Philippines Corporation Code

Where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be 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: Provided, That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos 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, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided by the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing of bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in. this Code shall be deemed to refer only to stocks with voting rights.

Classification or division of shares

The corporation is free to classify its shares of stock into such classes or series of shares, or both with such rights, privileges or restrictions as may be attached thereto as long as such classes or series of shares and their rights, privileges or restrictions should appear in the articles of incorporation and certificates of stock, but always subject to legal limitations.

Shares of stock may principally differ:

(1) As to dividend rights; (2) As to rights in the surplus upon liquidation; (3) As to voting rights.

The general rule is that, in the absence of provisions to the contrary as stated in the articles of incorporation and certificate of stock, shares shall be treated equally. Thus, all such shares shall have voting rights and no preference in dividend payments shall be observed.

The usual kinds of shares which are hereinafter defined (infra) are:

(1) Par value shares; (2) No par value shares; (3) Common shares; and (4) Preferred shares.

Limitations on classification and issuance of shares of stock-

While corporations (or their incorporators) are free to classify corporate shares, there are certain limitations that they must observe in classifying or issuing shares of stock. These are the limitations:

(1) No shares of stock can be classified as to prejudice corporate creditors unless authorized by law ; thus, there must be observed distinctions between shares and debts. (2) As a general rule, shares shall not be deprived of voting rights and when there are shares deprived of voting rights like preferred or redeemable shares, along with these shares there must always be a class or series of shares which have complete voting rights. (3) Shares of stock classified as without voting rights like preferred shares are entitled to vote on certain matters like amendment of the articles of incorporation, adoption and amendment of bylaws, increase or decrease of capital stock, etc. (4) Banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be allowed to issue no-par value shares of stock. (5) Preferred shares of stock may be issued only with a stated par value. (6) Shares without par value (no par value shares) shall be issued as fully paid and non-assessable. (7) Shares without par value may not be issued for a consideration less than five pesos (P5.00) per share. (8) The entire consideration received by the corporation for its no par value shares shall be treated as capital and shall not be available as dividends; of course, the value in money or property paid for par value shares shall also be treated as capital from which no dividends shall be payable to shareholders. (9) Terms and conditions of preferred shares or any series hereof may be fixed by the board of directors only when the latter is so authorized by the articles of incorporation and such terms and conditions shall take effect only upon filing of the corresponding certificate in the Office of the Securities and Exchange Commission.

Classes of shares-

Shares may be classified as:

(1) Common share, one which entitles the owner or holder to an equal prorata division of profits without any preference or advantage over any class of stockholders. (2) Preferred share or stock, one which entitles the holder to some priority as to dividend or principal or both over some other class or classes of stockholders. (3) Cumulative preferred shares, those which entitle the holder to payment not only of current dividends but also of back dividends not previously paid, when and if dividends are declared, to the extent stipulated, before holders of common shares are paid. (4) Non-cumulative preferred shares, those which entitle the holders merely to the payment of current dividends but not of back dividends, before holders of common shares are paid. (5) Participating preferred shares, those that entitle the holders to participate with holders of common shares in the surplus profits after the amount of the stipulated dividend has been paid to holders of preferred shares. (6) Non-participating preferred shares, those that entitle the holders only to the stipulated preferred dividend and no more. (7) Redeemable shares, those which grant to the issuing corporation the power to redeem (purchase) its own shares. (8) Convertible shares, those which confer on the holders the option of exchanging such shares for another class of shares at a certain price or prices and within a certain period. (9) Option warrant, a stock which gives the holder the right to subscribe for or purchase shares of the issuing corporation, such as common shares, at a stipulated price or prices per share usually within a limited time. (10) Par value share, one on the certificate of which or in the articles of incorporation, appears an amount in pesos as the nominal value of the share. (11) No par value share, is a share without any nominal value in terms of peso or peso's worth. (12) Treasury shares, those which have been issued as fully paid and have been reacquired by the corporation, and not retired. (13) Retired shares, are shares which have been withdrawn and have disappeared altogether. (14) Guaranteed shares, are those guaranteed by- a person, natural or juridical, other than the issuing corporation. (15) Debenture shares, are those which are more of certificates of indebtedness not guaranteed by any specific property of the issuing corporation. (16) Escrow shares, are those deposited with a person to be delivered to another upon fulfillment of a condition.