After reading “What are bylaws?”, read also “What does it mean to pierce the corporate veil?“
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Bylaws refer to continuing rules of action adopted by the corporation for its own government and that of the individuals composing it.
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Bylaws of a corporation must be consistent with the Corporation Code, other pertinent laws and regulations, as well as its Articles of Incorporation.
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Bylaws must not disturb vested rights, impair contract or property rights of stockholders or members.
What are bylaws?
Bylaws refer to 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 of its affairs, in whole or in part, in the management and control of its affairs and activities. (China Banking Corp. v. Court of Appeals, G.R. No. 117604, 26 March 1997)
What should a corporation’s bylaws contain?
The law says:
Under the Revised Corporation Code, a private corporation may provide the following in its bylaws:
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;
(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.
Jurisprudence says:
For a corporation’s by-laws to be valid, the following requisites must be complied with:
Bylaws of a corporation must be consistent with the Corporation Code, other pertinent laws and regulations.
Q: Is a provision in the bylaws granting a permanent seat in the Board of Directors valid?
A: No, such provision is invalid because it is contrary to the Corporation Code. No provision of the by-laws can be adopted if it is contrary to law. (Grace Christian High School v. Court of Appeals, G.R. No. 108905, 23 October 1997)
Bylaws of a corporation must likewise be consistent with the Articles of Incorporation.
Q: How can a conflict between the provisions of the Articles of Incorporation and the bylaws be resolved?
A: In case of conflict between the provisions of the Articles of Incorporation and the bylaws, the Articles of Incorporation will prevail. (Loyola Grand Villas Homeowners Association Inc. v. Court of Appeals, G.R. No. 117188, 07 August 1997)
Bylaws must not disturb vested rights, impair contract or property rights of stockholders or members. Nor must it create obligations that are unknown to law.
Q: A provision in a corporation’s bylaws makes a previous position in the corporation non-existent. Is this valid?
A: No, this is invalid. The bylaws should not undermine the security of tenure of an employee by declaring the position non-existent. (Enrique Salafranca v. Philamlife Pamplona, G.R. No. 121791, 23 December 1998)
Do provisions of a corporation’s bylaws produce any binding effect?
As to the corporation and its components, bylaws are binding not only upon the corporation, but also on its stockholders, members, and those having direction, management and control of its affairs.
As to third persons, bylaws are not biding unless there is actual knowledge of such by the third person. Third persons are not bound to know the bylaws since bylaws are merely provisions for the government of a corporation and notice to them cannot be presumed. (China Banking Corp. v. Court of Appeals, G.R. No. 117604, 26 March 1997)
May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution?
No, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the 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. (Loyola Grand Villas Homeowners Association Inc. v. Court of Appeals, G.R. No. 117188, 07 August 1997)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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