NOTES

CORPORATIONS
* CC – Corporation Code
* RCC – Revised Corporation Code (RA 11232)

SHARES OF STOCK
✓ One of the units in which the capital stock is divided.
✓ It represents the interest or right which the owner has:
1. In the management of the corporation in which he takes part through his right to
vote (if voting rights are permitted for that class of stock by the AOI);
2. In a portion of the corporate earnings, if and when segregated in the form of
dividends; and
3. Upon its dissolution land winding up, in the property and assets of the corporation
remaining after the payment of corporate debts and liabilities to creditors.
✓ The ownership of share of stock confers no immediate legal right or title to any of the
property of the corporation.
✓ Each share merely represents a distinct undivided share or interest in the common
property of the corporation.
✓ Shares of stock constitute a property distinct from the capital or tangible property of the
corporation.
✓ Certificate of Stock/Stock Certificate – a written acknowledgment by the corporation
of the interest, right, and participation of a person in the management, profits and assets
of the corporation.
✓ Owners of shares are entitled to receive dividends.
✓ Dividends represent the stockholders’ share of the profits of the corporation.

CLASSES OF SHARES OF STOCK

1. COMMON and PREFERRED SHARES

a. Common Shares - These are ordinarily and usually issued stocks without
extraordinary rights and privileges.
✓ These shares entitle the shareholder to a pro rata division of profits.
✓ They can either be par value shares or no par value shares.
✓ The holders of this kind of share have complete voting rights and they
cannot be deprived of the said rights, except as provided by law.
b. Preferred Shares - These entitle the shareholder to some priority on
distribution of dividends and assets over those holders of common shares.
✓ Preferred shares may be issued only with a stated par value.
✓ Kinds of preferred shares:
b.1. Preferred shares as to assets –gives the holder preference in the
distribution of the assets of the corporation in case of
liquidation.
b.2. Participating preferred shares – Entitled to participate with
the common shares in excess distribution.
b.3. Non-participating preferred shares – Not entitled to
participate with the common shares in excess distribution.
b.4.Preferred shares as to dividends–entitled to receive dividends
on said share to the extent agreed upon before any dividends at
all are paid to the holders of common stock.
b.5. Cumulative preferred shares – Share which entitles the holder
thereof not only the payment of current dividends but also to
dividends in arrears.
 - Dividends in arrears: dividends that were unpaid at the
expected date.
- If a dividend is omitted in any year, it must be made up
in a later year before any dividend may be paid on the
common shares in the later year.
b.6. Non-cumulative preferred shares – There is no need to make
up for dividends in arrears. Payment is only as to current
dividends.

2. PAR VALUE and NO PAR VALUE SHARES

a. PAR VALUE SHARES - Shares with a value fixed in the articles of
incorporation and the certificates of stock.
✓ The par value fixes the minimum issue price of the shares.
✓ General Rule: A corporation cannot issue shares at less than its par
value.
Exception: The prohibition applies only to original issuance of shares
and not to the subsequent sale of treasury shares and sale of shares
made by stockholders.
✓ Illustration: X Corporation has an authorized capital stock of
₱1,000,000.00, divided into 10,000 shares with the par value of ₱100.00
per share.
- The shares of X Corporation are considered as par value shares,
with a value of ₱100.00 per share.
b. NO PAR VALUE SHARES - These are shares having no stated value in AOI.
✓ These shares have no stated value in the AOI but they will always have
an issue value.
✓ Issue Value – the consideration/value of the share fixed by the
corporation for its issuance.
✓ Illustration: X Corporation has a capital stock of 10,000 shares without
par value.
- However, upon its issuance the value of the said shares can be
determined by the corporation.
✓ No-par value shares must be issued for a consideration of at least Five
pesos (P5.00) per share
✓ The entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for
distribution as dividends.
✓ They CANNOT be issued as preferred stocks.
✓ They CANNOT be issued by:
b.1. Banks;
b.2. Trust, Insurance, and Preneed Companies;
b.3. Public Utilities;
b.4.Building and Loan Associations; and
b.5. Other corporations authorized to obtain or access funds from
the public, whether publicly listed or not.
Note: This list has been updated by the RCC.
✓ Once issued, they are deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto.

3. VOTING and NON-VOTING SHARES

a. VOTING SHARES - Shares with a right to vote.
✓ If the stock is originally issued as voting stock, it may not thereafter be
deprived of the right to vote without the consent of the holder.
✓ Whenever a vote is necessary to approve a particular corporate act,
such vote refers only to shares with voting rights.
b. NON-VOTING SHARES - Shares without right to vote.
 ✓ Only redeemable shares and preferred shares may be deprived of
voting rights, provided that there shall always be a class or series of
shares which have complete voting rights.
✓ Instances when holders of non-voting shares are allowed to vote:
b.1. Amendment of the articles of incorporation;
b.2. Adoption and amendment of bylaws;
b.3. Sale, lease, exchange, mortgage, pledge, or other disposition of
all or substantially all of the corporate property;
b.4.Incurring, creating, or increasing bonded indebtedness;
b.5. Increase or decrease of authorized capital stock;
b.6. Merger or consolidation of the corporation with another
corporation or other corporations;
b.7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
b.8. Dissolution of the corporation.

4. FOUNDERS’ SHARES (Sec. 7, RCC)

✓ Shares classified as such in the articles of incorporation and which may be given
special preference in voting rights and dividend payments.
✓ 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.
- That such exclusive right shall not be allowed if its exercise will violate:
a. Commonwealth Act No. 108, otherwise known as the “Anti-
Dummy Law”;
b. Republic Act No. 7042, otherwise known as the “Foreign
Investments Act of 1991”; and
c. Other pertinent laws.

5. REDEEMABLE SHARES (Sec. 8, RCC)

- Redeemable shares may be issued by the corporation when expressly provided in
the articles of incorporation.
- They are shares which may be purchased by the corporation from the holders of
such shares upon the expiration of a fixed period.
✓ The purchase may happen regardless of the existence of unrestricted
retained earnings in the books of the corporation.
✓ Illustration:

X Corporation issued 1,000 redeemable shares to Dana at Php5,000.00 per share.

The total amount of subscription is Php5,000,000.00.

They agreed that the maturity date of the shares will be after 5 years.

As such, after 5 years, X Corporation may purchase back the said shares from Dana.
Upon purchase, the shares will become Treasury Shares.

6. TREASURY SHARES (Sec. 9, RCC)

✓ These are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase,
redemption, donation, or some other lawful means.
✓ Such shares may again be disposed of for a reasonable price fixed by the board of
directors.
✓ These shares have no voting rights and have no right to dividends.
References:
1. Sundiang, Sr. and Aquino. 2017. “Reviewer on Commercial Law.”
2. Soriano. 2011. “Notes on Business Law.”
3. Divina. “Highlights of the Revised Corporation Code.”
4. Comparative Matrix of the Corporation Code and the Revised Corporation Code
(https://www.sec.gov.ph/wp-content/uploads/2019/11/2019Legislation_Revised-
Corporation-Code-Comparative-Matrix_as-of-March-22-2019.pdf)
5. UST Golden Notes. 2018. Mercantile Law Reviewer
6. Divina. “Highlights of the Revised Corporation Code.”
7. RA 11232