Vote in person or by proxy
2. Inspection of books Has other rights Only right to vote
3. Legal title holder of shares besides voting
4. Qualified to be a DIRECTOR
May vote by proxy May only vote in
person
Status of trustor – parts with the voting power Notarized Not needed
only, but retains the beneficial/equitable effects of
stocks
- ceased to be SH of record, but retains right to Shareholder --> Trustee --> Proxy -- VALID
inspect, receives dividends, recovers stock at
VTA expiration Shareholder --> Proxy ---> Proxy -- INVALID

- disqualified from being elected as a If SH has a proxy, the latter can't get a proxy of his
DIRECTOR, except when he retains at least own.
ONE share

Pooling Agreement – voting agreement, entered

Right to dividends into by and between 2 or more stockholders to
make their shares as one unit
Trustee will receive dividends first and then give
them to trustor - Usually relates to election of directors where
parties often provide for arbitration in case of
disagreement; to control management
VTA Proxy - No transfer of shares
Trustee is not limited Proxy can only act at a
to act at any particular specified stockholder’s - Merely a private agreement
meeting meeting (if not
continuing)
Pooling agreement Vs. VTA
Share certificate shall No cancellation
be cancelled and PA – SH exercises right to vote themselves
transferred
- parties remain the legal owners of the shares
Trustee can vote and Proxy can only vote in
exercise all the rights the absence of SH
of the stockholder even Both present – revoked VTA – trustee votes
when the latter is
present - transfers title