Revised Corporation Code Part3

Part III Revised Corporation Code Prepared by:
Atty. Maria Angela Pasok-Baquiran
SEC. 6. Classification of Shares. – The classification of shares, their corresponding

rights, privileges, or restrictions, and their stated par value, if any, must be indicated in the
articles of incorporation. Each share shall be equal in all respects to every other share, except as
otherwise provided in the articles of incorporation and in the certificate of stock.
The shares in stock corporations may be divided into classes or series of shares, or both.
No share may be deprived of voting rights except those classified and issued as “preferred” or
“redeemable” shares, unless otherwise provided in this Code: Provided, That there shall always
be a class or series of shares with complete voting rights.
Holders of nonvoting shares shall nevertheless be entitled to vote on the following

matters:
(a) Amendment of the articles of incorporation;

(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all
of the corporate property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with another corporation or other
corporations;
(g) Investment of corporate funds in another corporation or business in accordance with
this Code; and
(h) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote required under this
Code to approve a particular corporate act shall be deemed to refer only to stocks with voting
rights.
The shares or series of shares may or may not have a par value: Provided, That banks,
trust, insurance, and preneed companies, public utilities, building and loan associations, and
other corporations authorized to obtain or access funds from the public, whether publicly listed
or not, shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by a corporation may be given preference in the

distribution of dividends and in the distribution of corporate assets in case of liquidation, or such
other preferences: Provided, That preferred shares of stock may be issued only with a stated par
value. The board of directors, where authorized in the articles of incorporation, may fix the terms
and conditions of preferred shares of stock or any series thereof: Provided, further, That such
terms and conditions shall be effective upon filing of a certificate thereof with the Securities and
Exchange Commission, hereinafter referred to as the “Commission”.
Shares of capital stock issued without par value shall be deemed fully paid and
nonassessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided, That no-par value shares must be issued for a
consideration of at least Five pesos (P5.00) per share: Provided, further, That 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.
A corporation may further classify its shares for the purpose of ensuring compliance with
constitutional or legal requirements.
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
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Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”; and
other pertinent laws.
SEC. 8. Redeemable Shares. – 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, regardless of the existence of unrestricted retained earnings in the books of the
corporation, and upon such other terms and conditions stated in the articles of incorporation and
the certificate of stock representing the shares, subject to rules and regulations issued by the
Commission.
SEC. 9. Treasury shares. – Treasury shares 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. Su ch shares may again be disposed of for a
reasonable price fixed by the board of directors.
TITLE VII STOCKS AND STOCKHOLDERS
SEC. 59. Subscription Contract. – Any contract for the acquisition of

unissued stock in an existing corporation or a corporation still to be formed shall
be deemed a subscription within the meaning of this Title, notwithstanding the fact
that the parties refer to it as a purchase or some other contract.
SEC. 60. Pre-incorporation Subscription. – A subscription of shares in a

corporation still to be formed shall be irrevocable for a period of at least six (6)
months from the date of subscription, unless all of the other subscribers consent to
the revocation, or the corporation fails to incorporate within the same period or
within a longer period stipulated in the contract of subscription. No pre-
incorporation subscription may be revoked after the articles of incorporation is
submitted to the Commission.
SEC. 61. Consideration for Stocks. – Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration for the
issuance of stock may be:
(a) Actual cash paid to the corporation;

(b) Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation equal to
the par or issued value of the stock issued;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification
or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration. Where the consideration
is other than actual cash, or consists of intangible property such as patents or
copyrights, the valuation thereof shall initially be determined by the stockholders
or the board of directors, subject to the approval of the Commission.
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NOTES:
What is Par value?

An arbitrary value given to the stock at the time of issuance and is used to
record the value of shares on the books of the corporation.
-- from PSE
HOW DOES ONE BECOME A SHAREHOLDER IN A CORPORATION?
A person becomes a shareholder the moment he:

1. Enters into a subscription contract with an existing corporation (he
is a stockholder upon acceptance of the corporation of his offer to
subscribe whether the consideration is fully paid or not;
2. Purchases treasury shares from the corporation; or
3. Acquires shares from existing shareholders by sale or any other
contract, or acquires shares by operations of law like succession.
WHAT ARE THE KINDS OF SUBSCRIPTION CONTRACTS?
1. Pre-incorporation subscription – entered into before the incorporation and

irrevocable for a period of six (6) months from the date of subscription
unless all other subscribers consent or if the corporation failed to
materialize. It cannot be revoked after filing the Articles of Incorporation
with the SEC.
2. Post-incorporation subscription – entered into after incorporation.
WHAT ARE THE VALID CONSIDERATIONS FOR SUBSCRIPTION

AGREEMENTS? SEE SECTION 61, RA 11232.
SHARES OF STOCK – interest or right which an owner has in the management of

the corporation and its surplus profits, and on dissolution, in all of its assets
remaining after the payment of its debt. The stockholder may own the share even
if he is not holding a certificate of stock.
SHARE OF STOCK CERTIFICATE OF STOCK

1. Unit of interest in a corporation. 1. Evidence of the holder’s
ownership of the stock and of his
right as a shareholder and up to
the extent specified therein.
2. It is an incorporeal or intangible 2. It is concrete and tangible.
property.
3. It may be issued by the 3. May be issued only if the
corporation even if the subscription is fully paid.
subscription is not fully paid.
CLASSIFICATION OF SHARES
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1. COMMON SHARES – the most common type of shares which enjoy no

preference.
2. PREFERRED SHARES – par value shares which enjoy preference as to
dividends or assets upon dissolution as stated in the Articles of
Incorporation.
i. Cumulative – the shareholder is entitled to recover dividends in
arrears. While dividend declaration may not be compelled, once
it is declared, the shareholder is entitled to the said arrears.
ii. Non-cumulative – not entitled to arrears only to present
dividends.
iii. Participating – participates with common shares after receiving
its dividends at preferred rate.
iv. Non-participating – where there is no such participation.
DOCTRINE OF EQUALITY OF SHARES
This means that where the Articles of Incorporation do not provide for any
distinction of the shares of stock, all shares issued by the corporation are presumed
to be equal and enjoy the same rights and privileges and are also subject to the
same liabilities.
WHAT ARE WATERED STOCKS?
Watered stocks are those issued not in exchange for its equivalent either in
cash, property, share, stock dividends, or services; thus, the issuance of such stocks
are prohibited. These include stocks:
1. Issued without consideration (bonus shares)

2. Issued as fully paid when the corporation has received a lesser sum of
money than its par or issued value (discounted share);
3. Issued for consideration other than actual cash (i.e. property or services), the
fair valuation of which is less than its par or issued value; or
4. Issued as stock dividend when there are no sufficient retained earnings or
surplus to justify it.
NOTE: Directors or officers who consented to its issuance is solidarily liable to the
corporation for the difference in value.
CERTIFICATE OF STOCK
It is a written evidence of the shares of stock but it is not the share itself.
(Lincoln Philippines Life vs. CA, 293 SCRA 92 (1998))
a. The Certificate is merely a prima facie evidence of ownership and

evidence can be presented to determine the real owner of the shares;
b. Delivery is also essential for its issuance.
FORMALITY
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The certificate of stock must be signed by the President or Vice-President

and countersigned by the Corporate Secretary of the Assistant Secretary otherwise
it is not deemed issued. (Bitong vs. CA, 292 SCRA 503 (1998))
HOW ARE SHARES OF STOCKS TRANSFERRED?
a. If represented by a certificate, the following must be strictly complied

with:
i. Delivery of the certificate;
ii. Indorsement by the owner or his agent;
iii. To be valid to third parties, the transfer must be recorded in
the books of the corporation.
b. If NOT represented by the certificate (such as when the certificate has not
yet been issued or where for some reason is not in the possession of the
stockholder).
i. By means of a deed of assignment, and
ii. Such is duly recorded in the books of the corporation.
RIGHTS AND OBLIGATIONS OF STOCKHOLDERS
What are the basic rights of shareholders?
1. Direct or indirect participation in management;

2. Voting rights;
3. Right to remove director;
4. Proprietary rights which include:
a. Right to dividends;
b. Appraisal rights
c. Right to issuance of stock certificate for fully paid shares
d. Proportionate participation in the distribution of assets in liquidation
e. Right to transfer of stocks in corporate books
f. Pre-emptive right.
5. Right to inspect books and records;

6. Right to be furnished with the most recent financial statement/financial
report;
7. Right to recover stocks unlawfully sold for delinquent payment of
subscription; and
8. Right to file individual suit, representative suit, and derivative suits.
APPRAISAL RIGHT – right to withdraw from the corporation and demand

payment of the fair value of his shares AFTER dissenting from certain corporate
acts involving fundamental changes in corporate structure.
WHAT ARE THE OBLIGATIONS OF A STOCKHOLDER?
1. Liability to the corporation for unpaid subscription;

2. Liability to the corporation for interest on unpaid subscription if so required
by the by-laws;
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3. Liability to the creditors of the corporation for unpaid subscription;

4. Liability for watered stocks;
5. Liability for dividends unlawfully paid;
6. Liability for failure to create corporation.

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Part III Revised Corporation Code Prepared by:

Atty. Maria Angela Pasok-Baquiran

SEC. 6. Classification of Shares. – The classification of shares, their corresponding

Holders of nonvoting shares shall nevertheless be entitled to vote on the following

(a) Amendment of the articles of incorporation;

Preferred shares of stock issued by a corporation may be given preference in the

TITLE VII STOCKS AND STOCKHOLDERS

SEC. 59. Subscription Contract. – Any contract for the acquisition of

SEC. 60. Pre-incorporation Subscription. – A subscription of shares in a

(a) Actual cash paid to the corporation;

What is Par value?

HOW DOES ONE BECOME A SHAREHOLDER IN A CORPORATION?

A person becomes a shareholder the moment he:

WHAT ARE THE KINDS OF SUBSCRIPTION CONTRACTS?

1. Pre-incorporation subscription – entered into before the incorporation and

WHAT ARE THE VALID CONSIDERATIONS FOR SUBSCRIPTION

SHARES OF STOCK – interest or right which an owner has in the management of

SHARE OF STOCK CERTIFICATE OF STOCK

1. COMMON SHARES – the most common type of shares which enjoy no

DOCTRINE OF EQUALITY OF SHARES

WHAT ARE WATERED STOCKS?

1. Issued without consideration (bonus shares)

a. The Certificate is merely a prima facie evidence of ownership and

The certificate of stock must be signed by the President or Vice-President

a. If represented by a certificate, the following must be strictly complied

RIGHTS AND OBLIGATIONS OF STOCKHOLDERS

What are the basic rights of shareholders?

1. Direct or indirect participation in management;

5. Right to inspect books and records;

APPRAISAL RIGHT – right to withdraw from the corporation and demand

WHAT ARE THE OBLIGATIONS OF A STOCKHOLDER?

1. Liability to the corporation for unpaid subscription;

3. Liability to the creditors of the corporation for unpaid subscription;

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