Atty. Rodolfo B. Valdez

August 21, 1985 Atty. Rodolfo B. Valdez 4th Floor, Universalre Bldg., 106 Paseo de Roxas, Makati, Metro Manila Sir : This has reference to your letter dated April 29, 1985 requesting for the opinion of this Commission on the queries posed therein. The articles of incorporation of Realty Investments, Inc. for which a certificate of registration was issued on March 16, 1937 gave the owners of management shares the exclusive right to vote and be voted for in the election of directors. Said articles provide: "Seventh: That the capital stock of the corporation is ONE MILLION (P1,000,000.00) PESOS and said capital is divided into Four Hundred (400) shares of management stock at the par value of P500.00 each and Sixteen Hundred shares (1,000) of common stock at the par value of Five Hundred (P500.00) each; that the owners of management stock shall have the sole and exclusive right to vote and to be directors of the corporation ...." Under the New Corporation Code which took effect on May 1, 1980, the exclusive voting right granted to founders shares (in your case, you called it management shares) is limited to five (5) years. The law states: "SECTION 7. Founders Shares . Founders shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks provided that where the exclusive right to vote and be voted for is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five (5) year period shall commence from the date of the aforesaid approval by the SEC".(Emphasis supplied) You claim that since the articles of incorporation of your company preceded the New Corporation Code, the provision of the latter will be deemed incorporated in the articles of the former such that this exclusive right to vote granted in the articles of Realty Investments, Inc. will be deemed limited to the period from May 1, 1980, when the Code took effect, and five (5) years thereafter or until May 1, 1985. Under these circumstances, your queries are: 1. Assuming your interpretation to be correct, is there a need to amend the articles of incorporation of the company after May 1, 1985 to remove the exclusive right of the management shares? 2. Assuming that the termination of the exclusive right of the management shares is not mandatory under Section 7 of the New Corporation Code, may this exclusive right of the management shares to vote and be voted for in the election of directors be renewed for another five (5) years from May 1, 1985 with the approval of the SEC? 3. If the answer to the first question is in the affirmative, can the amendment to the articles wait until the annual meeting of the corporation which falls on October 25, 1985; and, 4. During the annual meeting on October 25, 1985, may the owners of common shares of the company exercise jointly with the owners of the management shares the right to vote and be voted for in the election of directors? Anent your first query, the same is answered in the negative. Section 148 of the New Corporation Code, provides that existing corporations affected by the new requirements of the Code are given a period of two (2) years from its effectivity (May 1, 1980) within which to comply with the same. Since you did not amend your 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 opinion dated July 11, 1983). Thus, the voting rights and privileges granted to the owners of the management shares should be effective only up to May 1, 1985. As regards your second query, it is opined that the exclusive right of the management shares to vote and be voted for in the election of directors is not subject to renewal because to hold otherwise will be contrary to the specific provision of the Code which states that ". . . it must be for a limited period not to exceed five (5) years ...." Considering our answer to your first query, We need not discuss your third question. Our answer to your last query is that after May 1, 1985, the holders of common shares as well as management shares shall enjoy equal rights and voting powers. Please be guided accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman