Mr. Lionel J. Tayko

October 21, 1992 Mr. Lionel J. Tayko Hibbard Avenue Dumaguete City S i r : This refers to your letter of September 28, 1992 requesting opinion on the query posed therein: llcd As stated, Don Gaspar Vicente, Inc.,was organized by the children of Don Gaspar Vicente (eight of them),with the following restrictions in its Amended Articles of Incorporation: "If any stockholder desires to sell his stock in such company, the remaining stockholders of such company shall have the first right to purchase the same in the proportions of their present holdings in such Company and the price to be paid for such seller's stock shall be the value of the same as shown by the books of the Company at the time of the proposed sale. Such retiring or selling stockholders shall give to the other stockholders notice in writing of his intention to sell his stock, and such remaining stockholders shall have ten days from the receipt of said notice within which to purchase such stock at its Book Value." You stated further that said Corporation is not listed in any stock exchange or did not make any public offering of any of its shares of stock. However, lately, the number of stockholders increased to more than twenty because of the sale of some shares by some stockholders to their own children and grandchildren, apparently with the conformity of the other stockholders who have the right of pre-emption. Your query is, does the increase in the number of stockholders make the corporation a publicly held corporation and no longer a close corporation, notwithstanding the aforementioned transfer restriction clause in the articles of incorporation and that the stockholders are limited to a family of three (3) generations? The pertinent provision of the Corporation Code provides: "SECTION 96. Definition and applicability of Title . A close corporation , within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20): (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. (Emphasis supplied) It is clear from the aforecited provision that for a corporation to be considered a "close corporation",its articles of incorporation should provide therein the above-enumerated features of a close corporation. A verification of the corporate record of subject Corporation on file with the Commission disclosed that its latest approved amended articles of incorporation fails to provide for the features or elements of a close corporation as required by the above provision of law. Accordingly, said Corporation will not be classified as a "close corporation" within the purview of the provisions of the Corporation Code. However, even if it is not treated as a close corporation, the Corporation may not be considered a publicly held corporation, notwithstanding the fact that the present number of its stockholders exceeds twenty, the subsequent transfer of shares being only of a limited character, provided, however, that the Corporation has no intention of going public. It has to be emphasized, however, that every time the Corporation will issue shares out of its unissued shares, even if the offering is of a limited character, it has to secure exemption from the Commission prior to such issuance pursuant to Section 6 (b) of the Revised Securities Act, quoted hereunder, so that it will be exempted from the registration requirements under said Act. "SECTION 6. Exempt transactions .... (b) The Commission may, from time to time and subject to such terms and conditions as it may prescribe, exempt transactions other than those provided in the preceding paragraph, if it finds that the enforcement of the requirements of registration under this Act with respect to such transactions is not necessary in the public interest and for the protection of the investors by reason of the small amount involved or the limited character of the public offering .(Emphasis supplied) xxx xxx xxx." Please be advised accordingly. LexLib Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman