Engineering And Architecture Review Center, Inc.

March 2, 1988 Engineering And Architecture Review Center, Inc. Ground Floor, U.E. Engineering Bldg. S.H. Loyola St.,Sampaloc Metro Manila Gentlemen : This refers to your letter, dated February 10, 1988, requesting the opinion of this Commission on the query posed therein. Records show that Engineering and architecture Review Center, Inc. was registered with the Commission on March 11, 1980. It has an authorized capital stock of P280,000.00 divided into 1,400 founders' shares and 4,200 common shares of the par value of P50.00 per share. The exclusive right to vote and be voted for in the election of directors is granted to the founders shares in accordance with law. As appearing in Article V of the articles of incorporation of E.A.R.C.I.,its board of directors is composed of five (5) members. You alleged that one founders' shares holder, Esperanza Omega, who was an incorporating director of E.A.R.C.I. had not attended the annual stockholders' meeting of January, 1987 and 1988, respectively, held for the election of directors. Likewise, another founders' shares holder, Mr. Edmundo Velos, who was also an incorporating director, did not attend the annual stockholders' meeting of January, 1988 for the election of directors. Hence, Ms. Omega was not elected director in 1987 and 1988; neither was Mr. Velos elected as director in 1988. In view thereof, at the stockholders' meeting of January, 1988, only three directors were duly elected as board members. The remaining members of the board, however, believe that the Center can operate more efficiently and effectively if its board of directors is complete in number. Therefore your queries are: May the holders of the founders' shares assign a portion of their stock in favor of third parties for purposes of qualifying them as directors of the Center? In the event that Ms. Omega and Mr. Velos continuously absent themselves from attending future annual stockholders' meeting, considering that their subscribed shares have not been fully paid, what are the legal remedies which the corporation may take with respect to their holdings? Our answer to your first query is in the affirmative. Section 23 of the Corporation Code reads as follows: "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". In this connection, please be informed that beneficial ownership is not necessary and 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. In other words, it is sufficient that the title to the stock, as it appears in the books of the corporation, is in the directors, 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 stockholder and eligible as director. For instance, a director may hold his stock as trustee and yet be legally qualified. So, a person to whom one share of stock has been transferred for the purpose of qualifying him as director is eligible. ( SEC letter to Peftok Integrated Services, Inc., dated February 12, 1985 ). While the articles of incorporation of E.A.R.C.I. contains a restriction on transfer of founders' share, the proposed transfer of naked ownership of stock is not violative of said restriction clause, if the purpose thereof is merely to qualify the nominees/trustees as directors. To rule otherwise would create an injustice to corporate stockholders who under the law, have the right to be represented in the Board. ( Letter to Peftok Integrated Services, Inc., Supra.; letter to Mr. Jose Fuentes, dated December 15, 1987 ).In addition, please be advised of the following legal provision in the validity of transfer of shares: "No transfer, however, shall be valid except as between parties until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Section 63, Corporation Code of the Philippines). As regard your second query, quoted hereunder is the applicable provisions of the Corporation Code: "SECTION 67. Payment of balance of subscription . Subject to the provisions of the contract of subscription, the board of directors of any stock corporation may at any time declare due and payable to the corporation. Unpaid subscriptions to the capital stock and collect the same or such percentage of said unpaid subscription, in either case with interest accrued, if any, as it may deem necessary. Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until full payment. If within thirty (30) days from said date no payment is made, all stock covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise." Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman