Mr. Chito M. Cruz

August 11, 1988 Mr. Chito M. Cruz 6th Floor, Cibeles Bldg. Ayala Avenue, Makati, Metro Manila Sir : This refers to your letter dated July 18, 1988, requesting for opinion on the query posed therein. It appears that TSM Shipping (Philippines),Inc. is contemplating of amending its articles of incorporation, particularly Article 7 thereof, classifying the shares into Class A & B shares wherein Class A shares shall be entitled to four (4) votes per share and Class B shares shall be entitled to one (1) vote per share, except that for purposes of electing members of the Board of Directors, all shares of common stock of the corporation shall be entitled to one vote per share. Your query is whether or not the proposed amendment does not violate any provisions of the Corporation Code. Under modern corporation law it is generally provided expressly that stockholders shall have one vote for each share held by them, which excludes fractional voting. The Model Business Corporation Act provides that each outstanding share, regardless of class is entitled to vote unless the right is specifically restricted by statute. This approach has been adopted in a number of jurisdiction. Most of the other jurisdiction have statute provision of one vote per share. (5 Fletcher, ch 13, Sec. 2045, p. 183 1976 Revised Edition). In our jurisdiction, the pertinent provision of the Corporation Code reads thus: "SECTION 52. Quorum in meetings . Unless otherwise provided for in the Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock . . .". The vote required to carry a stockholders' resolution would be as required by the particular sections of the Corporation Code, and where it is not covered by any provision of the Code, then the usual rule would be applicable; the majority of the vote of the shares present provided there is a quorum. (Campos, Campos, The Corporation Code, Comments, Notes and Selected Cases, 1981 ed., p. 281). In stock corporation, the vote is based on the number of shares represented and not on the number of stockholders present, which shares must always be a part of the outstanding capital stock as defined by the Code: SECTION 137. Outstanding capital stock defined . The term " outstanding capital stock", as used in this Code, means the total shares issued to subscribers or stockholders, whether or not fully or partially paid (as long as there is a binding subscription agreement), except treasury shares". (See Campos, Supra). It is to be emphasized that Section 6 (par. 5), of the Corporation Code applies only in cases wherein certain classes of shares, particularly shares classified as preferred shares, are denied certain rights ordinarily enjoyed by a stockholder, e.g. voting rights, priority in the distribution of dividends, priority in the distribution of assets after dissolution, or right to be elected in the Board. Said Section is construed to mean that unless denied in the articles of incorporation, all shares regardless of class enjoy all the rights of a stockholder. Hence, the corporation cannot invoke said provision as basis for the proposed amendment. In view of the foregoing, the proposed amendment to Article 7 of the articles of incorporation of TSK Shipping (Philippines),Inc.,providing that Class A Shares shall be entitled to four (4) votes per share, is not legally feasible. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman