OVERVIEW OF PHILIPPINE CORPORATION LAW
b. Non-Cumulative- are not declared in a
certain year, they accumulate and must be
Restriction on Non-Par Value Shares paid in full before common stockholders
The following cannot issue no-par value shares: receive dividends.]
➢ Banks 1) Discretionary- Dividends depend
➢ Trust Companies on the discretion of the board of
➢ Insurance Companies directors.
➢ Public Utilities 2) Mandatory- The board must declare
➢ Building and Loan Associations dividends if the company earns a
Commonly Issued Classifications of Shares profit.
3) Earned Cumulative (Dividend
COMMON STOCK PREFERRED STOCK
Credit Type)- unpaid dividends
Voting Rights from profitable years must be paid
later before common stockholders
Exclusive voting rights No voting rights receive any dividends.
Preferred Stocks
Dividends
➢ Generally non-voting, unless stated otherwise.
Receive dividends after Has priority in receiving ➢ Even non-voting stocks can vote on major corporate
preferred stockholders. dividends. changes (e.g., mergers, dissolution).
➢ Preference in liquidation must be stated in the articles
Liquidation Rights of incorporation.
Par vs. No-Par Shares
Last to receive assets in case Priority over common stock Par Value Shares: Have a minimum issue price, fixed in the
of liquidation in liquidation
articles of incorporation and stock certificate.
Par Value No-Par Shares: No fixed price on the stock certificate but may
still be set by the board or shareholders.
Can be issued with or Must have stated par value.
without a par value. Regardless of type, shares must be fully paid before being
issued.
Priority Level
Lower- no advantage over Higher- receives payment Furthermore, no-par shares are subject to the following
other common. before common. limitations:
1. Once issued, they are deemed fully paid and
Residual Profits therefore, non-assessable;
2. Consideration for issuance cannot be less than P5.00;
Right to leftover profits after Usually gets a fixed
3. The entire consideration for issuance constitutes
obligations dividend rate.
capital, hence no part of it is available for distribution
as dividends
Types of Preferred Stock Based on Dividend Rights 4. They cannot be issued as preferred stocks;
1. Based on Participation in Dividends: 5. They cannot be issued by banks, trust companies,
a. Participating- Receives its fixed dividends insurance companies, public utilities, and building
plus a share in the remaining dividends and loan associations;
along with common stockholders. 6. The Articles of Incorporation must state the fact that
b. Non-Participating- Receives only the fixed the corporation issues no-par shares as well as the
dividend and does not share in excess profits number of such shares.
2. Based on Accumulation of Dividend: Treasury Shares
a. Cumulative (Default)- If dividends are not ➢ Previously issued and fully paid, then reacquired by
declared in a certain year, they accumulate the corporation (e.g., purchase, donation,
and must be paid in full before common redemption).
stockholders receive dividends. ➢ Can be reissued at any price, even below par, since
they were already paid for before.
OVERVIEW OF PHILIPPINE CORPORATION LAW
Redeemable Shares
➢ Shares that a corporation can buy back at a price Fraud or Misrepresentation Theory
higher than par or face value. - Bases liability on false representation made to
➢ Must be expressly stated in the articles of creditors that the par value of stock has been paid for
incorporation and on the stock certificate. or agreed to be paid in full.
➢ Can be redeemed even without unrestricted retained - The issue of watered stock is viewed as a
earnings, after a fixed period or based on set misrepresentation of the corporation’s capital.
conditions. - Creditors who rely on this false information can
VIII. CONSIDERATION FOR ISSUANCE OF SHARES demand compensation from the holders of watered
Shares are not considered issued until fully paid. If only stock.
partially paid, the unpaid balance is treated as the Liability for Issuing Watered Stocks
stockholder’s debt to the corporation. Who is Liable?
Consideration for the issuance of stock may be: Directors or Officers who:
1. Actual cash paid to the corporation. ● Approve the issuance of stocks below par or issued
2. Property – Tangible or intangible assets needed for value.
corporate use, valued fairly. ● Approve stocks issued for non-cash consideration
3. Labor performed for or services actually rendered to that are overvalued.
the corporation; ● Know about the issuance but fail to object in writing
4. Previously incurred indebtedness of the corporation to the corporate secretary.
5. Amounts transferred from unrestricted retained Extent of Liability
earnings to stated capital; ● Solidarily liable with the stockholder concerned.
6. Outstanding shares exchanged for stocks in the event ● Must pay the difference between the fair value
of reclassification or conversion received and the par or issued value of the stock.
7. Shares of stock in another corporation ● Liability applies regardless of whether corporate
8. Other generally accepted form of consideration. debts arose before or after the issuance.
Non-Cash Considerations A. DIVIDENDS
- If shares are issued for property (tangible or Stockholders have three important rights:
intangible like patents/copyrights), their value is set 1. Right to Vote
by the incorporators or board of directors, subject to 2. Dividend Right
SEC approval. 3. Right to Assets Upon Liquidation
Share of Stock shall not be issued in exchange for:
1. Promissory Notes Dividends
2. Future Services - Right to share in the corporation’s assets.
- Dividends are declared by the board of directors from
Pricing of No-Par Value Shares may be set by: the corporation’s unrestricted retained earnings
● Articles of Incorporation Unrestricted retained earnings are undistributed earnings
● Board of Directors (if authorized by article or not set aside for legal, contractual, or managerial purposes,
by-laws) making them available for dividend distribution.
● Stockholders (majority vote)
Types of Dividends:
Watered Stocks Cash Dividends- Money
- Shares that are issued as fully paid, but the Property Dividends- Asset
consideration given is either absent or insufficient. Stock Dividends- Additional Shares
Theories for Basis of Liability for Watered Stocks
Trust Fund Theory RIGHT TO DIVIDENDS & RETENTION OF SURPLUS
- The corporation’s capital stock acts as a trust fund for PROFITS
creditors. Gen Rule: Right to dividends is always proportional to their
- Stockholders are not personally liable, but the outstanding capital stock.
corporation’s assets should cover obligations.
