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    SEC Opinion Dated February 20, 1995

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    Arvin
    The document discusses proposed amendments to a corporation's articles of incorporation restricting the transfer of shares. The SEC considers such restrictions valid only if reasonably necessary for the company's objectives and not an absolute prohibition, which would violate shareholders' property rights.

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    © All Rights Reserved
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    SEC Opinion Dated February 20, 1995

    Uploaded by

    Arvin
    105 views3 pages
    The document discusses proposed amendments to a corporation's articles of incorporation restricting the transfer of shares. The SEC considers such restrictions valid only if reasonably necessary for the company's objectives and not an absolute prohibition, which would violate shareholders' property rights.

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    SEC Opinion Dated February 20, 1995

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    The document discusses proposed amendments to a corporation's articles of incorporation restricting the transfer of shares. The SEC considers such restrictions valid only if reasonably necessary for the company's objectives and not an absolute prohibition, which would violate shareholders' property rights.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    105 views3 pages

    SEC Opinion Dated February 20, 1995

    Uploaded by

    Arvin
    The document discusses proposed amendments to a corporation's articles of incorporation restricting the transfer of shares. The SEC considers such restrictions valid only if reasonably necessary for the company's objectives and not an absolute prohibition, which would violate shareholders' property rights.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    You are on page 1of 3

    February 20, 1995

    Atty. Merle P. Cunanan


    Chief SEC Cebu Office
    4th Flr. Danaque Bldg., Osmea Blvd.
    Cebu City

    Madam:

    This refers to your letter of February 3, 1995 requesting for comments on the
    validity of the following proposed amendments to the articles of incorporation of
    Pacific Traders & Manufacturing Corporation: cdphil

    "ARTICLE II-a. No shares in the Corporation may be transferred to


    any third party without the written consent of the existing stockholders except
    as provided herein;

    ARTICLE 13. That no shareholder shall, without the consent in


    writing of the other shareholders, mortgage, pledge or otherwise encumber the
    whole or any part of his shareholdings in the corporation."

    Shares of stock in a corporation are personal property, and it is well settled that
    the owner, as in the case of other personal property, has an inherent right as incident
    of his ownership, to sell and transfer; the same at will. This right is expressly
    recognized by the Corporation Code which provides in part:

    "SECTION 63. Certificate of stock and transfer of shares. The


    capital stock of stock corporations shall be divided into shares for which
    certificates signed by the president or vice-president, countersigned by the
    secretary or assistant secretary, and sealed with the seal of the corporation shall
    be issued in accordance with the by-laws. Shares of stock so issued are personal
    property and may be transferred by delivery of the certificate or certificates
    indorsed by the owner or his attorney-in-fact or other person legally authorized
    to make the transfer. . . ." (Emphasis supplied)

    As such, the facility of transferring them must not be unduly hampered by


    imposing restrictions as would amount to restraint on free alienation of property. The
    Commission, however, as a matter of policy, allows restrictions on transfer of shares
    in the articles of incorporation if the same is necessary and convenient to the
    attainment of the objective for which the company was incorporated, unless palpably

    Copyright 1994-2016 CD Technologies Asia, Inc. Securities and Exchange Commission 2015 1
    unreasonable under the circumstances. The underlying test as to whether the
    restriction is valid and enforceable is whether the restriction is sufficiently reasonable
    as to justify the restriction overriding the general policy against restraint on alienation
    of personal property. The Commission had occasion to rule that the period of one
    month is deemed reasonably sufficient for the existing stockholders of corporation
    within which to signify their desire to buy the shares of stock being offered for sale
    by any stockholder before the same may be offered to third parties. (SEC Letter to
    Ozaeta, Gibbs and Ozaeta dated October 13, 1964(1)) In the present case, however, it
    would appear that the transfer restriction clause is not valid and enforceable as it
    absolutely prohibits the sale of stock without the consent of the existing stockholders,
    thereby violating the general law on free alienability of shares of stock as personal
    property. This position conforms with Supreme Court ruling Re: Fleishcer vs. Botica
    Nolasco Co., Inc., G.R. No. 23241, March 14, 1925, 47 Phil 583, which states that a
    by-law provision restricting the transfer of shares is ultra vires, violative of property
    rights of shareholders, and in restraint of trade. llcd

    Very truly yours,

    (SGD.) FE ELOISA C. GLORIA


    Associate Commissioner

    Copyright 1994-2016 CD Technologies Asia, Inc. Securities and Exchange Commission 2015 2
    Endnotes

    1 (Popup - Popup)

    SEC Letter, dated October 13, 1964, was not available at the time of publication.

    Copyright 1994-2016 CD Technologies Asia, Inc. Securities and Exchange Commission 2015 3

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