Mr. Cornelio B. Carunungan

June 25, 1996 Mr. Cornelio B. Carunungan 10 Galatians St.,Sacred Heart, Novaliches, Quezon City S i r : This refers to your letter dated June 11, 1996 requesting opinion on the following queries summarized as follows: 1. What is the effect of Section 7 of the Corporation Code which limits the voting privilege of founders share to five years on the Founder members of the Knights of Columbus Fraternal Association who, under its By-laws, are the only ones entitled to vote for the election of the Board of Trustees? 2. Can the interest of Founder members in the Association be transferred or assigned? 3. Can proxies be denied to Founder members in the election of the Board of Trustees? 4. How could voting privilege be amended to include all members of the Association? Anent the first query, Section 148 of the Corporation Code provides: "SECTION 148. Applicability to existing corporation . All corporations lawfully existing and doing business in the Philippines on the date of the effectivity of this Code and heretofore authorized, licensed or registered by the Securities and Exchange Commission, shall be deemed to have been authorized, licensed or registered under the provisions of this Code, subject to the terms and conditions of its license, and shall be governed by the provisions hereof: Provided, That where any such corporation is affected by the new requirements of this Code ,said corporation shall, unless otherwise herein provided, be given a period of not more than two (2) years from the effectivity of this Code within which to comply with the same .(Emphasis supplied) The Commission, on several occasions, has ruled that if a corporation already existing on the date of effectivity of the Corporation Code does not file an amendment to its articles of incorporation to comply with the above-mentioned limitation period on or before May 1, 1982, the Commission will consider the limitation laid down by Section 7 of the Corporation Code as inserted into the articles of incorporation on May 1, 1980, the date of the effectivity of the Code. (SEC Opinions dated July 11, 1983, April 26, 1982 and May 5, 1982). Accordingly, a provision in the articles of incorporation granting the founders' shares the exclusive right to vote and be voted for as directors shall be effective only up to April 30, 1985. After said date ,the holders of common and founders' shares shall enjoy equal voting power . The above ruling is applicable to non-stock, non-profit corporation pursuant to the following provision of the Corporation Code: "SECTION 87. Definition . ... The provisions governing stock corporations, when pertinent, shall be applicable to non-stock corporations ,except as may be covered by specific provisions of this Title." (Emphasis supplied) Relative to the second query, Section 90 of the Corporation Code provides: "SECTION 90. Non-transferability of Membership . Membership in a non-stock corporation, and all rights arising therefrom, are personal and non-transferable, unless the articles of incorporation or the by-laws otherwise provide ." (Emphasis supplied) Thus, as a general rule, membership in a non-stock corporation and rights arising therefrom are non-transferable .However, it admits of an exception as when the articles of incorporation or by-laws provide for their transferability. Regarding your third query, Section 89 of the Corporation Code which governs the voting rights of the members of non-stock corporations states in part: " Unless otherwise provided by the articles of incorporation or the by-laws , a member may vote by proxy in accordance with the provisions of this Code." (Emphasis supplied) It is quite clear from the above underlined phrase that in non-stock, non-profit corporations, proxy voting may be denied in the articles of incorporation or by-laws. Therefore, if proxy voting may be denied to the members, then obviously, a provision in the by-laws limiting the use of proxy is also allowable. Finally, regarding your last query, the extent of voting rights presently provided in the articles of incorporation or by-laws may be amended pursuant to the following provisions of the Corporation Code. A. Articles of Incorporation: "SECTION 16. Amendment of articles of Incorporation . Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees or the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of two-thirds (2/3) of the members if it be a non-stock corporation. LexLib The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended, shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon its approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation." B. By-laws: "SECTION 48. Amendments to by-laws . The board of directors or trustees by a majority vote thereof, and the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of non-stock corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: Provided, That any power delegated to the board of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be considered as revoked whether stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporations, shall so vote at a regular or special meeting. Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall be attached to the original by-laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary and a majority of the directors or trustees, shall be filed with the Securities and Exchange Commission, the same to be attached to the original articles of incorporation and original by-laws. The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of a certification that the same are not inconsistent with this Code." Please be guided accordingly. LexLib Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner