SEC.

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*Who cannot issue no-par value shares?
 What are “shares”? - Corporations who have access to public funds
- Shares represents the interest or the investment
of a stockholder in a corporation. *If the assets of the corporation have all been
exhausted and there are still creditors, can the
Doctrine of equality of shares creditors go after the shareholders?
Each share shall be equal in all respects to every other No-par value Par value
share, except as otherwise provided in the AOI and No Yes
stated in the certificate of stock.
*Can a corporation lower the par value of shares?

Who may classify shares?

1. Incorporators VOTING VS. NON-VOTING SHARES
2. Board of directors and stockholders
GR: No share may be deprived of voting rights.
 Shares are classified as: XPNs:
1. Common shares or Preferred shares 1. Preferred non-voting shares;
2. Par value shares or No-par value shares 2. Redeemable shares;
3. Voting shares or non-voting shares 3. Shares as provided by the Code (treasury shares)
4. Shares in escrow
5. Convertible shares VOTING SHARES
6. Redeemable shares - Shares that are provided with voting rights on
7. Founders’ shares any issue on the corporation. The voter can
8. Treasury shares participate in any meeting and on any issue that
may be raised during the meeting.
COMMON VS. PREFERRED SHARES
The right to vote in Stock The right to vote in non-
COMMON SHARES Corpo stock corpo
- A class of stock entitling the holder to vote on
The right to vote is inherent The voting rights attach to
corporate matters, to receive dividends after
in and incidental to the membership. Members
other claims and dividends have been paid, and
ownership of corporate vote as persons.
to share in assets upon liquidation.
stocks.
- Often called as capital stock or ordinary shares.
NON-VOTING SHARES
PREFERRED SHARES - Shares that are not provided with voting rights
- One which entitles the holder thereof to certain but subject to exceptions.
preferences over the holders of common stock.
- Preferred Shares may be granted the right to Exceptions: Holders of non-voting shares shall
receive dividends first before any other types of nevertheless be entitled to vote on the following matters:
shares may receive their shares of the dividends. (1) Amendment of the articles of incorporation
(2) Adoption and amendment of the bylaws
 The most common forms may be classified (3) Sale, lease, exchange, mortgage, pledge, or
into two: other disposition of all or substantially all of the
1) Preferred shares as to assets corporate property
2) Preferred shares as to dividends (4) Incurring, creating, or increasing bonded
indebtedness
PAR VALUE VS. NON-PAR VALUE SHARES (5) Increase or decrease of authorized capital
stock
PAR VALUE SHARES (6) Merger or consolidation of the corporation
- Shares with a value fixed in the articles of with another corporation or other corporations
incorporation and the certificate of stock. (7) Investment of corporate funds in another
corporation or business in accordance with this
NO-PAR VALUE SHARES Code; and
- These are shares without a stated value (8) Dissolution of the corporation
SHARES IN ESCROW Kinds of redemption shares
- A share subject to an agreement by virtue of a. Compulsory
which the share is deposited by the grantor or his b. Optional
agent with a third person to be kept by the
depositary until the performance of certain THE TRUST FUND DOCTRINE
condition or the happening of a certain event The Trust Fund Doctrine means that the capital stock,
contained in the agreement. properties and other assets of a corporation are regarded
as equity in trust for the payment of corporate creditors.
CONVERTIBLE SHARES
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- A share that is convertible by the shareholder TREASURY SHARES
from one class to another class at a certain price - These are shares of stock and were fully paid,
and within a certain period. but were reacquired by the corporation through:
1. Purchase,
SEC. 7 2. Donation,
FOUNDERS’ SHARES 3. Sale, and
- These are shares, classified as such in the AOI, 4. Other lawful means.
which are given certain rights and privileges not
enjoyed by the owners of other stocks. Special Features of Treasury Shares
1) Part of its capital
Limitation on founders’ shares 2) Unrestricted retained earnings
 Where exclusive right to vote and be voted for in 3) Not entitled to dividends
the election of directors is granted, such right 4) Not entitled to the right to vote
must be for a limited period not to exceed 5 5) Can be resold
years subject to the approval of the SEC. 6) Not considered as outstanding shares

Founders’ Shares → Provided, that such exclusive right WATERED STOCKS

shall not be allowed if its exercise will violate: - These are stocks sold or issued at a price less
 Anti-Dummy Law than the stocks’ par value. The value of these
 Foreign Investments Act shares is diluted, in that the public is not
 Other pertinent laws apprised of the real value of the corporation.

What is the purpose for granting founders the

exclusive right to vote and be voted for?
- To ensure that the corporation will eventually
succeed because they are the ones who
envisioned the Corporation. They have the idea
of how the business shall proceed.

What are some examples of special rights or privileges

that may be given to founder’s shares that are not
given to common shares?
1. Preference in the payment of dividends and/or
distribution of assets in case of liquidation
2. Right to convert the shares into other shares
3. Right to cumulative dividends

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REDEEMABLE SHARES
- Shares usually preferred, which by their terms
are redeemable at a fixed date or at the option of
either the issuing corporation or the stockholder
or both at a certain redemption price.
- These are shares which permit the issuing
corporation to redeem or purchase its shares.