Mr. Fred P. Cladera

January 18, 1993 Mr. Fred P. Cladera Cladera, Fordilla & Cladera Law Office Suite 501, PNB Building Naga City S i r : This refers to your letter inquiring whether an intra-corporate case may still be brought to the SEC inspite of the fact that only 4 individuals remain as stockholders of the corporation due to the transfer of shares of some stockholders to the remaining stockholders. The Corporation Code provides: "SECTION 2. Corporation defined . A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence." (Emphasis supplied) Likewise, the Civil Code of the Philippines states: "ARTICLE 44. The following are juridical persons : xxx xxx xxx (3) Corporations, partnership and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member." (Emphasis supplied) Based on the above provisions, a corporation registered under the Corporation Code is considered a juridical person with a personality separate and distinct from that of each shareholder. This attribute gives rise to a fundamental principle in corporation law that under normal conditions, the stockholders of a corporation are not the same as the corporation itself. Another attribute under the above definition is that a corporation has the right of succession which means that a corporation has a continuity of existence during its term of existence stated in the articles of incorporation, independent from that of its shareholders. Its continued existence cannot be affected by any change in the stockholders, whether the change be the consequence of death of a stockholder or transfer of shares by a stockholder to third persons. Accordingly, transfer of shares neither dissolve a corporation nor render the same inoperative. Likewise, while Section 10 of the Corporation Code requires that at least five persons may form a corporation, nevertheless, it only requires the ownership of at least one (1) share in order to be eligible as an incorporator or director. As to the requirement of stock ownership, the general rule is that beneficial ownership is not necessary and that a person who holds the legal title to the stock on the books of the corporation is qualified, although the beneficial ownership may be in another. In other words, it is sufficient that the title to the stock, as it appears on the books of the corporations, is in the stockholder since the legal title is what counts and it is the person whose name appears as owner on the books of the company who is the stockholder. Thus, the Commission previously opined that a person who holds the naked title to the stock as appearing in the stock and transfer book of the corporation is eligible as director notwithstanding absence of his beneficial right, title, or interest in the property. ( SEC letters, dated March 4, 1988 addressed to Rilloza, Africa, De Ocampo & Africa and July 11, 1989 addressed to Mr. Rolando Rosales ).A corporation, therefore, may be owned substantially by a single individual and the rest of the stockholders may only be called qualifying shareholders for the purpose of complying with the statutory requirement of at least five incorporators/stockholders/directors. prcd In the light of the foregoing, your query is answered in the affirmative. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman