On September 11, 2024, the Securities and Exchange Commission (SEC) issued Opinion No. 24-23 in response to a request from Alabang Country Club, Inc. (ACCI). The opinion clarified whether ACCI could continue electing directors to three-year terms, despite the Revised Corporation Code’s (RCC) rule mandating one-year terms for corporate directors.

Background

ACCI is a domestic, non-profit corporation promoting social and athletic activities among its stockholders. Its by-laws currently provide for three-year terms for its directors. However, this conflicts with Section 22 of the RCC, which clearly states that directors must be elected for only one year.

When ACCI was asked by the SEC to amend its by-laws to comply, it executed an undertaking to make the necessary changes by April 12, 2024. However, ACCI argued that it should be allowed to continue its three-year director terms until its amendment process was completed.

The club cited precedent, including the case of Forest Hills Golf and Country Club vs. Gardpro and SEC-OGC Opinion No. 22-074, which emphasized the importance of amending corporate by-laws to reflect new rules before those changes are enforced.

The SEC’s Ruling

The SEC firmly denied ACCI’s request. It reasoned that country clubs classified as “stock, non- profit” corporations—which issue shares or proprietary membership certificates—are treated as stock corporations under the RCC. Therefore, they must comply with the one-year term rule.

The SEC emphasized that any by-law provision that contradicts this rule is void. Since legal provisions are deemed to be automatically incorporated into a corporation’s by-laws, ACCI’s three-year term clause could not be enforced.

Additionally, ACCI’s citation of SEC-OGC Opinion No. 22-074 was found to be irrelevant. That opinion involved a residency requirement for directors, which corporations are allowed to modify under the RCC. However, Section 22’s one-year term requirement is non-negotiable and explicitly mandatory for all stock corporations.

Key Takeaway

The ruling highlights a critical point for corporations, particularly country and sports clubs: compliance with corporate laws is not optional. Even if a corporation’s by-laws are not immediately updated to reflect new legal requirements, those legal provisions still override any conflicting terms in the by-laws.

For companies navigating similar issues, this SEC opinion underscores the importance of proactively updating by-laws to avoid non-compliance.

For further details, the full text of SEC-OGC Opinion No. 24-23 is available for review.