Rural Bank of Sta. Margarita

August 13, 1986 Rural Bank Of Sta. Margarita (Samar),Inc. Sta. Margarita, Samar Gentlemen: Your letter, dated March 18, 1986, addressed to the Central Bank of the Philippines, requesting opinion on the queries posed therein, was referred to this Commission for appropriate action. LexLib Your queries are: 1. What exactly are the rights of the stockholders in the election of directors? How is the voting done? Cite some clear examples. 2. At present, your authorized capital stock amount to P500,000.00 divided into 2,500 non-voting preferred shares and 2,500 voting common shares, both of the par value of P100.00 each. In compliance with the Central Bank requirement, you have to increase your common shares from 2,500 to 5,000 shares (P250,000.00 P500,000.00).Abiding by the Central Bank requirement, you are now in a quandary as to what to do with your 2,500 preferred shares, i.e. should you retain said amount of preferred shares or should you reduce the same to the amount subscribed? The queries posed in number one (1) above are squarely answered by Section 24 of the Corporation Code which provides in part thus: "Election of directors or trustees. At all election of directors or trustees there must be present either in person or by representative authorized to act by written proxy, the owners of the majority of the outstanding capital stock, ....The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or when the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the total number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. ....Candidates receiving the highest number of votes shall be declared elected. ....". The above cumulative voting may be well exemplified as follows: "Suppose that A has 20 shares of X, Inc.,registered in his name, and 5 directors are to be elected. In such case, he has 100 votes, this being the product of 20 (shares) multiplied by 5 (directors).He may cast 20 votes for each of the five candidates or the total of 100 votes for only one candidate, or 50 for one candidate and 50 for another, or otherwise distribute 100 votes among as many candidates he may deem fit." (Agbayani, Commercial Laws of the Philippines, Vol. 3, 1984 ed.,pp. 241-242).The right of cumulative voting is a method of concentrating votes devised to give a sufficient minority of opportunity to secure representation in the board of directors. Anent the query posed in number 2 hereof, as to whether the bank has to maintain the present number of its preferred shares or reduce the same to a certain level, is a Key Management Decision. Please be informed, however, that since, as a general rule, the amount of the capital stock of a corporation is fixed by statute or its charter, or by its articles of incorporation pursuant to statutory authority, it has no more power, unless effected in accordance with Section 38 of the Corporation Code, to reduce the same than it has to increase the same. cdll Very truly yours, (SGD.) JULIO A. SULIT, JR. Acting Chairman