Dr. Raul D. Jara, M.D.

September 27, 1989 Dr. Raul D. Jara, M.D. Suite 223, Medical Center Manila United Nations Avenue, Manila Sir : This refers to your letter dated September 5, 1989, requesting clarification on the effects of the Corporation Code on the provisions of the articles of incorporation granting the founders shares the exclusive right to vote and be voted for as directors. When the Corporation Code became effective on May 1, 1980, a major change took effect on the privilege of the founders' shares to vote and be voted for in the election of directors. Section 7 of the Corporation Code provides, thus: "SECTION 7. Founders' shares . Founders' shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five (5) year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission." (emphasis supplied). Corollary thereto, Section 148 of the Corporation Code provides: "SECTION 148. Applicability to existing corporation . All corporations lawfully existing and doing business in the Philippines on the date of the effectivity of this Code and heretofore authorized, licensed or registered by the Securities and Exchange Commission, shall be deemed to have been authorized, licensed or registered under the provisions of this Code, subject to the terms and conditions of its license, and shall be governed by the provisions hereof: Provided, That where any such corporation is affected by the new requirements of this Code, said corporation shall ,unless otherwise herein provided, be given a period of not more than two (2) years from the effectivity of this Code within which to comply with the same .(n)" (emphasis supplied). Consequently, the Commission on several occasions has ruled that if a corporation does not file an amendment to its articles of incorporation to comply with the above-mentioned limitation period on or before May 1, 1982, the Commission will consider the limitation laid down by Section 7 of the Corporation Code as inserted into the articles of incorporation on May 1, 1980. (SEC Opinions dated July 11, 1983, April 26 and May 5, 1982). Accordingly, the provisions in the articles of incorporation granting the founders' shares the exclusive right to vote and be voted for as directors shall be effective up to April 30, 1985. After said date, the holders of common and founders' shares shall enjoy equal rights and voting power. LexLib Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner