Atty. Emmanuel Paras

March 24, 1981 Atty. Emmanuel Paras, Sycip, Salazar, Feliciano & Hernandez Law Offices Paic Bldg.,105 Paseo de Roxas Makati, Metro Manila Sir : This refers to your letter dated March 2, 1981, requesting opinion on whether Section 17 of the Corporation Code of the Philippines applies to Article Seventh of the articles of incorporation of the Medical Doctors, Inc. Both provisions are quoted in part as follows: SECTION 7. Founders' Shares . Founders' share classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owner 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. (Corporation Code of the Philippines) prcd Article Seventh. ...Both holders of Founders' stock have voting rights. However, only holders of Founders' stock shall have the right to be voted for membership in the Board of Directors, provided, that in the event no dividends are declared for three (3) consecutive years from the operation of the hospital holders of common shares shall acquire the right to be voted as director of the corporation which right shall cease after the payment of one fiscal year's dividend. ...(amended articles of incorporation as of June 1, 1964) While it appears that both holders of common and founders' shares have voting rights, only holders of founders shares have the right to be voted as members of the board of directors. This provision finds affirmance in Sec. 7 of the Corporation Code of the Philippines but with a limitation that the privilege to be elected as members of the Board shall not exceed five (5) years subject to approval of the Securities and Exchange Commission. The five (5) year period shall commence from the date of the aforesaid approval by the Commission. It may not be amiss to state that Section 148 of the Code makes applicable its provisions over all corporations lawfully existing and doing business in the Philippines on the date of its effectivity and those heretofore registered. Those affected by new requirements under the Code are given a period of two (2) years from the effectivity of the Code within which to comply with the same. Thus, since Article 7 of the amended articles of incorporation does not provide for the period when the privilege of the holders of the founders' shares shall cease, it is suggested that you file an amended articles of incorporation specifying such period. Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department