January 17, 1983

Sabido, Sabido & Associates

Emerald Building, Emerald Ave.
Ortigas Office Buildings Complex
Pasig, Metro Manila
Attention : Atty. Juan S. Sarte
Gentlemen:
This refers to your letter of December 17, 1982, requesting the approval of the
Commission on the following proposed provision in the articles of incorporation:
LexLib

"2. Preferred Stock. The preferred stock of the corporation consists of

Twenty-Five Million (25,000,000) shares with a par value of Ten (P10) Pesos
per share, and authority is hereby conferred upon the Board of Directors to issue
such shares and accept subscriptions thereof, upon such terms and conditions,
and in accordance with such rights, privileges, and restrictions that the Board of
Directors may fix and specify on the certificate to be filed with the Securities
and Exchange Commission and on the certificate of stock."

The pertinent provision of the Corporation Code of the Philippines relevant

thereto reads, thus:
"SECTION 6.
Classification of shares. The shares of stock of
stock corporations may be divided into classes or series of shares or both, any of
which classes or series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation: . . .
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences as
may be stated in the articles of incorporation, which are not violative of the
provisions of this Code; . . . The Board of Directors, where authorized in the
articles of incorporation may fix the terms and conditions of preferred shares of
stock or any series thereof: Provided, that such terms and conditions shall be
effected upon the filing of a certificate thereof with the Securities and Exchange
Commission. . . .". (Emphasis supplied)
Copyright 1994-2016

CD Technologies Asia, Inc.

Securities and Exchange Commission 2015

The Commission has ruled in its previous opinions that "giving the Board
blanket authority to fix the terms and conditions of the preferred shares, without
stating the privileges, preferences, restrictions or rights of the preferred shares is
contrary to the above-quoted Section 6 of the Corporation Code. Unless certain
features, guidelines and standards as to the issue of preferred shares are stated or
spelled out in the articles of incorporation, such authorization becomes a dangerous
power which may adversely affect the rights of shares already issued. (Letters to Mr.
Jose Vitug & PT & T Corp., dated January 11, 1982 and August 9, 1982(1),
respectively).
cdphil

While under Section 6 of the Corporation Code the "Board of Directors, where
authorized in the articles of incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof: Provided, that such terms and
conditions shall be effected upon the filing of a certificate thereof with the Securities
and Exchange Commission", the same is an amended provision of the old law and is
an off-shoot of modern statute and/or corporate practice. It authorizes the Board to fix
the terms and conditions of the preferred shares in such a way as to "tailor the
securities to meet changes in market conditions which cannot be foreseen at the time
of incorporation or later, amendment of the articles of incorporation. Typical of the
changes is the variance of the dividend rate to meet the demands of the money market
. . . The resolution of the directors fixing such preferences is generally required to be
certified and filed or recorded in the same manner as the articles of incorporation,
thus, providing certain information as to the terms of the contract." (Ballantine, Law
of Corp. pp. 502-503; 2 Fletcher, Cyc. Corp. 52841, p. 531). The issue of a series of
shares, otherwise called "blank stock" is a concept explicitly recognized for the first
time under the Code although it is not novel in other jurisdictions. As practiced in
other jurisdictions, the series is used with reference to preferred shares and devised in
response to the peculiar conditions of the securities market and what the issuer
corporation deems needed to make a sale. It permits the board of directors of the
issuer corporation to fix the terms of a series of preferred shares, subject to certain
limitations, so as to promptly meet current requirements in the securities market
without need of amending the Organization: New Dimensions, p. 14-15). Hence, the
articles of incorporation fixes the classes of shares, creating the preferred or special
class and authorizing the issue thereof, in series. The variations in the relative rights
and preferences as between different series within the class are fixed by the articles of
incorporation, but the terms of a series may be defined by the board subject to certain
limitations imposed in the articles.
In consonance with the aforementioned rulings and provisions, it is advised
Copyright 1994-2016

CD Technologies Asia, Inc.

Securities and Exchange Commission 2015

that the privileges and preferences in the company's preferred shares should be stated
and indicated in the articles of incorporation.
cdrep

Very truly yours,

(SGD.) MANUEL G. ABELLO
Chairman

Copyright 1994-2016

CD Technologies Asia, Inc.

Securities and Exchange Commission 2015

Endnotes
1 (Popup - Popup)

SEC Letters to Mr. Jose Vitug and PT & T Corp., dated January 11, 1982 and
August 9, 1982, respectively, were not available at the time of publication.

Copyright 1994-2016

CD Technologies Asia, Inc.

Securities and Exchange Commission 2015