University of the East

June 16, 1983 University of the East c/o Teves, Campos, Hernandez & Lim 5th Floor, Magsaysay Building T.M. Kalaw, Ermita, Manila Gentlemen: This relates to your letter, dated June 1, 1983, requesting for a clarification of our letter dated April 18, 1983, returning your amended articles of incorporation with the advice that the proposed amendment of Article VII thereof giving the founders' shares therein some convertible features, is premature considering the amount of your retained earnings. cdll As your proposed amendments include other matters like (a) the consolidation of 4,000 shares of common stock and 371,000 shares of common class "A" shares into 375,000 shares of common stock and (b) limiting the exclusive right of founders' shares to vote and be voted for in the election of trustees for a period of five (5) years from the approval of the amendments, and that (c) when such exclusive right of the founders' stock shall have expired, all common stock shall enjoy all voting rights, you contend to interpret the Commission action to refer only to the paragraph on conversion of founders' stock to common stock within said period of five (5) years based at the rate of forty (40) common stock for each founders' stock. Anent letter (a) therein, the consolidation of 4,000 common stock and 371,000 common class "A" stock, both of the par value of P100 each to P375,000 common stock at P100 per share would result from a conversion of 371,000 common class "A" stock to 371,000 common stock. Using the ratio of 1:1, the amount of underlying securities receivable upon conversion is measured by the conversion of specified number of common class "A" stock into a specified number of the common stock. There being no resulting impairment of capital, the same may be given favorable due course by the Commission. You may, therefore, submit your amended articles of incorporation embodying said amendment, as well as the amendment proposed in letter (c) of your letter, duly executed in accordance with Section 16 of the Corporation Code of the Philippines. As regards letter (b) of your letter, Section 148 of the Corporation Code of the Philippines, provides that existing corporations affected by the new requirement of the Code are given a period of two (2) years from its effectivity (May 1, 1980) within which to comply with the same. Consequently, to avail of the provisions of Section 7 of the Corporation Code granting the founders' shares certain rights and privileges not enjoyed by the owners of other stocks, such as the exclusive right to vote and be voted for in the election of directors for a limited period of five (5) years, you should have filed with this Commission your amended articles of incorporation on or before May 1, 1982. As the records show, your amended articles of incorporation embodying the five-year limitation of Founders' shares was filed with the Commission only on June 14, 1982. In this connection, this Commission, in several opinions has ruled that "if a corporation does not file an amendment to its articles of incorporation on or before May 1, 1982, the Commission will consider the limitation laid down by Section 7 of the Corporation Code as written into said articles on May 1, 1980". (SEC opinions dated April 26, and June 29, 1982). Hence, the Commission has to consider the limitation period in your articles of incorporation, granting the founders' shares thereof certain right and privileges not enjoyed by the owners of other stock, to be effective only up to April 30, 1985; after said date, the holders of common and founders' share shall enjoy equal rights and voting power. We trust that the foregoing clarified your queries on the matter. Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner