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Business law reviewer - summarise law concepts, theories and article's, Study notes of Business and Labour Law

University of Rizal SystemBusiness and Labour Law

Business law - law on partnerships and corporation (quick reviewer)

Typology: Study notes

2024/2025

Available from 05/28/2025

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Second semester
CHAPTER 1: Partnership
Article 1767: By the contract of partnership, two or
more person binds themselves to contribute money,
property or industry to common funds with the
intention of dividing the profit among themselves.
Two or more persons may also form a partnership
for the exercise of a profession.
Essential requisites:
1. There must be a valid contract
2. There must be a contribution of money,
property or industry to a common fund
3. It must be organized for gain or profit
4. It should have a lawful object or purpose and
must be established for the common benefit
or interest of the partners
Two test to determine the existence of a partnership
1. First test – determine whether or not there
is an agreement to contribute money,
property or industry
2. Second test - determine whether or not
there is an intent of the contracting parties to
divide the profit among themselves.
Characteristic of a partnership
1. Consensual – contract is perfected by mere
of consent (meeting of minds)
2. Commutative - each contribution is
considered equivalent of the contribution of
other
3. Principal - contract does not depend to
another contract
4. Bilateral – it is entered by two or more
person
5. Nominate – has a name in law
6. Preparatory – contract in preparation for
another contract
Juridical Personality/Person – personality is
separate and distinct from its owners
Doctrine of delectus persona – right to choose
with whom the person wishes to associate himself
Forms of contract of partnership
➢ No form is required, it may be oral or in
writing, however if it involve real properties
or real rights regardless of the value, public
instrument is needed.
➢ Capital of 3,000 or more in money or property
shall appear in public instrument which must
be submitted in the SEC, failure to comply –
partnership is still valid
Classification of partnership
1. According to object
a. Universal partnership
1. Universal partnership of all present
property - contribute all property/ giving
up ownership
2. Universal partnership of all profit-
only involve sharing of profit
b. Partnership – formed because of specific
purpose
2. According to liability
a. General partnership – liable up to the extent
of personal asset
b. Limited partnership – up to the extent of
capital contribution
3. According to duration
a. Partnership at will
b. Partnership at fixed term
c. Partnership for particular undertaking
4. According to representation to others
a. Ordinary partnership
b. Partnership by estoppel
5. According to legality of its existence
a. De jure partnership – complied with all
requirements
b. De Facto partnership – not complied with all
requirements
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CHAPTER 1: Partnership Article 1767 : By the contract of partnership, two or more person binds themselves to contribute money, property or industry to common funds with the intention of dividing the profit among themselves. Two or more persons may also form a partnership for the exercise of a profession. Essential requisites:

  1. There must be a valid contract
  2. There must be a contribution of money, property or industry to a common fund
  3. It must be organized for gain or profit
  4. It should have a lawful object or purpose and must be established for the common benefit or interest of the partners Two test to determine the existence of a partnership
  5. First test – determine whether or not there is an agreement to contribute money, property or industry
  6. Second test - determine whether or not there is an intent of the contracting parties to divide the profit among themselves. Characteristic of a partnership
  7. Consensual – contract is perfected by mere of consent (meeting of minds)
  8. Commutative - each contribution is considered equivalent of the contribution of other
  9. Principa l - contract does not depend to another contract
  10. Bilateral – it is entered by two or more person
  11. Nominate – has a name in law
  12. Preparatory – contract in preparation for another contract Juridical Personality/Person – personality is separate and distinct from its owners Doctrine of delectus persona – right to choose with whom the person wishes to associate himself Forms of contract of partnership ➢ No form is required, it may be oral or in writing , however if it involve real properties or real rights regardless of the value, public instrument is needed. ➢ Capital of 3,000 or more in money or property shall appear in public instrument which must be submitted in the SEC, failure to comply – partnership is still valid **Classification of partnership
  13. According to object a. Universal partnership**
  14. Universal partnership of all present property - contribute all property/ giving up ownership
  15. Universal partnership of all profit - only involve sharing of profit b. Partnership – formed because of specific purpose 2. According to liability a. General partnership – liable up to the extent of personal asset b. Limited partnership – up to the extent of capital contribution 3. According to duration a. Partnership at will b. Partnership at fixed term c. Partnership for particular undertaking 4. According to representation to others a. Ordinary partnership b. Partnership by estoppel 5. According to legality of its existence a. De jure partnership – complied with all requirements b. De Facto partnership – not complied with all requirements

CHAPTER 2: Obligation of the partners Kinds of partners

1. As to contribution a. Capitalist partners – money b. Industrialist partners – labor/skills/ profession c. Capitalist-industrial partners – both 2. As to Liability a. General partners – liable up to the extent of personal assets b. Limited partners – not liable to third parties 3. As to Management a. Managing partners – actively manage the business b. Silent partners – do not take active part in the business but they share in profit and loss c. Liquidating partners – take charge of winding up 4. As to the third person a. Ostensible partner – active and known b. Secret partner – not known c. Dormant partner – not active, not known 5. As to membership a. Real partners – partners in legal partnership b. Partners by estoppel – not partners but represent themselves 6. As to continuation after dissolution a. Continuing partners b. Discontinuing partners 7. As to nature of membership a. Original partners b. Incoming partners c. Retiring partners 8. As to state of survivorship a. Surviving partners b. Deceased partners 9. As to effect of expulsion a. Expelled partners – who are expelled b. Expelling partners – who caused the expulsion 10. As to value of contribution a. Majority partners – contribution represent the majority of controlling interest b. Nominal partners – represent the minority interest Capitalist Industrial Contribute money or property Contribute industry General rule: cannot engage in same kind business Exception: Partnership permit General rule: cannot engage in business for himself Exception: Partnership permit Profit: according to profit agreement if there is no agreement, in proportion to capital contribution Profit: based to agreement if there is no it should be just and equitable General rule as to Losses: based on loss agreement, if there no agreement use the profit agreement Exception: in the absence of profit and losses agreement, in proportion to capital contribution General rule: the agreement as to losses Exception: in the absence of agreement, industrial partner shall not be liable for losses.

CHAPTER 4: Limited Partnership Art 1842: A limited partnership is one formed y two or more persons under the provision of the following articles, having as members of one or more general partners, and one or more limited partners. The limited partners as such shall not be bound by the obligation of the partnership. Characteristic of limited partnership

  1. Formed by compliance in good faith
  2. One or more general partners control the business and personally liable
  3. One or more limited partner contributes to the capital and share in profit but do not participate in the management of the business
  4. The limited partners are not personally liable
  5. The limited partner may ask for the return of their capital contribution
  6. Partnership debts are paid out of the common fund and separate properties of the general partners Essential requisites in the formation
  7. Certificate of limited partnership
  8. It must be file in the SEC ❖ Limited partnership must always be in writing General Limited Creation Any form Must be in writing with the compliance of requirements contribution Money, property or industry Money or property or both but not industry Membership All general At least 1 general and limited Extent of liability Personally liable Limited to capital contribution Management right All are managers Cannot manage the business unless there is stipulation Prohibition to engage in other business Capitalist – cannot engage unless stipulated Industrial – absolutely prohibited unless authorized No prohibition against engaging in business Assignment of interest Interest is not assignable Interest is assignable Effect of death Dissolution it will not dissolve Firm name May or may not include the name of partners Firm name must be followed by “LTD/ limited” and surname of limited partners shall not appear

Revised Corporation Code of the Philippines Corporation – A corporation is an artificial being created the operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law of incidental to its existence (RA 11232) took effect on feb 23, 2019 Characteristic of corporation

  1. Artificial being
  2. Created by operation of law
  3. It has right of succession
  4. It has the power, attributes and properties expressly authorized by law or incidental to its existence Government owned or controlled corporation (GOCC) – agency organized as a stock or non-stock corporation vested with function relation to public. At least 51% share of stock owned by the government. a. Stock corporation – have capital stock divided into shares and authorized to distribute dividends b. Non-stock corporation – nonprofit, charitable Piercing the veil of corporation fiction Elements:
  5. Control
  6. Such control is used to commit fraud
  7. Said control proximately caused injury or unjust loss Classes of corporation 1. As to purpose a. Public corporation b. Private corporations c. Government control corporation d. Quasi-public corporation 2. As to legal existence a. De jure corporation b. De facto corporation c. Corporation by estoppel d. Corporation by prescription 3. As to laws a. Domestic corporation b. Foreign corporation 4. As to whether they are open a. Open corporation b. Close corporation 5. As to relationship a. Parent or holding corporation b. Subsidiary corporation 6. As to numbers of person compose a. Corporation aggregate – two or more b. Corporation sole – one 7. As to the whether they are for religious, charitable or not a. Ecclesiastical corporation – religious purposes b. Lay corporation – other than religious c. Eleemosynary corporation – charitable d. Civil corporation – business or profit Component s of a corporation
  8. Corporators – compose the corporation
  9. Incorporators – original
  10. Stockholders – owners of shares
  11. Member – corporators of non-stock
  12. Director or board of trustee – governing bodies in a corporation
  13. Corporate officer – executives
  14. Subscriber – agreed to buy the original unissued stock
  15. Underwriter – third person who distribute and sale securities
  16. Promoter – person who bring or caused the formation of the corporation Classification of shares Common stock – residual owners, has the right to claim on the share of asset in the partnership in case of liquidation after preference shares has been paid. Preferred stock – preferred shares as to assets and as to dividends

Section 15 : Amendments of articles of incorporation Amendments – means modifying or updating certain provision of the articles of incorporation a. Name b. Purpose c. Principal office d. No,.directors e. Authorized capital stock Process of amending the articles of incorporation

  1. The board of directors or trustee must approve the said amendment
  2. The amendments must be approved by 2/3 of stockholders if it is stock corporation and 2/3 of members if nonstock.
  3. The original and amended articles of incorporation must be compiled together, and all changes must be underlined
  4. A certification under oath must be submitted
  5. The amendment must be approved by the SEC
  6. The amendment must be accompanied by favorable recommendations of the appropriate agency for some corporation Section 16: Ground when articles of incorporation or amendment may be disapproved The SEC has the authority to reject the articles of incorporation or any amendments if they do not meet the requirements of this Code. However, it must give the incorporators, directors, trustees, or officers a reasonable period from the date of disapproval to revise the articles of incorporation or amendment. Following are the grounds for disapproval: ✓ Non- compliance with prescribe format ✓ If the purpose of the corporation is illegal, immoral or contrary to the law ✓ False certification of capital stock subscription and/or payment ✓ Failure to meet the Filipino ownership requirement Note: bank institution, insurance, trust companies etc. If a corporation in these industries submits amendments without the necessary endorsement, the SEC will not approve them. Section 17: Corporate Name General rule: no corporate name shall be allowed by the SEC if a. Not distinguishable from a name already reserved or registered for the use of another corporation. b. Already protected by law; or c. Contrary to law, rules, and regulations The corporate name is not considered distinguishable even if it contains
  7. Common corporate terms like "Corporation," "Company," "Incorporated," "Limited," or abbreviations thereof. o
  8. Punctuation marks, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or numbers of the same word/phrase. Note: if the corporation violate this rule the SEC may
  9. Order an immediate cease of using the name
  10. Require the corporation to register a new name
  11. Or it can hold the corporation and its directors in contempt and impose civil liability Section 18: Registration, Incorporation and commencement of corporate existence This section explains how the corporation is legal create in the Philippines a. Verification of corporate name:
  12. Before forming a corporation, a person or group or person must submit their propose corporate name to the SEC for approval
  13. It its meet the legal requirements, the name will be reserve to the incorporators

b. Submission of incorporation documents After securing the corporate name, the incorporator must submit

  1. Articles of Incorporation – A document containing the corporation’s details (name, purpose, structure, incorporators, etc.). o
  2. Bylaws – Internal rules governing the corporation’s operations. The SEC reviews these documents to ensure they follow the law c. Issuance of certificate of incorporation ✓ If all requirements are met, the SEC will issue a Certificate of Incorporation under its official seal. ✓ This certificate is what legally establishes the corporation. d. Commencement of Corporate Existence ✓ The corporation officially starts existing once the Certificate of Incorporation is issued. e. Legal Personality & SEC Jurisdiction ✓ The Certificate of Incorporation gives the corporation a juridical personality Section 19 : This section explains the concept of “De facto corporation” De facto corporation – it is a company that operate as if they were legally incorporated even if it has some legal defects Requirements to be considered a de facto corporation ✓ Valid Incorporation Law – There must be an existing law that allows corporations to be created (e.g., the Revised Corporation Code). ✓ Good Faith Attempt to Incorporate – The incorporators must have honestly tried to complete the legal process (e.g., they filed the necessary documents but made an unintentional mistake). ✓ Exercise of Corporate Powers – The entity must act like a corporation, such as signing contracts, hiring employees, or operating Note: if the corporation acts in good faith and follows the process of incorporation, its existence cannot be challenged or question by private individuals in court, only the solicitor general can question the validity of corporation through legal process. Section 20: Explain the concept of corporation by estoppel Corporation by estoppel applies to group of people act as if they are corporation and enter into a contract even though they are not legally recognized This principle prevents a person or group from denying the existence of a corporation if they have already acted as if it were a legitimate corporation Liability of People Acting as a Corporation Without Authority f. If a group pretends to be a corporation and enters contracts, but they are not legally registered, they will be treated as general partners. g. This means all members will be personally liable for the debts and obligations of the group. Section 21: Effects of Non-Use of corporate charter and continuous inoperation Non-Use of Corporate Charter Corporation does not start operations within 5 years from incorporation Automatic revocation Continuous Inoperation Corporation started operations, but becomes inactive for 5 consecutive years SEC may declare it delinquent

Note: corporation involved with major public interest must have at least 20% independent directors The board shall exercise good faith ✓ The board shall exercise good faith, care and diligence in the administration of the affairs of the corporation and protect not only the interest of the majority but also the minority of the stock Derivative suit ✓ It is a legal action filed by the stockholder/ members on behalf of the corporation. This happen when the directors/ trustee are the one who commit fraud Three levels of control I. The board of directors/Trustee – highest authority in the corporation and they control corporate policies, how the business is run, and manage all the company’s property. II. The officers – they are like the doers; they execute the decision created by the director’s and manage the daily operation III. The Stockholder/ members – owners of the share in corporation, they do not manage the daily business, but they approve major corporate decision and changes. Section 23: This section explains the Election of directors or Trustee a. Any stockholder/member can nominate/vote as long as the person t is qualified b. Stockholder/ member entitled to vote must be present either

  1. Physically
  2. Proxy (someone authorized)
  3. Through remote communication (online voting) ✓ If any voter requests, voting must be done by ballot. In Stock corporation: stockholder gets vote equal to the number of shares they owned They can: (a) Vote all shares for each candidate (b) Cumulative voting : multiply number of shares by number of directors to elect and give all votes to one or more candidates. (c) Distribute votes among different candidates however they want. Note: Delinquent shares (not fully paid) are not allowed to vote. I n non-stock corporations : 1. Each member gets 1 vote per trustee seat but can’t give more than 1 vote to a single candidate (no cumulative voting). Example: If there are 5 trustee positions to fill: a. Each member can cast 1 vote for 5 different people. b. But they cannot give more than 1 vote to the same person. - If there is no majority present, meeting ca be reschedule Section 24: Corporate officer After electing the board of directors and trustee, they must immediately elect the corporation officers Officer Requirement Citizenship Residency President a. Must be a director b. Owned at least 1 share Not necessarily a Filipino citizenship Not necessarily resident of the ph. Secretary May or may not be a director Must be a Filipino citizenship Must be a resident of the ph Treasurer May or may not be a director Not necessarily a Filipino citizenship Must be a resident of the ph

Section 25: This section explains the report of election of Directors, officers and trustee

  • Within 30days after the election, the secretary or any other officer shall submit to the SEC the:
  • Name of elected directors and officers
  • Nationalities
  • Shareholding
  • Residence address of the directors, trustee and officers elected
  • If no election occurs, the corporation must explain to the SEC within 30days why the election was not held. The report shall also specify the new date for the election
  • If new date has been designated or if reschedule election is likewise not held, the Corporation can ask the SEC to intervene The SEC shall have the power to
  • Order an election
  • Set the date and place
  • Appoint who will lead the election Note: If officer leave due to resignation or die, the corporation must inform the SEC within 7days of knowing it Section 26 : Explain the disqualification of Directors, trustee and officers A person shall be disqualified from being a director, trustee or officer of any corporation if within 5 years prior to the election or appointment, the person was ✓ Convicted by final judgement of an offense punishable by imprisonment for a period of exceeding 6 yrs
  • For violating the revised corporation code
  • Violating republic act 8799, known as “the securities regulation code” ✓ Found administratively liable for any offense involving fraudulent acts ✓ Found by foreign court or equivalent foreign regulatory authority for act, violation or misconduct similar to enumerated Section 27 : outline the process of the removal of directors or trustee in a corporation General rule : The director or trustee can be removed with or without cause, However, this provision cannot be used to deprive the minority stockholder or member of their right to representation Requisites for removal
  1. Meeting requirement: removal must take place at a regular meeting or special meeting
  2. Voting requirement: the removal requires vote- at least 2/3 of stockholder and 2/3 of members
  3. Notice requirement: There must be a prior notice given to the stockholder or members about the intention to propose removal of director or trustee
  4. Special meeting for the removal can be called by the secretary at the order of the president or upon the demand from stockholder or members ❖ The sec has the authority to remove director or trustee if they are disqualified and were still elected or if disqualification is discovered after election ❖ If the board were aware about the disqualification but did not take any action to remove the director or trustee, the sec may impose a sanction on the board or members

The director or officer will be:

  1. Personally liable for any damage or loss to the corporation,
  2. Treated as if they were a "trustee" (someone holding something in trust for someone else),
  3. Required to return the profit they earned back to the corporation Error in business judgment ✓ If the loss was caused by an honest business mistake (not negligence or bad faith), the director or officer is not liable. ✓ Courts respect decisions made in good faith, even if the result was not good. Section 31: Dealings of directors, trustee or officers with the corporation Self-dealing happens when a corporation enters into a contract with one of its:
  4. Directors or trustees
  5. Officers
  6. Or their spouse or relatives up to the 4th civil degree (like cousins, grandparents, in-laws, etc.) General rule: contract of the corporation with one or more of its directors, trustees, officers, spouses or relatives are voidable, the corporation can cancel them if they are unfair or if proper procedures are not followed. Exceptions: The contract can be valid if all of the following condition are present: ❖ The presence of directors or trustee in the board meeting which was the contract was approved was not necessary ❖ The vote of that director/trustee was not needed to approve the contract. ❖ The contract is fair and reasonable for the corporation. ❖ (For public interest corporations) 2/3 of the board were approved, including a majority of independent directors. ❖ (If it involves an officer) The contract must has been approved ahead of time by the board. What if 1 of the first 3 rules is missing? Even if one of those is missing, the contract can still be valid — but it needs to be ratified (formally approved after it happened) by the stockholders or members. a. At least 2/3 of the stockholders or members vote to approve it in a meeting specially called for this purpose b. the director’s or trustee’s interest in the contract was fully disclosed, c. the contract is still fair and reasonable. Section 32: Contracts between corporations with interlocking directors Interlocking directors – members the board of directors in certain corporation who are also directors in another corporation General rule: Just because the two corporations share directors does not automatically make the contract invalid. Requisites:
  7. The contract is not fraudulent (no dishonesty or trickery).
  8. The contract is fair and reasonable (both companies are getting a good deal). If these two are true, then the contract is generally allowed even if there are interlocking directors. Exception: if the interlocking directors has substantial interest (more than 20% ownership) in one corporation and nominal interest (less than or little) in other The rules under Section 31 (about fairness, non- involvement in quorum/voting, board approval, etc.) will apply to the corporation where the director has only nominal interest.

Situation Is the contract allowed? Any special rules? Same director in both corporations Yes As long as there’s no fraud and it’s fair Director has substantial interest in one and nominal in another Maybe Apply Section 31 to the corporation where their interest is nominal Contract is fraudulent or unfair No Not allowed Section 33: Disloyalty of a Director. This section applies the doctrine of corporate opportunity where in the directors should not take business opportunities for themselves if that opportunity should have belonged to the corporation.

  • If a director uses their position to grab a business deal or opportunity that should have gone to the corporation,
  • then they must return all profits they earned from that deal to the corporation. Ratification by the stockholder
  • the act of director violating the doctrine of corporate opportunity can be ratified by the vote of 2/3 of stockholder Situation Is the director liable? What should happen? Director grabs a business opportunity for personal gain Yes Must return all profits to the corporation Director used their own money for the deal Still liable Doctrine applies no matter where the money came from 2/3 of stockholders Not liable anymore The act is ratified (approved), no approve the director’s act need to return profits Section 34: Executive, Management, and Other Special Committees of the Revised Corporation Code: This section talks about the executive committee and special committees that the Board of Directors may form to help manage the corporation—if allowed by the bylaws. Executive committee - It is a smaller group of at least 3 directors (board members) that the board creates to handle certain matters.
  • This committee can make decisions on behalf of the board, but only for specific matters given to them by the bylaws or by a majority vote of the board. Limitation of executive committee (cannot do)
  • Approve actions that need stockholders’ approval (e.g., mergers, increasing capital stock)
  • Fill vacancies in the board (only the full board or stockholders can do this)
  • Amend or repeal the corporation’s bylaws or create new ones
  • Amend or repeal a board resolution that clearly says it cannot be changed
  • Distribute cash dividends to shareholders (This power is reserved for the full board) Special committee - The board may also form other temporary or permanent committees. The board decides there:
  1. Purpose
  2. Members
  3. How long they will serve
  4. Responsibilities
  5. Any compensation (if applicable)

Appraisal right ➢ (those who oppose the change) can exercise their right of appraisal, meaning they can demand payment for the fair market value of their shares Section 37: Power to increase or decrease capital stock, incur, create or increase bonded indebtedness Requirements for increase/ decrease of authorized capital stock

  1. Written notice of the proposed increase or decrease of capital stock, including the time and place of the said meeting and sent or addressed to each stockholder through mail, personal or electronic means
  2. Decrease in capital stock cannot be allowed if it will harm the rights of creditors
  3. Approval by a majority vote of the board of directors
  4. Ratification by the stockholder holding at least 2/3 of the outstanding capital stock
  5. Certificate must be signed by majority of directors and countersigned by the chairperson and secretary of stockholders meeting
  6. SEC approval
  7. Treasurer affidavit (for increase only) showing that 25% of the increase has been subscribe and 25% of that has been paid Bonded Indebtedness ➢ Bonded indebtedness refers to long-term debts usually secured by real property. ➢ The same procedure for increasing or decreasing capital stock applies when incurring, creating, or increasing bonded indebtedness. ➢ All bonds issued by a corporation must be registered with the SEC, which will evaluate the terms of the bonds to ensure they are sufficient and comply with regulations. Section 38: Power to deny preemptive right Preemptive right ✓ It is the right of existing stockholders to buy newly issued shares of the company before they are offered to others — in proportion to how many shares they already own. Purpose ✓ To protect a stockholder’s ownership and voting power in the company. It prevents their share from being diluted (or reduced). Preemptive right is not available/ applicable (Power to deny Pre-emptive right)
  8. Shares issued to comply with public offering laws: If shares are issued to meet legal requirements (e.g., for public offering or to meet minimum stock ownership), stockholders cannot exercise their preemptive right.
  9. Shares issued in good faith: If the company issues share in good faith, with approval from 2/3 of the outstanding capital stock, and the shares are used for corporate purposes or to pay off a previous debt, the preemptive right does not apply. Section 39: Sale or other disposition of Assets General Power of Disposition : ✓ A corporation, through a majority vote of its board of directors or trustees, can sell, lease, exchange, mortgage, pledge, or otherwise dispose of its assets Sale of all or substantially all assets : ✓ If a corporation decides to sell all or substantially all of its properties, including its goodwill, this requires approval by the stockholders representing at least (2/3) of the outstanding capital stock. o For nonstock corporations, (2/3) of the trustees are sufficient for such approval.

Determining "Substantially All” ✓ Whether a sale involves "all or substantially all" of the assets is determined by the net asset value in the corporation's most recent financial statements.. ✓ A sale will be considered to affect "substantially all" the assets if it leaves the corporation unable to continue its business or achieve its original purpose Requirements:

  1. Written notice of the proposed action including the time and place of the meeting. It must be addressed to each of the stockholders through mail, personally or electronic means
  2. Approval by the majority vote of its board of directors or trustee
  3. Ratification by the vote of the stockholder representing 2/3 of outstanding capital or 2/ of members
  4. Any dissenting stockholder may exercise his appraisal rights Regular Course of Business: ✓ The sale or disposition of assets necessary for the regular business operations does not require stockholder or member approval. ✓ If the proceeds of such a sale are to be used for the remaining business activities, it is also exempt from needing stockholder authorization. TITLE V : Bylaws By-laws - By-laws are the internal rules made by a corporation to guide how it should operate. They are like a company’s manual that governs:
  • how decisions are made,
  • how meetings are conducted,
  • what duties officers and members have,
  • and how the corporation is managed. They apply to stockholders , directors , officers , and members Nature of By-laws
  • They are private laws created by the corporation itself.
  • They are not public laws , meaning they don’t apply to everyone — only within the corporation.
  • They are long-term rules that help keep the corporation organized and consistent in its actions.
  • They are based on authority granted by the law , but the corporation chooses the details. Purpose of By-law
  • Set rules for how the corporation and its people should behave,
  • Define roles and responsibilities of members, officers, and directors,
  • Maintain order within the organization. Note: Think of by-laws as the "house rules" of a corporation. They help avoid confusion, conflicts, and mismanagement by providing clear procedures and expectations Section 45: Adoption of By-law Adopting by-laws means the corporation formally creates and approves its internal rules, which will guide how the company operates — including meetings, voting, responsibilities of officers, and more. Two ways to adopt by-laws: 1. Before incorporation (pre- incorporation)
  • All incorporators must approve and sign the by-laws.
  • The by-laws are submitted together with the Articles of Incorporation to the SEC.

(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. Section 47: Amendments to By-laws General rule: By-laws can be amended, repealed, or new by-laws adopted by:

  • 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 (for non-stock corporations)
  • In a regular or special meeting that was properly called for that purpose. Exception:
  • 2/3 of the outstanding capital stock or 2/3 of the members (in non-stock corporations) may delegate the power to amend or repeal by-laws or adopt new ones to the board of directors or trustees.
  • However, this delegated power can be revoked anytime by a majority vote of the stockholders or members during a regular or special meeting. Filing and Approval ❖ After amending or adopting new by-laws, the corporation must file them with the SEC, along with the resolution (if there was delegation), which must be certified under oath by the corporate secretary and the majority of the board. ❖ The amended or new by-laws will become effective only after the SEC issues a certification that they comply with the Revised Corporation Code and other relevant laws. Binding Effects of the By-laws:
  1. On Directors, Trustees, Officers, Stockholders, or Members - They are bound by the by-laws and are presumed to know their contents, so they must follow them.
  2. On Third Parties - Third persons are not bound by the by-laws unless they have actual knowledge of them. TITLE VI: Meetings P urpose of Stockholders' or Members' Meetings Usually held to: a. Elect directors or trustees b. Approve important matters like: ▪ Amendments to the articles of incorporation/by-laws ▪ Sale of major assets ▪ Mergers or consolidations c. Any other business that requires the approval of members/stockholders Voting Rights
  • Who can vote? o Members of a nonstock corporation o Legal stockholders of a stock corporation
  • Who cannot vote? o Anyone who is not a stockholder or member
  • Voting can be done: o In person o Through a proxy (someone authorized to vote for another) Remote and Electronic Participation
  1. Remote Communication – Data sharing between devices not in the same place.
  2. Teleconferencing – Interactive group communication using phones or computers.
  3. Videoconferencing – Group communication with video and audio from different places.
  1. Computer Conferencing – Using computers to conduct teleconferencing.
  2. Audio Conferencing – Only voice communication using phones or the internet. Benefits of Teleconferencing
  • Saves time and money (no travel needed).
  • Easier for people far away to join.
  • Meetings are shorter and more focused.
  • Useful in bad weather or places with poor transportation.
  • Good for simple tasks and information sharing.
  • Encourages more equal participation in a well-managed meeting. Disadvantages of Teleconferencing
  • Technical problems (poor internet or device issues).
  • Not good for complex negotiations.
  • Feels less personal and harder to build rapport.
  • Some people may be unfamiliar with the tools.
  • Difficult to control who talks or when to talk.
  • Can’t socialize or have casual conversations easily. Legal Basis in the Philippines
  • RA 8792 (E-Commerce Act) supports the use of teleconferencing in business.
  • SEC Memorandum Circular No. 15 (2001)
  • Guidelines for board meetings using teleconferencing.
  • SEC Memorandum Circular No. 6 (2020) – Rules for allowing participation of all members (directors, stockholders, etc.) in meetings using electronic means. Section 48: Kinds of meeting - Meetings of directors, trustees, stockholders, or members may be regular or special. Section 49 : Regular and special meetings of stockholders or members Regular Meetings
  • When: Once a year, on a date set in the bylaws or any date after April 15 as decided by the board.
  • Purpose: To present corporate reports and allow stockholders/members to vote or raise matters. Special Meetings
  • When: Anytime when needed or stated in the bylaws.
  • P urpose : To address urgent or specific matters. NOTICE OF MEETINGS
  • Regular Meetings: Written notice must be sent at least 21 days before the meeting.
  • Special Meetings: At least 1 week notice is required.
  • Postponement: If the meeting is postponed, written notice and the reason must be sent 2 weeks before the original date. WHAT HAPPENS DURING REGULAR MEETINGS The board should present:
  1. Minutes of the last meeting (includes voting results, Q&A, who attended, etc.)
  2. List of members or stockholders with voting rights
  3. Company performance report (with updates on business strategy)
  4. Financial report (signed and certified)
  5. Dividend policy and updates
  6. Profiles of directors/trustees
  7. Attendance reports of directors/trustees
  8. Board evaluations
  9. Compensation report
  10. Related party transactions disclosures
  11. Profiles of those running for election or re-election WHO CAN CALL A MEETING?
  12. A person authorized by the bylaws
  13. A director, trustee, or company officer if not stated in the bylaws
  14. A stockholder/member, if approved by the SEC (in case the authorized person refuses or fails to call it) REQUIREMENTS FOR A VALID MEETING
  15. Held in the right place
  16. Held on the correct date and time
  17. Called by the proper person
  18. Proper notice must be given