Chemphil Industries of the Philippines, Inc.

November 9, 1987 Chemphil Industries of the Philippines, Inc. Chemphil Bldg.,851 Pasay Rd. Legaspi Vill.,Makati, MM Attention : Mr . Rolando P . Navarro Gentlemen : This relates to your letter, dated November 2, 1987, requesting the opinion of this Commission on the queries posed as follows: 1. Is it a requirement that at the time of his election as director, a person so elected as such should own at least one (1) share of the capital stock of the corporation? 2. If he is not the owner of at least one (1) share of stock, is his election considered "cured" by his subsequent ownership of at least one (1) share. Section 23 of the Corporation Code specifically provides: "Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stock ,or where there is no stock from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. Every director must own at least one (1) share of the capital stock of the corporation of which he is a director ,which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. ...." (emphasis supplied). As a general rule, where the statute governing the corporation provides that the directors shall be stockholders, and where such is the requirement, it had been held essential to render one eligible to such office that he appears as a stockholder on the books of the corporation. (13 Am. Jur.,sec. 870).In this connection, beneficial ownership is not necessary, and that a person who holds the legal title to stock on the books of the corporation is qualified, although the beneficial ownership may be in another. (2 Fletcher, Cyc. of Corps.,1982 rev. vol.,sec. 300 at 93, citing Transamerica Corp. v. Parrington, 115 Cal. App. 2d 346, 252 P2d 385, 12 USC 72).In other words, it is sufficient that the title to the stock, as it appears on the books of the corporation, is in the director. (Fletcher, Supra.,citing People v. Lihme, 269 Ill. 351, 109 NE 1051). Apropos your first query, it is advised that as a general rule, a candidate for director must, at the time of election, hold the legal title to the stock. "The violation of a statute requiring a director to be a stockholder is a wrong to the corporation and to the public and may be directly redressed by them." (13 Am. Jur.,870). Your second query is answered by the following jurisprudence on the matter: "Under statutes requiring that a director be a shareholder, the fact that a person does not own stock at the time of his election or appointment to office does not disqualify him, if he becomes a shareholder before entering upon the duties of the office ." (Fletcher, Supra.,sec. 304, citing Cupo v. Community Nat. Bank & Trust Co. of New York, 324 F. Supp. 1390 (EDNY);130 ALR 156). Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman