The Revised Corporation Code provides:

SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights and privileges not enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise
will violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”; and other pertinent laws.

What does this mean?

Founders’ shares are distinct shares classified under the Articles of Incorporation of a company having its own exclusive rights and privileges not available in other types of shares. Note, however, that only the exclusive right to vote and be voted for in the election of directors is subject to a limited period of five (5) years from the date of incorporation/

Supposing that the Founders’ shares in the AOI of one corporation provides a 1:10 voting rights. This means that the founders’ shares may be able to vote or vote themselves having the power of 1:10 per share. Assuming that X has 30 founders’ shares and B has 30 common shares. The voting power of X shall be 30×10=300, whereas B’s voting power shall be at 30.

But, the law says it must be for a limited period not exceeding 5 years from the date of incorporation.

This means that the voting power for that 1:10 shall be limited to 5 years from date of incorporation and shall expire thereafter.

Does this mean that the voting rights of the founders’ shares are limited to the 5-year period from the date of incorporation?

No. The voting rights referred to having a limit of 5 years refers only to the exclusive right to vote and be voted in the election of directors. This means that all other methods of voting shall remain in force to have that 1:10 voting power for the said founders’ shares, such as to those voting rights of shareholders of outstanding capital stock, as well as shareholders holding shares without voting rights (i.e. voting in the amendments of AOI, adoption of amendments in by-laws, dissolution, etc.).

Source: SEC-OGC Opinion No. 10-02.

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