Mr. Virgilio T. Nibungco

February 15, 1991 Mr. Virgilio T. Nibungco Tiongco & Nibungco Law Offices Third Floor, University Bldg. 106 Paseo de Roxas Cor. Perea St. 1200 Makati, Metro Manila S i r : This refers to your letter of February 1, 1991 requesting confirmation that transfer by donation of one share for the sole purpose of qualifying the transferee for the election in the Board of Directors , does not violate the provision in the articles of incorporation providing for the stockholders' right of first refusal. cdlex As stated, stockholder A is an owner of 100,000 shares of stock out of the total 700,000 outstanding shares in XYZ, Inc. The rest of the total outstanding shares of said corporation are held by six other persons who each own 100,000 shares. A wishes to donate one share out of his total holdings to his only child B because A, who is the Chairman of the Board, is often out of the country and could not regularly discharge his functions as officer of the corporation. The sole purpose of the transfer by donation is to qualify B for the election in the Board. It is your contention that the provision on the right of first refusal under the articles of incorporation of XYZ, Inc. does not apply in the instant case. The Commission previously opined that the transfer of naked or legal ownership of stock for purposes of qualifying the transferee to the Board of Directors without transferring the beneficial ownership thereof, is not violative of a provision in the articles of incorporation covering the preemptive right of stockholders to purchase the shares of the existing stockholders. ( SEC letter dated February 12, 1985 addressed to PEFTOK Integrated Services, Inc. ) Thus, in the instant case, if the sole purpose of the transfer of the stock is only to qualify the transferee for the election in the Board of the corporation without giving him the beneficial ownership thereof, the transfer may not be violative of the stockholders' first refusal provision in the articles of incorporation. Said transfer would be more of a trust and not a sale or transfer contemplated by the first refusal proviso. In this particular case, the transferee should be described in the corporate books and certificate to be issued merely as nominee or trustee of the transferor. The notation shall serve as notice to both the corporation and third parties that the transferee only holds the share as nominee for the benefit of the real owner. Please be advised accordingly. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner