Philex Mining Corporation

November 23, 1983 Philex Mining Corporation Philex Building, Brixton & Fairlane Sts. Pasig, Metro Manila Gentlemen: This has reference to your letter dated November 7, 1983, requesting the opinion of this Commission on the validity of your resolution dated June 8, 1981. It appears that Section 22 of your by-laws provides as follows: "The Board of Directors shall provide for the issue and transfer of the capital stock of the corporation". LexLib Conformably to the above-mentioned provision, your Board adopted on June 8, 1981 a resolution under which your company will not allow transfers of shares, if, thereby, the transferee shall not own 5,000 shares if he is a local resident or 50,000 shares if he is a non-resident. It is your view that the rule as to restrictions in the transfer of corporate shares should be stated as follows: "Generally, apart from statutory or charter provisions, a corporate by-law which unreasonably restrain the right of a stockholder to transfer his stock is invalid as against public policy or for other reason, but a reasonable restraint on alienation is ordinarily valid and enforceable. (8 Fletcher, pp. 751, 752 note 3). In adopting the said resolution, your Board believed it was a reasonable restraint, principally on stockholding and only incidental in regard to alienation. Aside from the cost of servicing stockholders owning less than the minimum number of shares, which is the main factor, the following considerations were also taken into account: a) The present Board lot at local exchanges is not less than 5,000 shares. Under the said resolution, the stockholders with 4,500 shares can sell those shares directly to the company at the same price he would receive if he were selling through a broker without paying commissions. b) The SEC has allowed the restriction that stockholders cannot sell their shares except after offering them to other stockholders. There should neither be any objection to requiring a stockholder with 4,500 shares to sell them to another who has 500 shares at least or sell said shares to the company. c) There is no basic unreasonableness in regard to the regulation of amount of stockholdings. Hence, your request. In answer thereto, please be informed that this Commission, in previous rulings, has held that "In order to legally effect restrictions on the transfer of shares of stock, such restrictions must be provided for in the articles of incorporation ". ( Ltr. to Ozaeta, Gibbs & Ozaeta dtd. October 13, 1964 ) (Emphasis supplied). "Shares of stock in a corporation are personal property, and it is well settled that the owner has an absolute and inherent right, as an incident of his ownership, to sell and transfer the same at will, except insofar as the right may be restricted by the charter of the corporation, or the general law , or by a valid agreement between him and the corporation, provided the transfer is in good faith, and to a person capable of assuming the obligations of a stockholder. (Emphasis supplied) ( Ltr. to Mr. Saturnino Abesamis dated July 22, 1965 , citing 12 Fletcher's Cyc. of Corps., pp. 206-207)". "Shares are vendible at will, and the corporation has no right to restrict their transfer except as authorized by the statute. (Steele v. Farmers' Merchants' Mert. Tel. Ass'n. 95 Kan 580, 141 P 661)". A perusal of your articles of incorporation and by-laws reveals that the same do not provide for restrictions on transfers of shares. Consequently your Board of Directors, cannot, by mere board resolution, adopt restrictions on transfers of shares. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman