In today’s modern world, the ownership of shares in large corporations has become a widespread concept. Many individuals hold stakes in corporate entities, symbolized by shares of stock. It’s important to note that shares of stock are considered property under our Civil Code. Property, as defined in the Code, includes “all things which are or may be the object of appropriation.” This property can be categorized as either immovable (real) or movable (personal) property.
When we talk about immovable property or real property, we commonly refer to land or real estate. However, this term encompasses more than just land. It also includes other things that have a level of permanence, such as trees and bolted machineries. On the other hand, personal property refers to things that are not classified as real property and can be transported without affecting the real property they are attached to.
Personal property can further be classified as tangible or intangible. Tangible property includes things that can be physically held, while intangible property includes things that cannot be physically held. Owning shares of stock in a corporation makes you a co-owner and gives you ownership of intangible personal property.
Investing in a stock corporation involves purchasing shares of stock issued by the corporation. Each share of stock has a par value, which represents its assigned price or value. For example, if a corporation has 100 shares with a par value of P10, the total value of those shares would be P1,000. Depending on the terms of the subscription agreement, a stockholder may only have to pay a portion of the total price upfront. The amount paid is known as the paid-in capital, while the remaining balance is the unpaid portion of the purchase price.
If a stockholder has fully paid for their shares, they are entitled to receive stock certificates proving their ownership in the corporation. However, if a stockholder has not fully paid for their shares, they are still considered owners but will not receive stock certificates. It’s important to note that this does not mean they do not own their shares. According to the Revised Corporation Code, stockholders have all the rights of a stockholder, unless they have been declared delinquent.
Stockholders have various rights under the Revised Corporation Code, including the right to vote, pre-emptive right, power to inspect corporate records, right to information, right to dividends, and the right to appraisal in certain corporate actions. Additionally, stockholders also have the rights derived from Roman Law, which include the right to possess, use, benefit from, consume, dispose of, recover, and access accessories.
However, it’s worth mentioning that the right to dispose of shares that are not yet fully paid is subject to certain limitations. These limitations do not apply if the subscription price has been fully paid. The principle of indivisibility of stock subscription states that a stockholder can only sell their shares as a whole to one purchaser, not multiple purchasers. Furthermore, the consent of the corporation that the shares pertain to must be obtained. This limitation was explained by the Securities and Exchange Commission’s Office of the General Counsel in an opinion. They stated that if a stockholder has not fully paid for their subscription, they cannot transfer part of it. The entire subscription can only be transferred to a single transferee, who must assume the unpaid balance. Additionally, the consent of the corporation is necessary as the transfer of subscription rights involves a novation of contract.
When selling shares that have not been fully paid, the usual taxes, such as capital gains and documentary stamp taxes, still apply. However, no clearance or certificate authorizing registration will be processed by the Bureau of Internal Revenue unless the stock certificate is presented. In summary, the limitations in selling partially paid shares of stock include the responsibility of the buyer to pay the balance of the subscription price, the absence of a stock certificate, the requirement to pay the usual taxes without receiving a clearance or certificate, the need to secure the corporation’s consent, the restriction to sell to only one party, and the obligation to sell the entirety of the subscribed shares.
Please note that the views expressed in this article belong to the author alone. Atty. John Philip C. Siao is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, holds a position as an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He can be contacted at [email protected].
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