Opinion of the Securities and Exchange Commission Dated July 28, 1975 Re Sec. 17 of the Corporation Law (Act 1459, as Amended)

February 26, 1976 CBP MEMORANDUM CIRCULAR TO ALL RURAL BANKS NO. 16-76 SUBJECT : Opinion of the Securities and Exchange Commission Dated July 28, 1975 Re Sec. 17 of the Corpo ration La w (A ct 14 59, as Amended) For your guidance, we are bringing to your attention the opinion of the honorable Commissioner, Securities and Exchange Commission, dated July 28, 1975, relative to our query on whether or not the preferred shares should be included within the meaning of the phrase ". . . two-thirds (2/3) of the entire corporate capital stock subscribed . . . ", as provided in Section 17 of the Corporation Law (Act 1459, as amended): "This refers to your letter requesting opinion on whether the provision of Section 17 of the Corporation Law, as amended, requiring that two-thirds of the entire corporate capital stock shall favor the increase or diminution of the capital stock includes the non-voting stockholders. "In this connection, you cited the interpretation of Professor Aguedo F. Agbayani in his book and we quote: 3452. Procedure for amendment to increase or decrease capital stock. It consists of the following: 1. . . . . 2. At least two-thirds of the entire corporate capital stock subscribed are required for the increase or diminution at a stockholders' meeting regularly called. It would seem from this that even the non-voting stockholders may vote where the question is the amendment of the articles to increase or decrease the capital stock. (1964 Ed. Vol. III, p. 1428). As the holders of preferred shares, the rules in this jurisdiction seems to be that in the absence of any provision in the Articles of Incorporation and of any statement in the certificate of stock, a preferred stockholder has the right to vote. (p. 1614) It also appears from your guidelines in organizing a rural bank as well as your proforma of the Articles of Incorporation for all rural banks that only one kind of common stock with voting rights shall be provided for and preferred stocks shall be non-voting and reserved for government participation only. However, in one application forwarded to this office for approval, the representative of said bank advised your department that the certificate of increase of capital stock shall include the preferred shares in order to conform to Section 17 of the Corporation Law, as amended. cdlex The aforementioned provision has been interpreted to include non-voting shares in determining whether the necessary votes had been cast to effect such increase of capital stock. However, since the articles of incorporation explicitly provides for preferred shares to be non-voting conformably with the limitation set forth under R . A . 720, as amended, which is the law governing the creation, organization and operation of rural banks and considering that said law is a later enactment than the Corporation Law, it is believed, that the answer to your query is in the negative ." (Emphasis supplied) Please be guided accordingly. (SGD.) HONESTO O. FRANCISCO Director