STOCKS AND STOCKHOLDERS

BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

- Registration in the stock and

Transfer of Shares transfer book is not necessary if
the conveyance is by way of
chattel mortgage. However, there
How are shares of stocks transferred?
must be due registration with the
Register of Deeds (C?hua Guan
➢ If represented by a certificate, the vs. Samahan,
following must be strictly complied 62 Phil. 472 (1935)
with:
- Registration is also necessary if
1. Delivery of the certificate the heirs acquire the shares of a
deceased shareholder (Reyes
2. Indorsement by the owner or his vs. RTC-Zenith Ins. Corp.,
agent; August 11,
2008)
3. To be valid as to third parties, the
transfer must be recorded in the ➢ The corporation whose shares of
books of the corporation (Sec. 62) stock are the subject of a transfer
through any mode of conveyance
- The Supreme Court ruled that (sale, donation, etc.) is not a party to
“delivery” means delivery to the the transaction. (Forest Hill Golf &
assignee/transferee and not Country Club vs. Vertex Sales and
delivery to the corporation (Teng Trading, Inc. 692
vs. SEC, SCRA 706 (2013)
GRN 184332, Feb. 17, 2016);
A stock holder may bring suit to compel
- The SEC may require the corporate secretary to register
corporations whose securities valid transfer of stocks. It is the
are traded in trading markets and corporate secretary’s duty and
which can reasonably obligation to register transfer of
demonstrate their capability to do stocks.
so to issue their securities or
shares of stocks in uncertificated
An attachment or mortgage of shares of
or scripless form (Sec. 62)
stock need not be registered in the
corporation’s stock and transfer
➢ If not represented by the certificate
(such as when the certificate has not books inasmuch as a chattel
yet been issued or where for some mortgage over shares of stock does
reason the certificate is not in the not involve a "transfer of shares" and
possession of the stockholder). that only absolute transfers of share
of stocks are required to be recorded
1. By means of a deed of in the corporation’s stock and
assignment, and transfer book in order to have “force
and effect as against third persons”
2. Such is duly recorded in the (Chemphil Export and Import Corp.
books of the corporation. vs. CA, GRN112438-39, Cece,ber
12, 1995)
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

➢ If the stockholder-mortgagor/pledgor (Sec. 63)

gives his/her right to attend and vote
at meetings to the secured creditor, iv. Proportionate participation in
the transfer of rights should be the distribution of assets in
recorded in liquidation
the appropriate corporate books (Sec. (Sec. 139)
54)
v. Right to transfer of stocks in
➢ In case of a Voting Trust Agreement, corporate books (Sec. 62)
whereby a voting trust is created for
the purpose of granting the trustee/s vi. Pre-emptive right (Sec. 38)
the right to vote and other rights
pertaining to the shares, the 5. Right to inspect books and
agreement shall be filed with the records
corporation and the SEC; The
(Sec. 73)
corporation shall issue new
certificates of stock in the name of
the trustee/s for the shares covered 6. Right to be furnished with the
by the agreement (Sec. most recent financial
58) statement/financial report (Sec.
74)

➢ If shares are co-owned -approval of

all co-owners is necessary or all co-
7. Right to recover stocks unlawfully
sold for delinquent payment of
owners
subscription
may authorize a proxy (Sec. 55)
.
8. Right to the issuance of new
Rights and Obligations of Stockholders certificates in lieu of lost, stolen or
destroyed certificates (Sec. 71); and
➢ Basic rights of shareholders:
9. Right to file individual suit,
1. Direct or indirect participation in representative suit, and
management; derivative suits.

2. Voting rights (Sec. 6 and 57) ➢ What are the obligations

of a stockholder?
3. Right to remove directors (Sec.
27) 1. Liability to the corporation for unpaid
subscription (Secs. 66 to 69)
4. Proprietary rights:
2. Liability to the corporation for interest
i. Right to dividends; on unpaid subscription if so required
by the
ii. Appraisal right (Sec. 80) By-Laws (Sec. 65 to 6)

iii. Right to issuance of stock 3. Liability to the creditors of the

certificate for fully paid corporation for unpaid subscription
shares subject to the
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

Limited Liability Rule;

4. The suit is not a nuisance or
4. Liability for watered stock (Sec. 64) harassment suit; and

5. Liability for dividends unlawfully paid 5. The corporation is impleaded as a

(Sec. 42) plaintiff (Sec. 1, Interim Rules of
Procedure for ICC)
6. Administrative, civil and criminal
liability of a stockholder responsible Individual Actions – those brought by
for violation of the RCCP or for acts the shareholder in his own name against
indispensable to the corporation when a wrong is directly
the violation of the RCCP (Sec. 171) inflicted against him.
.
Suits by Stockholders/Members Representative Actions – those
brought by the stockholder in behalf of
himself and all other stockholders
Derivative Action – those brought by
similarly situated when a wrong is
one or more stockholder(s)/member(s) in
committed against a group of
the name and on behalf of the
stockholders.
corporation to redress wrongs committed
against it, or protect/vindicate corporate
Pre-emptive Right (Sec. 38) – the
rights whenever the officials of the
shareholder’s right to subscribe to all
corporation refuse to sue, or are the ones
issues or disposition of shares of any
to be sued, or have control of the
class (including sale or reissuance of
corporation.
treasury shares) in proportion to their
stockholdings. The purpose of pre-
Requisites: A stockholder or member
emptive right is to enable the shareholder
may bring an action in the name of a
to retain his proportionate control in the
corporation or association, as the
corporation and to retain his equity in the
case may be, Provided that:
surplus.

1. He was a stockholder or member at

Pre-emptive right is not available in
the time the acts or transactions
the following:
subject of the action occurred and at
the time the
action was filed; 1. Shares issued to comply with laws
requiring stock offering or minimum
stock ownership by the public;
2. He exerted all reasonable efforts,
and alleges the same with
particularity in the complaint, to 2. Shares issued in good faith, with the
exhaust all remedies available under approval of the stockholders
the AOI, BL or rules governing the representing 2/3 of the outstanding
corporation or partnership capital stock, in payment of
to obtain the relief he desires; previously
contracted debt. (Sec. 38)
3. No appraisal rights are available for
the act or acts complained of; 3. In case pre-emptive right is denied in
the
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

AOI (Sec. 38) Regular Meeting of 1. Held 1. Within The stock

Stockholders/member annually on a a period and transfer
date fixed in provided in the book or
4. Shares issued in good faith, with the the BL,
or required in a
membership
BL; or book shall be
approval of the stockholders law, or closed at
representing 2/3 of the outstanding 2. IF regulation; or least 20 days
there is no before the
capital stock, in exchange for date in the BL 2. In the meeting
property needed for corporate – on any date absence of
date.
after April 15 number 1 above
purposes. (Sec. 38) of each year – at least 21
as determined days prior to the
by the meeting.
5. If one shareholder does not want to Board.
exercise his pre-emptive right, the NOTE: The
written notice
other shareholders are not entitled to may be
purchase the corresponding shares
of the shareholder who declined. But
if nobody purchased the same and
later on the Board re-issues the
shares, the preemptive right applies.

➢ The denial of pre-emptive right sent through

electronic
cannot be expressed in the BL mail or
other manner,
only. However, the BL may fix pursuant to
reasonable procedure for the guidelines
issued by the
exercise of the pre-emptive right SEC.
like the reasonable time to
exercise the same; otherwise the
Board may provide for such
period. Special Meeting of 1. Any 1. Within The
Stockholders time deemed the period sto
necessary; provided ck and
Right to attend and vote meetings or in the BL; or transfer book
or
2. As 2. If membership
approved in there is no book
Stockholders’ meeting – A stockholder provision in the sha
the BL
is given the right to participate in the BL – at least 1 ll be closed 7
week prior to the days prior to
corporate affairs by giving him the right to meeting.
the
scheduled
attend meetings upon due notice and the meeting date.
right to vote thereat in person, or through
The BL may
a proxy or trustee, or when so authorized provided for
in the BL or by a majority of the Board, a longer
period, which
through remote communication or in period shall
prevail.
absentia. (Sec. 57)

KINDS OF Date of Required notice Record date

MEETING meeting Quorum of Meeting of Stockholders and
(Sec. 49)
members – shall consist of stockholders
representing a majority of the
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

outstanding capital stock or a majority of

the members, unless otherwise provided 1. The officer designated in the AOI or
in the RCCP or in the BL. (NOTE: This BL;
may be related to Secs. 25 and
96) 2. BOD/BOT if nobody is designated to
call in the AOI or BL; or
➢ There is no distinction between
disputed or undisputed shares 3. SEC, upon petition of a
(Villongco vs. stockholder/member, if there is no
Yabut, Feb. 5, 2018 person authorized to call or the
person authorized unjustly refuses to
call a meeting (Sec. 49).
➢ The stockholders of record at the
time of the meeting can attend the
meeting unless a different rule is  Exception: In removal of directors, the
provided in the Corporate Secretary must make the
BL call for a special meeting upon order
of the President or written demand of
➢ A stockholder or member who a majority of the outstanding capital
participates through remote stock or members entitled to vote.
communication or in absentia shall Without this
be considered present for purposes call, the removal is void. (Sec. 27)
of
quorum (3rd par., Sec. 57) Place of meeting – principal office but if
not practicable, in the city or
Excluded from the Computation of municipality where the
Quorum: principal office is located. (Sec. 50)

1. Delinquent shares or members; Rules on waiver of notice to

stockholders:
2. Non-voting shares or members (Tan
vs. a. General waiver in the AOI or BL is NOT
Sycip, 499 SCRA 216 [2006]) allowed;

 Exception: In case the meeting is for b. Waiver may be expressed or implied;

the approval of matters where non-
voting shares are given the right to c. A stockholder is deemed to have
vote (3rd Par., Sec. 6), the quorum waived the notice of meeting if he
should include all outstanding stocks, attends such meeting, except when the
that is, of any class, including stockholder/member attends the
preferred and redeemable shares, meeting for the express purpose of
but excluding treasury shares (4th objecting to the transaction of any
par., Sec. 6 and Sec. business because the meeting was not
lawfully called or convened. (Sec. 49)
173)

d. All proceedings and any business

Who will call a special meeting of
transacted at a
stockholders? stockholders’/members’ meeting, if not
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

ultra vires acts, shall be valid even if the - Attendance through remote
meeting is improperly held or called, communication – A stockholder
subject to the following: or member may participate at
meetings through remote
i. All communication or in absentia
stockholders/members and such participation shall be
are present/or duly deemed present for purposes of
represented at the quorum when so provided in the
meeting; and BL (Sec. 49 and 57). The vote
through remote communication
ii. Not one of the or in absentia must be received
stockholders/members before the corporation finishes
expressly states at the start the tally of votes.
of the meeting that his/her (Sec. 57)
purpose for attending the
meeting is to object to the ➢ Voting Trust (Sec. 58)
transaction of any business
on the ground that the - One or more stockholder/s of a
meeting is not lawfully called stock corporation may create a
or convened (Last par. Sec. voting trust for the purpose of
50) conferring upon a trustee or
trustees the right to vote and
other rights pertaining to the
Stockholders and members may vote in shares for a period not exceeding
person or by proxy in all meetings of five (5) years at any one time.
stockholders or members (Sec. 57)
- The trustee can also be voted as
➢ Proxy Form – in writing, in any form director because the trustee will
authorized by the BL, signed by the acquire legal title that must also
stockholder or member, and received be recorded in the stock and
by the corporate secretary within a transfer book. The trustee does
reasonable time before the not become the trustee of the
scheduled meeting. (Sec. 57). Each corporate assets.
notice of meetings shall include a
proxy form (Sec. - If the voting trust is a requirement
50) for a loan agreement, period may
exceed five (5) years but shall
- Period of validity – unless automatically expire upon full
otherwise provided in the proxy payment of the loan.
form, it shall be valid only for the
meeting for which it is intended. - Voting trust certificates shall be
executed and delivered by the
▪ No proxy shall be valid and trustee/s to the transferors and
effective for a longer period such certificates shall be
than 5 years at any one time. transferrable in the same manner
as stock certificates.
(Sec. 57)
STOCKS AND STOCKHOLDERS
BS in Accountancy 2-F︳Atty. Jessa G. Bernardo, OP ︳Law 2

Limitations on right to vote

1. Where the AOI provides for

classification of shares pursuant to
Sec. 6, non-voting shares are not
entitled to vote except as provided in
the third par. Of Sec. 6 of the
RCCP.

2. Preferred or redeemable shares may

be deprived of the right to vote unless
otherwise provided in the Code (Sec. 6)

3. Fractional shares of stock cannot be

voted unless they constitute at least
one full share (Sec. 40)

4. Treasury shares have no voting

rights as long as they remain in the
treasury (Sec.
56)

5. Delinquent stocks shall not be

entitled to vote or be represented at
any
stockholder’s meeting (Sec. 70)

6. A transferee of stock cannot vote if

his transfer is not registered in the
stock and transfer book of the
corporation (Sec. 62)

7. A stockholder is still entitled to vote

even if his/her shares are mortgaged
or pledged unless he/she authorizes
the creditor in writing to vote and the
written authority is recorded in the
corporate books (Sec. 54, SEC
Opinion, April 7,
1987)