1.

Can founder shares be created after incorporation thru amendment of the articles of
incorporation?
Yes. Nothing in the corporation code prohibits the classification of shares, i.e., common or founders'
shares, thru the amendment of the articles of incorporation after incorporation.

A corporation may actually classify its shares for the purpose of insuring compliance with the
constitutional or legal requirements. Also, except as otherwise provided by the articles of incorporation
and stated in the certificate of stock, each share shall be equal in all respects to every other share. The
special rights granted to founders' shares are subject to approval of the SEC. Where, however, the
exclusive right to vote and be voted for in the election of directors is granted, such right must be for a
limited period not exceeding 5 years subject to the approval of the Securities and Exchange Commission,
the period to commence from the date of said approval. The approval of the SEC was inserted by the
lawmakers to prevent abuse. (De Leon)

So, it is allowed to classify shares of stock as founder shares as long as it is provided in the
articles of
incorporation, stated in the certificate of stock, and approved by the SEC when there is an
indication of the exclusive right to vote and be voted.

Nothing in the language of Section 7 expressly so provides that it should be explicitly to the founders or
initial organizers of the corporation, but just an obvious feature of being “founders’ share”. In fact, under
Section 7 the classification of founders’ share may be interpreted to be based on two aspects:
(a) Nomenclature; or
(b) Certain exclusive rights granted to such shares

The issue therefore is whether founders’ shares are such because they have been classified and
have been given the nomenclature of founders’ shares under the articles of incorporation. This
does not seem to be within the spirit of Sec. 6 of the Corporation Code that in effect provides that
it is not nomenclature that gives rights and preference to shares of stock.

Consequently, we must presume that what makes shares as founders‟ shares would be that they are
given the exclusive rights not given to other stockholders, and specially the right to vote and be
voted for in the election of directors. The existence of founders‟ shares must necessarily include the
fact
that there are other shares that do not enjoy such rights, and would necessarily include the existence of
common shares, which ordinarily would have the right to vote and be voted into the board of directors.
That would have to be the rationale basis for the restriction provided in Section 7 that such exclusive
rights shall not exceed five (5) years and subject to the approval of the SEC.

It would then also be reasonable to conclude that a class of shares, even when not given the
nomenclature of “founders‟ share”, would necessarily fall within the provision of Section 7 (and
therefore be classified as founders‟ share) whenever such class of shares are given the exclusive
right to vote and be voted for in the election of directors, and necessarily such exclusive rights
shall have a
limited period of five (5) years. (Villanueva)

The special rights granted to founders’ shares are subject to the approval of the SEC. The approval of the
SEC was inserted by the law makers to prevent abuse. (Aquino)
Additional Notes:
Founders' shares are shares that are given to those who helped organize the corporation. This
may be a form of reward to the "founders". However, the special right given to the "founders" may
also be by reason of some business concerns.

It has also been defined, under Webster’s Second International Dictionary, p. 997.), as “shares
issued to the organizers and promotors of a corporation in consideration of some supposed right
or property. Such shares usually share in profits only after a certain percentage has been paid
upon the common stock but are often given special privileges over other stock as to voting and as
to division of profits in excess of a minimum dividend on the common stock.

Founders' shares (also called managers' shares and deferred shares) are issued commonly in
Great Britain, rarely in US. Their combined voting power is usually equal to the voting power of
the common stock, and they generally have a special claim on earnings, either before or after the
payment of dividends to other stockholders. Their participation in the assets of the corporation in
the event of dissolution is usually limited to the remaining assets after other stockholders have
received the amounts to which they are entitled, according to the provisions of the respective
issues.

In the deliberation of the Batasang Pambansa on founders shares, it was the consensus of the
lawmakers that the SEC will have to take into account, “x x x whether those persons to whom the
prerogative or right is reserved have, shall we say, contributed substantially in the organization of
the corporation or whether also the business of the corporation is of character that is necessary
for a period of time that its control must be to a certain group of individuals. Otherwise, it may not
be able to obtain certain concessions, certain loans or certain business because these founders
shares may not only serve to remunerate possible promoters x x x beause of the existence of
certain group of individuals who have perhaps special qualifications to manage a corporation by
reason of which it is in their competence only that certain other group with which the corporation
may be dealing and willing or agreeable to enter into transactions with the corporation but only if
the management of that corporation is reserved to that group x x x (proceedings of the Batasang
Pamabansa , Nov. 12, 1979, cited in SEC Opinion, April 26, 1981)

2. Can they be issued to non-founders or transferred to non-founders?

According to De Leon, it is not clear whether founders’ shares would retain their character as such in
case they are transferred by their original owners.

But, as long as whenever such class of shares are given the exclusive right to vote and be voted
for in the election of directors, and necessarily such exclusive rights shall have a limited period of
five (5) years, it would still fall under the classification of founders’ shares under Sec. 7. Hence, they can
be issued to non-founder shares and the nomenclature is to be disregarded to conform with the spirit of
Sec. 6 of the Corporation Code that in effect provides that it is not nomenclature that gives rights
and preference to shares of stock. What makes shares as founders‟ shares would be that they are
given the exclusive rights not given to other stockholders, and specially the right to vote and be
voted for in the election of directors

The SEC also has opined that upon the expiration of the period within which the founders‟ shares can
exercise their exclusive right to vote and be voted for in the election of directors, such exclusive right
would only be transferred to common shareholders who are supposed to exercise such right had
there been no founders share. Other classes of shares, such as preferred shares, are not affected.