Fundamentals Of :

Equity Securities

CRMD-SEC 25/10/2018 1
 LIMITED
LIABILITY
CORPORATION
STOCK CLOSE
CORPORATION CORPORATION

De Jure CORPORATION
PUBLIC
Corporation COMPANY

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Which of the following statements is not
correct?
1. A corporation is a juridical person.
2. A corporation is created by operation of law.
3. A corporation can exercise only the powers expressly conferred
upon it by law and its articles of incorporation, those implied from
such powers expressly granted, and those that are incident to its
existence.
4. A corporation is a juridical person created by operation of law and
can exercise unlimited powers.

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Which of the following statements is not correct
about a corporation being a juridical person?

1. The debts of the corporation are not the debts of the stockholders, nor are the
debts of the stockholders the debts of the corporation.
2. In taxation, the income of the corporation is not the income of the stockholders
who may be required to pay taxes on the dividends that they may derive from
such income.
3. In connection with corporate property or affairs, stockholders cannot maintain
actions in their own name and they have no right to recover possession of
property belonging to the corporation or to recover damages for injury thereto.
4. The stockholders are the owners of assets of the corporation thus have direct
interest therein.

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Which of the following statements best
describes a de jure corporation?
1. One that is defectively created but there is an exercise of corporate rights and
franchise resulting from an attempt in good faith to incorporate.
2. One which has exercised corporate powers for such a length of time without
interference by the State, and which, by fiction of law, is given the status of a
corporation.
3. One which is in reality not a corporation but is considered as one with respect
those who are precluded by their admission or conduct denying its existence.
4. One that has been created in strict compliance with all the legal requirements
and whose right to exist as a corporation cannot be successfully attacked in a
direct proceeding for that purpose by the State.

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Which of the following statements best
describes a stock corporation?
1. One that has been created in strict compliance with all the legal
requirements and whose right to exist as a corporation cannot be
successfully attacked in a direct proceeding for that purpose by the State.
2. Organized for profit which are granted a franchise by the State to perform
public service.
3. One that is formed for a private purpose or end.
4. One that has capital stock divided into shares and is authorized to distribute
dividends or allotments of the surplus profits on the basis of shares held by its
stockholders.

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Limited Liability Company:

• As, a general rule, in a corporate form of business organization,

the stockholders are not personally liable for corporate
obligations and and cannot be held liable to third persons who
have claims against the corporation beyond their agreed
subscriptions/contributions to the corporate capital. However,
this privilege may be disregarded under the” Doctrine of
Piercing the Corporate Veil.”

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Close Corporation:

A “close corporation” within the meaning of the Corporation Code is

one whose articles of incorporation provide that: (1) All the corporation’s
issued stocks of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stocks of all classes shall be subject to
one or more specified restrictions on transfer permitted by the
Corporation Code; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class. A
corporation shall be deemed not a close corporation when at least two-
thirds (2/3) of its voting stocks or voting rights is owned or controlled by
another corporation which is not a close corporation as defined above.
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Public Company/Listed Company

• Means any corporation with a class of equity securities listed on

an Exchange or with assets in excess of Fifty Million Pesos
(P50,000,000.00) and having two hundred (200) or more holders,
at least two hundred (200) of which are holding at least one
hundred (100) shares of a class of its equity securities.

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 CERTIFICATE OF
INCORPORATION/
BY-LAWS JURIDICAL
PERSONALITY
COMMENCES

ARTICLES OF POWERS OF A
INCORPORATION CORPORATION
FORMATION
OF A
CORPORATION

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The following statements about articles
of Incorporation are correct except:
1. The articles of Incorporation of a corporation is a contract between the parties: (a) between the State and the corporation, (b) between
the stockholders (members in case of non-stock corporation) and the State, and (c) between the corporation and the stockholders
(members).
2. The articles of Incorporation do not become effective and binding as the charter of the corporation, unless they have been filed and
registered with the SEC in accordance with the provisions of the Corporation Code.
3. The articles of incorporation shall contain substantially the following matters: (1) The name of the corporation. (2) The specific purpose or
purposes for which the corporation is being incorporated. (3) the place where the principal office of the corporation is located, which
must be within the Philippines. (4) the term for which the corporation is to exist. (5) The names, nationalities and residences of the
incorporators. (6) The number of the directors or trustees. (7) The names, nationalities, and residences of the persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with the Corporation Code. (8)
If it be a stock, the amount of its capital stock in lawful money of the Philippines, capital contribution if its non-stock corporation among
others.
4. The articles of incorporation signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control
its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among
themselves in their relation to it. In other words, articles of incorporation are relatively permanent and continuing rules of action adopted
by the corporation for its own government and that of the individuals composing it and having the direction, in whole or in part, in the
management and control of its affairs and activities.

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The by-laws differ from the articles of
incorporation in that the by-laws are:
1. The rules of action adopted by a corporation for its internal
government.
2. Adopted before or after incorporation.
3. Approved by the stockholders if adopted after incorporation.
4. A condition subsequent in the acquisition by a corporation of a
juridical personality.

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When to adopt by-laws?

• The Corporation Code requires that every corporation formed

under the Corporation Code, must, within one (1) month after
receipt of the official notice of the issuance of the certificate of
incorporation by the SEC, adopt by-laws for its government not
inconsistent with the provisions of the Code. The by-laws,
however, may be adopted and filed prior to incorporation; in
such case, such by-laws shall be approved and signed by all the
incorporators and submitted to the SEC, together with the
articles of incorporation.
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The following statements are correct
except:
1. A private corporation commences to have a corporate existence and juridical personality and is deemed
incorporated from the date the SEC issues a certificate of incorporation under its official seal; and thereupon the
incorporators, stockholders/members and their successors shall constitute a corporate body under the name stated
in the articles of incorporation for the period of time mentioned therein.
2. While registration with the SEC vests upon a corporation the rights, powers and attributes expressly authorized by law
or incident to its existence, such registration does not automatically entitle an SEC registered corporation the
privilege to engage in the business or activity for which it is organized if under the law the operation thereof or the
transaction to be undertaken still requires a separate permit or license or approval from other government agencies.
3. The registration of a corporation with the SEC only constitutes a grant by the government of the power to act as a
corporation, but does not preclude the government from exercising its police power over such corporation
whenever public interest demands it.
4. The SEC requires the annual renewal of registration of corporations under the Corporation Code of the Philippines.

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Specific Express Powers of a corporation
under the Corporation Code:
• Power to extend or shorten corporate term.
• Power to increase or decrease capital stock.
• Power to incur, create or increase bonded indebtedness
• Power to deny pre-emptive right.
• Power to sell, lease, exchange, mortgage, pledge or otherwise dispose all or substantially all of its
property
• Power to acquire its own shares
• Power to invest corporate funds in another corporation or business or for any other purposes.
• Power to declare dividends
• Power to enter into management contracts

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Their names are mentioned in the articles of
incorporation as originally forming the
corporation and are signatories thereof.
1. Corporators
2. Stockholders
3. Members
4. Incorporators

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 DOCTRINE OF
CORPORATE
ENTITY

DOCTRINE OF PIECING VEIL OF

CORPORATE CORPORATE
OPPORTUNITY FICTION

CORPORATE
DOCTRINES

ULTRA VIRES RIGHT OF

DOCTRINE SUCCESSION

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The following statements on “Doctrine of
Corporate Entity” are correct except:

1. The “separate and distinct personality” of a corporation from that of the

stockholders/members is a basic attribute or privilege attached to a corporation which
gives rise to fundamental principles in corporation law that under normal condition, the
stockholders/members of a corporation are not the same as the corporation itself.
2. The property belonging to a corporation cannot be attached nor held answerable for
the debt of the stockholders thereof.
3. Because of the separate personality of the corporation from the stockholders, personal
transactions, obligations, and liabilities of a stockholder should not in any way affect the
ordinary operations of the corporation.
4. The principle on separate identity of a corporation from its stockholders cannot be
disregarded even when it is used to defeat public convenience, justify wrong, protect or
cover fraud or defend crime or work or injustice.

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Doctrine of piercing the veil of
corporate fiction.
• Under the “Doctrine of Piercing the Corporate Veil” of corporate entity, the
principle on separate identity of a corporation from its stockholders may be
disregarded when it is used to defeat public convenience, justify wrong,
protect or cover fraud or defend crime or work an injustice. If used in those
situations, the corporation and the stockholders composing it should be
treated as one and the same. Consequently, the stockholders can be held
personally liable to corporate debts. However, application of said doctrine is
for the proper court to decide. The proper court will not hesitate to pierce the
corporate veil or corporate fiction when it would defeat the ends envisaged
by law, as the theory of corporate entity was not meant to promote unfair
objectives.
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Right of Succession

• Another attribute of a corporation is that it has a “right of succession.”

The “right of succession” granted by law to a registered corporation
means that a corporation has a continuity of corporate life during its
term of existence stated in the articles of incorporation, independent
from that of its stockholders or members. Thus, its continued existence
cannot be effected by any change in the stockholders, whether the
change be the consequence of death of a stockholder/member or
transfer of shares by a stockholder to third person.

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Ultra vires acts of a corporation

• No corporation under the Corporation Code shall possess or

exercise any corporate powers except those conferred by the
the Code or by its articles of incorporation and except such as
are necessary or incidental to the exercise of the powers as
conferred.

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Doctrine of Corporate Opportunity

• This is the doctrine to the effect that when a director attempts to

acquire or acquires, in violation of his duty, any interest adverse
to the corporation in respect of any matter which has been
reposed in him in confidence, or when by virtue of his office, he
acquires for himself a business opportunity which should belong
to the corporation, he must account for all such profits derived
by him from the said business opportunity by refunding the
profits to the corporation.
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 PAID-UP CAPITAL

SUBSCRIBED CAPITAL ADDITIONAL PAID-IN

STOCK CAPITAL

PRE-INCORPORATION UNISSUED/UNSUBSCRIBED
SUBSCRIPTION CAPITAL STOCK

AUTHORIZED CAPITAL CAPITAL OUTSTANDING CAPITAL

STOCK STOCK
STRUTURE

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Authorized Capital Stock

This refers to the total amount of shares which a corporation is

allowed to issue if the shares have a par value. If the shares do not
have par value, the corporation does not have an authorized
capital stock but it has authorized number of shares which it may
issue. Once issued, the corporation shall have a capital stock but
not an authorized capital stock.

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Other terms defined:

• Subscribed capital stock – This is the part of capital stock which is subscribed, whether paid or
unpaid.
• Paid-up capital stock- the part of the subscribed capital stock paid to the corporation.
• Unissued capital stock – That part of the capital stock which is not issued or subscribed.
• Outstanding Capital Stock – This refers to the total shares of stock issued to subscribers or
stockholders whether or not fully or partially paid (as long as there is a binding subscription
agreement) , except treasury shares.
• Paid-in surplus – the term “surplus” is generally defined as the excess of the net assets of a
corporation over its capital or stated capital. Paid-in surplus includes premium on par value
stock. Thus where the par value shares are issued and a premium paid over par, a paid-in surplus
results.

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Trust Fund Doctrine

• Under this doctrine, the capital stock and assets of the corporation are held in trust for the
creditors. Accordingly, there shall be no distribution of assets to shareholders until the claims
of creditors have been paid or an appropriation of such assets has been made for the
payment of such claims.
• In Philippine Long Distance Telephone Co. vs. National Telecommunications Commission,
G.R. No. 152685, December 4, 2007, the Supreme Court, citing National
Telecommunications Commission vs. Court of Appeals, G. R. No. 127937, held that the Trust
Fund Doctrine considers the subscribed capital as trust fund for the payment of Debts of
the corporation, to which the creditors may look for satisfaction, until the liquidation of the
corporation, no part of the subscribed capital may be returned or released to the
stockholders (except in the redemption of redeemable shares) without violating this
principle. Thus, dividends must never impair the subscribed capital, subscription
commitments cannot be condoned or remitted, nor can the corporation buy its its own
shares using the subscribed capital as the consideration thereof.
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The articles of incorporation of ABC Corporation provide for the
issuance of 100,000 shares without par value and an issued price
per share of P10.00. At the time of incorporation, the subscription
and paid-up capital should not be less than:

1. P250,000.00 and P62,500.00 respectively.

2. P1,000,000.00 and P250,000.00, respectively.
3. P250,000.00 and P125,000.00, respectively.
4. P250,000.00 and P250,000.00, respectively.

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Which of the following subscriptions does not comply
with the subscription and paid-up capital requirements
at the time of incorporation?

Authorized Subscribed Paid-up

1. P1,000,000.00 P250,000.00 P62,500.00
2. 300,000.00 75,000.00 50,000.00
3. 100,000.00 100,000.00 100,000.0
4. 50,000.00 12,500.00 3,125.00

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 VOTING
NO-PAR SHARES NON-VOTING
VALUE
SHARES
SHARES

PAR VALUE REDEEMABLE

SHARES SHARES

FOUNDERS RETIREABLE
SHARES SHARES

TREASURY
PREFERRED
SHARES

CLASSIFICATION WATERED
COMMON OF SHARES STOCK

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Shares of stock, concept

• A share of stock is one of the units into which the capital stock of
the corporation is divided. It represents the intangible interest or
right which an owner has in the management, profits and assets
of the corporation. It is property, subject to conversion.

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Stock certificate, concept;
distinguished
from share of stock:
A stock certificate is the written acknowledgement by the corporation of
the stockholder’s interest in the corporation and its property. It is distinguishable
from shares of stock as follows:
1. Share of stock represents the rights and interest of a stockholder in the
corporation. Stock Certificate is the written evidence of such right.
2. Share of stock is intangible personal property, while stock certificate is
tangible personal property.
3. Share of stock may be issued even if not fully paid, except shares without
par value which are deemed fully paid and non-assessable upon issuance.
Stock certificate, as a rule, is issued only if the subscription is fully paid.

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Classes of Shares of Stock Under the
Corporation Code
1. Common Stock – The ordinary stock of a corporation which entitles the holder to a pro rata division of the dividends, without
any preference or advantage over any other stockholders
2. Preferred stock – one which entitles the holder to certain preferences over other shareholders. Such preferences may be as
follows: (a) Preferred stock as to asset – One which entitles the holder to preference in the distribution of dividends over
common stock upon the liquidation of the corporation. (b) Preferred as to dividends – One that entitles the holder to
preference in the distribution of dividends over common stock
3. Par value stock – One the nominal value of which appears on the articles of incorporation and on the stock certificate.
4. No Par value stock – One without any nominal or par value appearing in the articles of incorporation or on the stock
certificate.
5. Redeemable shares – Those which grant the issuing corporation the power to redeem or purchase after a certain period.
6. Voting shares – Those entitled to vote in the meetings of the corporation
7. Non-voting shares – Those without voting rights, except in certain cases.
8. Founders’ Shares – Those that grant to the founders certain rights and privileges not enjoyed by other shares.
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Rules On Founders Shares

a. Founders shares must be classified as such in the articles of

incorporation.
b. They may be given rights and privileges not enjoyed by other
shares subject to the following limitations:
1. If the exclusive right to vote and be voted for in the election of directors
is granted, it must be for a limited period not exceeding 5 years subject
to the approval of the SEC.
2. The five-year period begins from the approval of SEC.

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Treasury Shares

Those which have been issued and fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, donation or through some other lawful means.
Rules of Treasury Shares
a. They shall have no voting rights as long as they remain in the treasury.
b. Although they are part of the subscribed stock, they are not considered outstanding
shares.
c. Being owned by the corporation, they are not entitled to dividends.
d. They may again be disposed of for a reasonable price fixed by the board of directors.

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 DEPOSIT FOR
FUTURE
PREVIOUSLY SUBSCRIPTION OUTSTANDING
INCURRED SHARES OF
INDEBTEDNESS STOCK

UNRESTRISTED
RETAINED
PROPERTY
EARNINGS TO
STATED CAPITAL

CONSIDERATION
ACTUAL
FOR THE
CASH SERVICES
ISSUANCE OF RENDERED
SHARES

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The following statements are correct,
except:
1. The subscribers may in their own personal capacity and acting in good faith, borrow money for
payment of their subscriptions. The loan agreement between the borrower and the creditor is a
private contract between them of which the corporation is not a party. The moment the borrowed
money is contributed and accepted as payment to subscription, the borrower- stockholder cannot,
as a matter of right, demand for the return of the borrowed funds invested to answer his liability to the
creditor nor can he demand the corporation to pay his debts.
2. Corporations are not restricted from receiving only money/cash in payment of subscription of capital
stock. The Corporation Code allows payment in exchange for shares of stock in the form of
“property.”
3. Shares of stock may be accepted as capital contributions payment in exchange of shares of stock of
a corporation, provided that the same is necessary or convenient in carrying out the corporate
business for which the corporation is organized,
4. Shares of stocks can be issued in exchange for future services.

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 RIGHT OF FIRST RIGHT TO RECEIVE
REFUSAL DIVIDENDS

PRE-EMPTIVE RIGHT TO INSPECT

RIGHT/STOCK CORPORATE
RIGHTS OFFERINGS BOOKS

RIGHT TO VOTE IN
APPRAISAL RIGHT
CORPORATE ACTS

RIGHT TO
DISPOSE,
RIGHT TO BE DESIGNATE
VOTED PROXY, VOTING
TRUST
AGREEMENT

RIGHT TO VOTE IN RIGHTS OF A

THE ELECTION OF DERIVATIVE SUIT
THE BOARD STOCKHOLDER

CRMD-SEC 25/10/2018 37
General Rule. Voting

• For stock corporations, no share may be deprived of voting rights, except those classified
and issued as “preferred” or ‘redeemable” shares, provided that there shall always be a
class of shares or series of shares which have complete voting rights.
• Each share of stock is entitled to vote, unless denied in the articles of incorporation or
declared delinquent under Section 67 of the Corporation Code.
• Only stockholders of record as of date fixed in the by-laws shall enjoy the right to vote at
stockholders’ meeting.
• The stock and transfer book is the best evidence to establish the stockholders who are
entitled to vote at stockholders’ meeting
• The right to vote is a stockholder’s most basic and fundamental right inherent in and
incidental to the ownership of corporate shares of stock. This right should not be denied on
tenuous and shallow grounds.

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Delinquent shares

• Section 71 of the Corporation Code is explicit that the moment a stock

becomes delinquent, the holder thereof loses his right to vote. Therefore, no
delinquent stock for unpaid subscription shall be voted or entitled to vote or
represented at any stockholders’ meeting. Neither can he be voted for as
director of the corporation, nor continue seating in the board if he has been
previously elected as member thereof.
• Since the whole subscription shall be declared delinquent upon failure of the
stockholder to pay the balance due and payable within the period stated in
Section 67 of the Corporation Code, the delinquent stockholder cannot vote
the shares covering the entire subscription.

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Pledgors, mortgagors, and
administrators
• In case of pledged or mortgaged shares in stock corporations,
the pledgor or mortgagor shall have the right to attend and
vote at meetings of stockholders, unless the pledgee or
mortgagee is expressly given by the pledgor or mortgagor such
right in writing which is recorded in the appropriate corporate
books.

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Administrators/executors/receivers/or
other legal representatives
• On the death of a shareholder, his executor or administrator becomes
vested with the legal title to his stocks and entitled to vote the same at
all meetings and that until a settlement and division of the estate is
done, the legal title to the stocks of the deceased belongs to said
administrator or executor as his personal representative. This finds
support under Section 55 of the Corporation Code which provides
that the administrator of the estate of the deceased duly appointed
by the court may attend and vote in behalf of the stockholders or
members without need of any written proxy.
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Corporate Stockholders

• Shares standing in the name of another corporation may be voted by such officer, agent,
or proxy as the by-laws may prescribe, or in the absence of a by-law provision, as its board
of directors may determine. In the absence of a provision in the by-laws, the board of
directors may authorize the stockholders to vote for said shares.
• It is the sole prerogative and discretion of the board of directors of the parent or holding
corporation to choose its nominees in the board of directors of its subsidiaries and other
corporations of which it is a stockholder; whose acts shall be under the ultimate direction of
the board of directors of the appointing corporation, and the stockholders cannot
demand, as a matter of right, for proportionate representation.
• A corporation, being merely a juridical person, it can only act and contract, as in the
appointment of a proxy in the corporation’s behalf, through its board of directors/trustees.
Thus, in the case of corporation held stocks, it would be in order to adopt a resolution
authorizing the proxy, and to exercise it in a formal corporate manner.

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Co-owners

• In case of shares of stock owned jointly by two or more persons, in

order to vote the same, the consent of all the co-owners shall be
necessary, unless there is a written proxy, signed by all the co-owners,
authorizing one or some of them or any other person to vote such
share or shares: Provided, That when the shares are owned in an
“and/or” capacity by the holders thereof, any one of the joint owners
can vote said shares or appoint a proxy therefor.
• The right to vote a co-owned share covered by a conjunctive
“and/or” in the stock certificate may be exercised by both or all or
any of the co-owners.

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Trustee of voting trust agreements

• One or more stockholders of a stock corporation may create a

voting trust for the purpose of conferring upon a trustee the right
to vote and other rights pertaining to the shares for a period not
exceeding five(5) years at any time: Provided, that in the case
of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding five
(5) years but shall automatically expire upon full payment of the
loan. The voting trustee or trustees may vote by proxy unless the
agreement provides otherwise.
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Pre-emptive right; Who are entitled.

• Pre-emptive right refers to the right granted to the stockholders to have the first option to subscribe to
any issuance or disposition of shares from the capital stock in proportion to their respective
shareholdings in the corporation.
• Subscription deposits are not included in determining the proportionate right of the stockholders in the
exercise of pre-emptive right.
• A board resolution limiting the subscription of existing stockholders to a certain number of shares in
additional issuances of shares is not enforceable. Unless denied in the articles of incorporation, the
existing stockholders of record are entitled to exercise their pre-emptive right to subscribe to all
issuances of shares of stock of the corporation in proportion to their present stockholdings.
• All stockholders whose name appear in the stock and transfer book of the corporation on the date of
the meeting authorizing the issuance of shares are entitled to the pre-emptive right under Section 39 of
the Corporation Code.

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Right of First Refusal

• In order to be valid and enforceable, any restriction on the transfer of shares requiring the
transferor to first offer the same to the existing stockholders before selling it to third parties,
must be explicitly provided for in the articles of incorporation and stock certificate.
• Restrictions on transfer cannot be more oppressive than granting the existing stockholders
or the corporation the option to purchase the shares of the selling stockholders under
reasonable terms and conditions or period stated therein.
• In the absence of an express provision in the articles of incorporation and stock certificate
stating that the transfer of issued shares should be offered to the existing stockholders, the
transferor may legally dispose of or sell his shares to anybody without the need of a waiver
from the remaining stockholders.
• A provision in the articles of incorporation giving the stockholders the right of first refusal in
case of sale of stock does not apply to transfer by donation.

CRMD-SEC 25/10/2018 46
Appraisal Right

Appraisal right is not an inherent right of a stockholder, or a matter of

absolute right, otherwise, a stockholder can easily withdraw from the
corporation at anytime he desires by returning his shares and getting
back his capital. Such would constitute a violation of the trust fund
doctrine. Appraisal right is allowed only under the instances provided in
the Corporation Code, particularly in Section 37, 42, 81, and 105, the
exercise of which is subject to the conditions prescribed therein.
However, as a remedy in case an appraisal right is not allowed, a
stockholder may avail of Section 63 of the Corporation Code which
allows transfer of ownership of shares.
CRMD-SEC 25/10/2018 47
How appraisal right is exercised?

The conditions for the valid exercise of stockholders’ appraisal right may be summed-up as follows:
a. Any of the instances set forth by the law for the exercise of appraisal right by a dissenting stockholder must be
present.
b. The dissenting stockholder must have voted against the proposed corporate action.
c. The demand for payment must be made by the dissenting stockholder within thirty (30) days from the date a vote is
taken thereon. Failure to make such demand within such period shall be deemed a waiver of the appraisal right.
d. The price of the shares must be based on the fair value as of the day prior to the date on which the vote was taken;
and the fair value must be determined in accordance with the procedure set forth in Section 82.
e. Submission of the withdrawing stockholder of his shares to the corporation for notation of being a dissenting
stockholder within ten (10) days from written demand
f. Payment of shares must be made only when the corporation has unrestricted retained earnings in its books to cover
such payment
g. Upon such payment by the corporation, the stockholder must transfer his shares to the corporation.

CRMD-SEC 25/10/2018 48
Cont. of the discussion on the
preceding slide.
• If all the conditions have been complied with, all the rights accruing to such
shares, including voting and dividend rights, shall be suspended, except the
right of such stockholder to receive payment of the fair value thereof;
Provided, That if the dissenting stockholder is not paid the value of his shares
within thirty (30) days after the award, his voting and dividend rights shall
immediately be restored.
• If the corporation unjustifiably refuses to pay the dissenting stockholder,
despite the full compliance with the requirements for the valid exercise of
appraisal right and the fact that the corporation has sufficient unrestricted
retained earnings, the aggrieved stockholder may file the appropriate action
before the proper Regional Trial Court of general jurisdiction.

CRMD-SEC 25/10/2018 49
Right to dividends

• Dividend refers to corporate profits allocated, lawfully declared

and ordered by the directors to be paid to the stockholders on
demand or at a fixed time.
• When a corporation earns profit over and above the amount of
its capital, the stockholders are entitled to have a share in such
profit in proportion to their shareholdings, and the fund set apart
for this purpose is called dividends.

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Sources of dividends

• Dividends must be declared and paid out of the “unrestricted retained

earnings” of the corporation.
• The term “retained earnings” as defined under the generally accepted
accounting principles is understood to mean “ the accumulated profits
realized out of normal and continuous operations of the business. It refers to
the percentage of net earnings not paid out as dividends, but retained by
the company to be reinvested in its core business or to pay debt.
• Retained earnings which are not appropriated for designated purposes (such
as expansion, possible future loss and other contingencies or when prohibited
under a loan agreement) are what are referred to as “unrestricted retained
earnings” from which dividends can be legally paid.
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Stockholders of record/record date

• The right to receive dividends is inherent in the ownership of shares, hence,

only stockholders of record are entitled thereto. A person who is not a
stockholder of record cannot be a recipient of a dividend.
• A record date, for purposes of determining who are entitled to dividends, is
the future date specified in the resolution declaring dividends, that the
dividend shall be payable to the stockholders of record on a specified future
date or as of the date of meeting declaring said dividend.
• The general rule for determining the person to whom a dividend is payable in
the absence of a record date is that it belongs to the person who is recorded
in the corporate books as stockholder at the time of the declaration.
CRMD-SEC 25/10/2018 52
 NON-CUMULATIVE
FEATURES FOR
AND
DIVIDENDS
NONPARTICIPATORY

PARTICIPATORY GUARANTEED

CUMULATIVE

CRMD-SEC 25/10/2018 53
Dividend Features:

1. Guaranteed - payment of dividends is guaranteed.

2. Cumulative - entitle the holder thereof to payment of current dividends as well as dividends in
arrears
3. Non-cumulative – entitle the holder thereof only to the payment of current and not past dividends.
4. Participating – entitle the holder thereof to participate with the holders of common shares after their
preferred right has been satisfied
5. Non-participating – entitle the holder thereof to payment of the stipulated preferred dividends and
no more .
6. Cumulative-participating – entitle the holder thereof to payment of dividends in arrears and also,
after receiving his preferred share of dividends, to participate with the holders of common stock in
the remaining profits

CRMD-SEC 25/10/2018 54
 DECREASE OF AUTHORIZED
CAPITAL STOCK

NCREASE OF AUTHORIZED
STOCK SPLIT AND REVERSE SPLIT
CAPITAL STOCK

POST
INCORPORATION
APPLICATIONS
AMENDED ARTICLES AND BY- RECLASSIFICATION/CONVERSION
LAWS RELATIVE TO OF SHARES
EQUITIES/
SHARES OF
STOCK

CRMD-SEC 25/10/2018 55
 OFFICERS

DIRECTORS

STOCKHOLDERS

CRMD-SEC 25/10/2018 56
 RIGHT TO VOTE IN CORPORATE ACTS
• MAJORITY OF THE BOARD AND
VOTES REQUIRED FOR
THE COMPENSATION
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK
OF THE BOARD

• MAJORITY VOTE OF THE BOARD AND

VOTES REQUIRED FOR
AMENDED ARTICLES
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK
OF INCORPORATION

• MAJORITY VOTE OF THE BOARD AND

VOTES REQUIRED FOR
AMENDED BY-LAWS
• STOCKHOLDERS REPRESENTING MAJORITY OF THE OUTSTANDING CAPITAL STOCK

VOTES REQUIRED TO
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK.
REMOVE A MEMBER
OF THE BOARD

CRMD-SEC 25/10/2018 57
CRMD-SEC 25/10/2018 58
Qualified Buyers

• Section 10. Exempt Transactions. – The requirement of registration under Subsection 8.1 shall not apply to the sale of any
security in any of the following transactions:
xxx
(l)The sale of securities to any number of the following qualified buyers:
i. Bank;
ii. Registered investment House;
iii. Insurance company
iv. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed
by a bank or other perons authorized by the Bangko Sentral to engage in trust functions;
v. Investment company; or
vi. Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.

CRMD-SEC 25/10/2018 59