Atty. Rafael T. Durian

May 21, 1986 Atty. Rafael T. Durian ACC Law Building, 451-461 Cabildo Street Intramuros, Manila, Philippines Sir : This refers to your letter dated May 14, 1986 requesting for an opinion on the query posed therein. You alleged that Enrique Razon is a registered stockholder owning 5% equity of 10,000 shares of Manila International Port Terminal, Inc. (MIPTI).Razon is planning to transfer in trust eleven (11) of his shares of stock to third parties at one (1) share each to qualify the said third parties as nominees of Razon in the Board of Directors of MIPTI .Your query is whether said transfer of nominal shares to third parties in order to qualify them as directors therein, is not inconsistent with the provisions covering the preemptive right of stockholders to purchase the issued shares of the Company in any sale thereof as contained in the articles of incorporation of MIPTI. On the matter as to who may be elected as directors, Section 23 of the Corporation Code provides, in part, to wit: "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 ." (emphasis supplied) The above-quoted provision requires stock ownership in order to be eligible as director. As to the requirement of stock ownership, the general rule is that " 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 .In other words, it is sufficient that the title to the stock, as it appears in the books of the corporation, is in the director, since the legal title is what counts and it is the person whose name appears as owner of 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 express purpose of qualifying him as director is eligible ." (2 Fletcher Cyc. Corp. Sec. 300 pp. 91-92 emphasis supplied) Going into the issue as to whether the transfer is not violative of the transfer restriction clause in the articles of incorporation, it is to be noted that in this kind of transfer only naked ownership is being transferred. The beneficial ownership of the stock remains with the existing stockholders. Hence, no new stockholders will be coming in. The fact that one stock standing on the corporate books is in the name of a person as trustee in the certificate or that the holder thereof is described merely as a trustee in the books and certificate is a notice to both the corporation and third parties that he does not hold the share in his own right. The trustee remain the nominal owners of the shares and are regarded as trustees of the stocks for the benefit of the real owners. Thus, the Commission previously ruled that transfer of naked ownership of stock is not violative of the provisions in the articles of incorporation covering the preemptive right of stockholders to purchase the issued shares of a corporation in any sale thereof. (SEC Opinion dated February 12, 1985 addressed to PEFTOK Integrated Services, Inc.). The transfer, however, should contain a description that the nominees hold the stocks merely as trustees thereof. Likewise, such transfer is understood to be subject to the provisions of the Corporation Code on "cumulative voting". Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman