Mr. Roberto O. Parel

May 23, 1994 Mr. Roberto O. Parel Belo Gozon & Elma 15th Floor, Sagittarius Condominiums H.V. dela Costa Street, Salcedo Village Makati, Metro Manila S i r : This refers to your letter of April 28, 1994 requesting opinion on the legality of the following voting schemes: 1. Classification of common shares into Class "A" shares 30% and Class "B" shares 70% wherein Class "A" shall be entitled to one (1) vote per share while class "B" shall be entitled to three (3) votes per share. 2. As an alternative to the above scheme, Class "A" shares, voting as a class, shall be entitled to vote for one (1) director, while Class "B" shares, voting as a separate class shall be entitled to vote four (4) directors. In all provisions of the Corporation Code requiring the votes of stockholders (Sections 16, 24, 37, 38, 40, 42, 43, 44, 46, 47, 52, 77, 118 & 119), the voting privilege of the stockholders is always determined on the basis of the number of shares subscribed, which must always be part of the outstanding capital stock as defined by the Code: "SECTION 137. Outstanding capital stock defined . The term " outstanding capital stock ," as used in this Code, means the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid, (as long as there is a binding subscription agreement) except treasury shares." (Emphasis supplied) Accordingly, scheme No. 1 is not legally feasible. Section 6 of the Corporation Code cannot be invoked as basis for the voting scheme mentioned in No. 1 as it applies only in cases wherein certain classes of shares, particularly shares classified as preferred shares, are denied voting rights ordinarily enjoyed by a stockholder which nevertheless are entitled to vote in the instances mentioned in said Section, or are granted priority rights in the distribution of dividends or assets after dissolution. As to the alternative scheme, the manner of election of the Board is explicitly provided for under Section 24 of the Corporation Code. Said Section provides: "SECTION 24. Election of directors or trustees . At all elections of directors or trustees ,there must be present, either in person or by representative authorized to act by written proxy, the owners of the majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election, and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit :provided, That the total number of votes cast by him as shown in the books of the corporation multiplied by the whole number of directors to be elected. Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected .Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, owners of a majority of the outstanding capital stock or if there be no capital stock, a majority of the members entitled to vote." (Emphasis supplied) Likewise, Section 47 of the Corporation Code, quoted in part hereunder, explicitly prohibits the adoption of a manner of electing the members of the board other than what is provided for in the aforecited provision of the Corporation Code. "SECTION 47. Contents of by-laws . Subject to the provisions of the Constitution, this Code, other special laws, and the articles of incorporation, a private corporation may provide in its by-laws for: xxx xxx xxx (7) The manner of election or appointment and the term of office of all officers other than directors or trustees ;" (Emphasis provided) Accordingly, the alternative voting scheme is not also legally feasible. cdlex Please be advised accordingly. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner