Corporations: Not Your Average Person
To recall, a corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.1
In other words, it is considered a juridical person, being granted with its own legal personality, with its own rights and obligations like a natural person, subject to certain limitations under the law.
A major difference between a juridical person and a natural person is the fact that it is a person on one hand and, at the same time, an organization, its own world composed of several individuals, on the other.
Articles of Incorporation versus By-laws
Many people get confused as to the difference between two major documents related to corporations: (1) the articles of incorporation (AOI) and (2) the by-laws. Being a person with “dual personality,” a corporation needs something to support and govern its status under each personality: as an individual (articles of incorporation) and as an organization (by-laws).
Think of it this way: the AOI, along with the certificate of registration from the Securities and Exchange Commission (SEC), can be equated to a natural person’s birth certificate, which shows the record of his birth (registration certificate), his parents (incorporators), his birth weight (original subscribed capital), his nationality, and so on. On the other hand, a corporation’s by-laws can be equated to the governing law of this country’s largest and best-known organization—the Philippines itself and its constitution.
All actions and decisions made by the citizens and those who govern them must be in conformity with the constitutional provisions or be considered void. In short, it is the go-to document for all questions in governing the corporation as an organization, while the AOI deals with a corporation as a person.
The Low-Down on By-laws
Merriam-Webster formally defines by-laws as “[the] rules adopted by an organization chiefly for the government of its members and the regulation of its affairs.”2
Recognizing the by-laws’ importance in a corporation’s existence and survival, the Corporation Code of the Philippines (the Code) itself requires the adoption of corporate by-laws within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission (SEC). In fact, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the SEC together with the articles of incorporation.3
Furthermore, under section 6 of Presidential Decree No. 902-A, the SEC is granted the power, among others, to suspend or revoke, after proper notice and hearing, the certificate of registration of corporations etc. upon any of the grounds provided by law, including “failure to file by-laws within the required period.” It must be noted, however, that the failure to file the by-laws does not automatically operate to dissolve a corporation but is considered only a ground for such dissolution.4
The affirmative vote of the stockholders representing at least a majority of the corporation’s outstanding capital stock or of at least a majority of the members, in case of nonstock corporations, is necessary for the adoption of by-laws.
Because the by-laws are considered to be an entity’s “organic law,” each organization has the freedom to customize the contents of its by-laws to fit its needs and specific circumstances. Here are some basics to get you started:
1. The time, place, and manner of calling and conducting regular or special meetings of the directors or trustees
2. The time and manner of calling and conducting regular or special meetings of the stockholders or members
3. The required quorum in meetings of stockholders or members and the manner of voting therein
4. The form for proxies of stockholders and members and the manner of voting them
5. The qualifications, duties, and compensation of directors or trustees, officers, and employees
6. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof
7. The manner of election or appointment and the term of office of all officers other than directors or trustees
8. The penalties for violation of the by-laws
9. In the case of stock corporations, the manner of issuing stock certificates
10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs.5
In all cases, 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, 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.6
By-laws = Bye, Law?
One word: no. Although a corporation is afforded a sizable latitude to tailor-fit its by-laws to its needs, such freedom is not infinite.
Section 46 of the Code provides that in all cases, by-laws shall be effective only upon the issuance by the SEC of a certification that the by-laws are not inconsistent with the Code. In addition, for corporations governed by special laws, such as banks, building and loan associations, trust companies, insurance companies, public utilities, and educational institutions, the SEC is mandated by the Code not to accept the filing or any amendment of by-laws unless the same is accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law.
In fine, corporations are free to modify the contents of their by-laws, subject to the provisions of the Philippine Constitution, the Code, other special laws, and the corporation’s own AOI.7
1Section 2, Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines.
2 Merriam-Webster online
3 Section 46, supra.
4 G.R. No. 71837, July 26, 1988, 163 SCRA 534.
5 Section 47, supra.
6 Section 46, supra.
7 Section 47, supra.