Mr. Jose M. Millarez

February 7, 1994 Mr. Jose M. Millarez Pagers Realty Devt. Corp. 2nd Floor, Torimar Building Escolta, Manila S i r : This refers to your letter of December 14, 1993 requesting opinion on the following queries: cdll A. In an open corporation, is it lawful/allowed for a director to designate his brother, also a director/incorporator of the company, as his Attorney-In-Fact and authorize him to vote for or against any issue presented for resolution at the Board of Directors meeting? In a close corporation? B. Since there are only seven (7) incorporators/directors at present, if instead of a board of directors meeting, a stockholders meeting is called, will it then be legal for a director to appoint his brother/director as his Attorney-in-fact as in A above? C. In the case wherein the Chairman of the Board is also the treasurer of the company, in discharging his functions as treasurer, is he under the direct supervision of the President/CEO? D. What are the basic differences between a close and open corporation and which is better? The Corporation Code expressly grants to stockholders the right to be represented by proxy in stockholders' meeting. The Code provides, thus: SECTION 58. Proxies . Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. Proxies shall be in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. ...(Emphasis supplied). However, while voting by proxy is allowed in all meetings of stockholders, the same is explicitly prohibited with respect to Directors meetings. Section 25 of the Corporation Code provides in part, thus: " Directors or trustees cannot attend or vote by proxy at board meetings." (Emphasis supplied). The reason for this is that the Board of Directors is the governing body of the Corporation with whom the management of the Corporation is vested, and on account of their responsibilities, they are supposed to exercise their own judgment and discretion in running the affairs of the Corporation. The Directors represent the stockholders who voted them into office presumably because of their personal qualifications and business experience, and therefore, they cannot delegate their power to vote much less their duties. Accordingly, it is a requirement for directors to attend and vote in directors meeting in person . Anent your third query, it is a settled rule that no two incompatible positions can be concurrently held by the same person and all corporate officers are directly under the supervision of the Board of Directors. Regarding your fourth query, a close corporation within the meaning of the Corporation Code is one where the articles of incorporation provide that: (1) All the corporation's issued stocks 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 stocks of all classes shall be subject to restrictions on transfer permitted by the Corporation Code and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. The main distinction of a close corporation from other corporations is that the identity of stock ownership and active management, that is, all or most of the stockholders are active in the corporate business either as directors, officers or other key men in management. Where business associates belong to a small, closely-knit group, they usually prefer to keep the organization exclusive and would not welcome strangers, since it is through their efforts and managerial skill that they expect the business to grow and prosper, it is quite understandable why they would not trust outsiders to come in and interfere with their management thereof, and much less share whatever fortune, big or small, that the business may bring. (Comments, Notes and Selected Cases on Corporation Code by Campos and Lopez-Campos). On the other hand, corporations, especially those which are intended to be financed not by merely a few, but by several investors, are normally open to the public. The factors to be considered in determining in what form a business entity may be established vary. What may be best for one business situation may not be suitable in another. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman