States Corporation Code).
Note: The Corporation Code is based from the United States Corporation Code; annotations of the US Corporation Code might apply.
Q: When to Abstain?
A: Whenever a director believes he/she has a
conflict of interest, the director should abstain from voting on the issue and make sure his/her abstention is noted in the minutes. (Robert's
Rules, 10th ed., p 394.) The other reason a
director might abstain is that he/she believes there was insufficient information for making a decision. Otherwise, directors should cast votes on all issues put before them. Failure to do so could be deemed a breach of their fiduciary duties.
Q: Give an example where a director needs to abstain
A: To avoid “Insider Trading”, Insiders are
obligated to abstain from trading the shares of his corporation. This duty to abstain is based on two factors:
1. The existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; 2. The inherent unfairness involved when
a party takes advantage of such information knowing it is unavailable to those with whom he is dealing (SEC vs.
Interport Resources Corporation, G.R. No. 135808, October 6, 2008) . J. CAPITAL AFFAIRS (1) CERTIFICATE OF STOCK Q: What is a certificate of stock?
A: It is a paper representation or tangible
evidence of the stock itself and of various interests therein (Tan v. SEC, G.R. No. 95696, Mar.
3, 1992)
Q: What are the requisites for the issuance of the Certificate of Stock?
A:
1. The certificate must be signed by the president or vice‐president, countersigned by the secretary or assistant secretary
2. The certificate must be sealed with the seal of the corporation
3. The certificate must be delivered 4. The par value as to par value shares, or
full subscription as to no par value shares must be fully paid, the basis of which is the doctrine of indivisibility of subscription
5. The original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from the stockholder
(Bitong v. CA., G.R. No. 123553, July 13, 1998).
Q: What are the distinctions between shares of stock from certificates of stock? A: SHARE OF STOCK CERTIFICATE OF STOCK Unit of interest in a corporation Evidence of the holder’s ownership of the stock and of his right as a shareholder and of his extent specified therein. It is an incorporeal or intangible property It is concrete and tangible It may be issued by the corporation even if the subscription is not fully paid. It may be issued only if the subscription is fully paid. (A) NATURE OF THE CERTICIATE Q: What is the nature of a certificate of stock? A: A certificate of stock is a prima facie proof that the stock described therein is valid and genuine in the absence of an evidence to the contrary. (B) UNCERTIFICATED SHARES Q: What is an uncertificated share?
A: An uncertificated share is a subscription duly
recorded in the corporate books but has no corresponding certificate of stock yet issued.
Q: May a stockholder alienate his shares even if there is no certificate of stock issued by the corporation?
A: Yes. The absence of a certificate of stock does
not preclude the stock holder from alienating or transferring his shares of stock.
Q: In case of a fully paid subscription but the corporations has not yet issued a certificate of stock, how can the transfer be effected? A: In case of a fully paid subscription, without the
corporation having issued a certificate of stock, the transfer may be effected by the subscriber or stockholder executing a contract of sale of deed of assignment covering the number of shares sold and submitting said contract or deed to the corporate secretary for recordal.
Q: How are transfers of subscription not fully paid done?
A: In case of subscription not fully paid, the corporation may record such transfer, provided that the transfer is approved by the board of directors and the transferee executes a verified assumption of obligation to pay the unpaid balance of the subscription.
(C) NEGOTIABLITY
Q: Is a stock certificate negotiable?
A: No. It is regarded as quasi‐negotiable in the
sense that it may be transferred by endorsement coupled with delivery.
Q: Why is a stock certificate not negotiable?
A: Because the holder thereof takes it without
prejudice to such rights or defenses as the registered owners or transferor’s creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel. (De los
Santos v. Republic, G.R. No. L‐4818, Feb. 28, 1955)
Q: A is the registered owner of Stock Certificate No. 000011. He entrusted the possession of said certificate to his best friend B who borrowed the said endorsed certificate to support B's application for passport (or for a purpose other than transfer). But Bsold the certificate to X, a bona fide purchaser who relied on the endorsed certificates and believed him to be the owner thereof.
Can A claim the shares of stocks from X? Explain.
A: No. Since the shares were already transferred
to "B", "A" cannot claim the shares of stock from "X". The certificate of stock covering said shares have been duly endorsed by "A" and entrusted by him to "B". By his said acts, "A" is now estopped from claiming said shares from "X", a bona fide
purchaser who relied on the endorsement by “A” of the certificate of stock. (2001 Bar Question) i. REQUIREMENTS FOR VALID TRANSFER OF STOCK
Q: What are the requirements for a valid transfer of stock?
A:
1. The certificate of stock must be duly endorsed by the transferor or his legal representative.
2. There must be delivery of the stock certificate.
3. To be valid against third parties, the transfer must be recorded in the books of the corporation. (G.R. No. 124535,
September 28, 2001)
Q: How are shares of stock transferred?
A:
1. If represented by a certificate, the following must be strictly complied with:
a. Indorsement by the owner and his agent
b. Delivery of the certificate
c. To be valid to third parties, the transfer must be recorded in the books of the corporation. (Rural
Bank of Lipa v. CA, G.R. No. 124535, Sept 28, 2001). 2. If not represented by a certificate (such as when the certificate has not yet been issued or where for some reason is not in the possession of the stockholder). a. By means of deed of assignment:
and b. Such is duly recorded in the books of the corporation. Q: A is the registered owner of Stock Certificate No. 000011. He entrusted the possession of said certificate to his best friend B who borrowed the said endorsed certificate to support B's application for passport (or for a purpose other than transfer). But Bsold the certificate to X, a bona fide purchaser who relied on the endorsed certificates and believed him to be the owner thereof.
Can A claim the shares of stocks from X? Explain.