ALBURO ALBURO AND ASSOCIATES LAW OFFICES ALBURO ALBURO AND ASSOCIATES LAW OFFICES

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June 1, 2022

WHAT ARE FOUNDERS’ SHARES?

After reading “What are Founders’ Shares?”, read also “What are Preferred Shares?”

  • Founders’ Shares are given certain rights and privileges not enjoyed by the owners of other stocks.

  • Founders’ Shares may be given special preference in voting rights and dividend payments

  • Where exclusive right to vote and be voted for in the election of directors is granted, such right must be for a limited period of five (5) years.

As a general rule, each stockholder and member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications as provided for under the Revised Corporation Code of the Philippines. As an exception to the rule, holders of founders’ shares have the exclusive right to do so when such is reserved.

Founders’ Shares are shares classified as such in the Articles of Incorporation, which are given certain rights and privileges not enjoyed by the owners of other stocks. These may be given special preference in voting rights and dividend payments. Where exclusive right to vote and be voted for in the election of directors is granted, such right must be for a limited period of five (5) years, subject to approval by Securities and Exchange Commission (SEC). The 5-year period shall commence from date of approval by SEC.

Founder’s shares given the exclusive right to vote and be voted for are not allowed to exercise that right in violation of the Anti- Dummy Law and the Foreign Investment Act. (Section 7, Revised Corporation Code of the Philippines)

The period of five (5) years is non-extendable because it may result in the almost perpetual disqualification of other stockholders to elect or be elected as members of the Board of Directors resulting to the lack of proper representation thereat.

 

The law says:

Except when the exclusive right is reserved for holders of founders’ shares under Section 7 of this Code, each stockholder or member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications and none of the disqualifications set forth in this Code.

At all elections of directors or trustees, there must be present, either in person or through a representative authorized to act by written proxy, the owners of majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. When so authorized in the bylaws or by a majority of the board of directors, the stockholders or members may also vote through remote communication or in absentia: Provided, That the right to vote through such modes may be exercised in corporations vested with public interest, notwithstanding the absence of a provision in the bylaws of such corporations. (Section 23, RCCP)


Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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