By-Laws for a Stock Corporation

What are the By-laws for a Stock Corporation?

The By-laws of a corporation are used to guide the internal management of the corporation such as the rules on meetings, voting, and manner of issuing stock certificates to name a few. It is a requirement for the formation of a corporation in the Philippines. The By-laws of a corporation should be adopted by at least a majority of the outstanding capital stock.

This document is specifically for a stock corporation. It cannot be used for a non-stock corporation. A Stock corporation is one that is authorized to engage in income-generating activities and to distribute dividends to its shareholders.

What is the difference between the By-laws and the Articles of Incorporation?

While both are required to be submitted to the Securities and Exchange Commission for purposes of forming a corporation, the By-laws are used to guide the internal management of the corporation, whereas, the Articles of Incorporation lays down vital information such as the incorporators, the principal place of business, and the business purposes of the corporation to name a few, concerning the corporation at the time it is formed.

The Articles of Incorporation is the foundational document that will be submitted to the Securities and Exchange Commission and one important attachment thereto is the By-laws.

The Articles of Incorporation of the corporation should be read while the By-laws are being completed to ensure that the information that appears on both documents is consistent, such as the principal address of the corporation and the number of members of the Board of Directors.

Is it mandatory to have By-laws?

Yes, the law mandates that the corporation should submit the By-laws alongside the Articles of Incorporation to the Securities and Exchange Commission at the time the corporation is formed. If the By-laws is not attached to the Articles of Incorporation at the time it is submitted to the Securities and Exchange Commission, the commission may deny the issuance of a Certificate of Registration in favor of the corporation, meaning, the corporation's existence will not be recognized under the law.

How often should stockholders conduct a meeting?

The stockholders will need to meet at least once a year in order to discuss corporate matters and to vote for the members of the board of directors. This is one important aspect of the corporation's internal management that should be included in the By-laws.

What is a quorum?

Quorum means the minimum number of authorized capital stock that is required to be present for the meeting and the actions taken in the meeting to be valid. This is another important aspect of the corporation's internal management that should be included in the By-laws.

What are proxies?

Proxies are written documents signed by the owner of the stock authorizing another person to represent them in a special or regular stockholders' meeting. This is another important aspect of the corporation's internal management that should be included in the By-laws.

What must the By-laws contain?

The By-laws must contain the following information:

• The time, place, manner of calling and giving notice, and conducting regular or special meetings,
• The required quorum in meetings of stockholders and the manner of voting,
• The form of proxies of stockholders and the manner of voting them,
• The number of the board of directors, which should be the same as the one listed in the corporation's Articles of Incorporation, and the qualifications, duties, and compensation of directors, officers, and employees,
• The time of holding the annual election of directors and the mode and manner of giving notice thereof, and
• The manner of issuing stock certificates.

The Articles of Incorporation of the corporation should be read while the By-laws are being completed to ensure that the information that appears on both documents is consistent, such as the principal address of the corporation and the number of members of the Board of Directors.

What are the prerequisites of By-laws?

The law requires that the submission or filing of the By-laws is accompanied by a certificate of the appropriate government agency to the effect that such bylaws or amendments are in accordance with the law in case the corporation is a bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution, or other special corporations governed by special laws. For more information, the website of the Securities and Exchange Information may be checked.

Who is involved in By-laws?

The stockholders owning or representing at least the majority of the outstanding capital stock of the Corporation must adopt or approve the By-laws in a meeting held for that purpose. After which, the Corporate Secretary should certify or sign the By-laws.

What can be the duration of the By-laws?

The By-laws subsist so long as the corporation exists. A corporation can have a perpetual existence, meaning, it can exist indefinitely. Further, the incorporators may choose as to how long the life of a corporation will be.

Note that The board of directors, by a majority vote thereof, at a regular or special meeting duly called for the purpose, may amend or repeal any By-laws or adopt new By-laws. After repealing or amending new By-laws the old version no longer applies.

What has to be done once the By-laws are ready?

Once the By-laws are completed, at least three original copies of the completed By-laws should be printed. The stockholders that voted for the adoption of the By-laws should sign all the original copies of the By-laws.

One original copy of the signed By-laws should always be kept at the principal office of the corporation and may be inspected by the stockholders during office hours. Another original copy should be filed with the Securities and Exchange Commission, said copy having been duly certified by a majority of the directors and countersigned by the Corporate Secretary. The last original copy should be kept by the Corporate Secretary.

Is it necessary to register the By-laws?

Yes. The By-laws must be registered or submitted as an attachment to an Articles of Incorporation before the Securities and Exchange Commission. Other requirements such as a cover sheet, name verification slip, and, if necessary, registration to, endorsement, or clearances from other government agencies should also be submitted. For a more complete list of requirements, the website of the Securities and Exchange Commission should be checked.

Once the requirements are complete, the Securities and Exchange Commission will issue a Certificate of Registration of the corporation signifying that the corporation is valid and exists under the law.

What are the costs involved in the finalization of By-laws?

Registration fees are required to be paid for the registration to be made before the Securities and Exchange Commission.

Which laws are applicable to By-laws?

By-laws are governed by the Revised Corporation Code of the Philippines. However, other laws, their rules and regulations, and SEC rules may affect the conduct and transactions of the corporation such as but not limited to the Securities Regulation Code, the Foreign Investment Act, the Republic Act 8179, the Anti-Money Laundering Act, and SEC Memorandum Circular No. 16, Series of 2002.

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