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Doctrine of Equality of Shares - All Stocks Issued by

This document outlines the classification and key attributes of different types of shares that can be issued by corporations according to Philippine law. It discusses common shares which provide voting rights and eligibility for dividends, preferred shares which may have preference in assets/dividends, shares with no par value, treasury shares which have been reacquired by the corporation, founders shares which can provide special rights for a limited period, and redeemable shares which the corporation can purchase back after a set period.

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Mil Malicay
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712 views3 pages

Doctrine of Equality of Shares - All Stocks Issued by

This document outlines the classification and key attributes of different types of shares that can be issued by corporations according to Philippine law. It discusses common shares which provide voting rights and eligibility for dividends, preferred shares which may have preference in assets/dividends, shares with no par value, treasury shares which have been reacquired by the corporation, founders shares which can provide special rights for a limited period, and redeemable shares which the corporation can purchase back after a set period.

Uploaded by

Mil Malicay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.

A corporation is Provided, That preferred shares of stock may be

an artificial being ISSUED ONLY WITH A STATED PAR VALUE.


created by operation of law,
having the right of succession The board of directors, where authorized in the
and the powers, attributes and properties articles of incorporation, may fix the terms and
expressly authorized by law conditions of preferred shares of stock or any
or incident to its existence. series thereof:

Stock Corporations Provided, That such terms and conditions shall be


1 have capital stock divided into shares and effective upon the filing of a certificate thereof
2 are authorized to distribute to the holders of such with the Securities and Exchange Commission.
shares dividends or allotments of the surplus
profits SHARES OF CAPITAL STOCK issued without par
3 on the basis of the shares held value shall be deemed fully paid and non-
assessable and the holder of such shares shall not
All other corporations are non-stock corporations. be liable to the corporation or to its creditors in
respect thereto:
Supplementary effect of the Corporation Code to Provided; That shares without par value may not be
special law or charter insofar as they are applicable. issued for a consideration less than the value of
five (P5.00) pesos per share:
Corporators are those who compose a corporation.
Incorporators Provided, further, That the entire consideration
1 are those stockholders or members mentioned in received by the corporation for its no-par value
the articles of incorporation shares shall be treated as capital and shall not be
2 as originally forming and composing the available for distribution as dividends.
corporation
3 and who are signatories thereof. A corporation may, furthermore, classify its shares
for the purpose of insuring compliance with
CLASSIFICATION OF SHARES constitutional or legal requirements.

No share may be deprived of voting rights except Except as otherwise provided in the articles of
those classified and issued as "preferred" or incorporation and stated in the certificate of stock,
"redeemable" shares, unless otherwise provided in each share shall be equal in all respects to every
this Code: other share.

Provided, further, That there shall always be a class Doctrine of equality of shares – all stocks issued by
or series of shares which have complete voting the corporation are presumed equal with the same
rights. privileges and liabilities, provided that the Articles
of Incorporation is silent on such differences.
Any or all of the shares or series of shares may have
a par value or have no par value as may be provided
for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance
companies, public utilities, and building and loan
associations shall not be permitted to issue no-par
value shares of stock.

PREFERRED SHARES OF STOCK issued by any


corporation may be given preference in the
distribution of the assets of the corporation in case
of liquidation and in the distribution of dividends,

or such other preferences as may be stated in the


articles of incorporation which are not violative of
the provisions of this Code:
Where the articles of incorporation provide for TREASURY SHARES
NON-VOTING SHARES in the cases allowed by this Treasury shares are shares of stock
Code, the holders of such shares shall nevertheless which have been issued and fully paid for,
be entitled to vote on the following matters: but subsequently reacquired by the issuing
corporation by purchase, redemption, donation or
1. Amendment of the articles of incorporation; through some other lawful means.
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other Such shares may again be disposed of for a
disposition of all or substantially all of the reasonable price fixed by the board of directors
corporate property; (BOD).
4. Incurring, creating or increasing 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. (5a)

FOUNDERS' SHARES
Founders' shares classified as such in the articles of
incorporation may be given certain rights and
privileges not enjoyed by the owners of other
stocks,
provided that where the exclusive right to vote and
be voted for in the election of directors is granted,
it must be for a limited period not to exceed five (5)
years subject to the approval of the Securities and
Exchange Commission.

The five-year period shall commence from the date


of the aforesaid approval by the Securities and
Exchange Commission.

REDEEMABLE SHARES
Redeemable shares may be issued
when expressly so provided in the articles of
incorporation.

They may be purchased or taken up by the


corporation
upon the expiration of a fixed period,
regardless of the existence of unrestricted retained
earnings in the books of the corporation,
and upon such other terms and conditions as may
be stated in the articles of incorporation,
which terms and conditions must also be stated in
the certificate of stock representing said shares.

Common questions

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The doctrine of equality of shares presumes that all stocks issued by a corporation have the same privileges and liabilities, as long as the Articles of Incorporation are silent on any differences. This ensures that each share is equal in all respects to every other share regarding voting rights, dividends, and liquidation preferences, unless otherwise specified. This doctrine influences shareholder rights by ensuring uniformity and fairness among shareholders unless specific provisions in the articles state otherwise .

A corporation can ensure uniformity by clearly detailing the rights and responsibilities associated with each class of shares in the articles of incorporation. This includes specifying voting rights, dividend structures, liquidation preferences, and any conversion rights. By adhering to the doctrine of equality of shares, and explicitly addressing variances in shares in foundational documents, corporations can maintain transparency and fairness, minimizing disputes among shareholders .

Redeemable shares can be issued only if expressly provided in the articles of incorporation. They can be bought back by the corporation after a set period, regardless of unrestricted retained earnings. This condition means shareholders may have to relinquish their shares under the terms outlined, which may include a predetermined redemption date and price. Thus, it impacts a shareholder's investment timeline and potentially their expected returns .

The classification of shares in a corporation can be used strategically to comply with constitutional or legal requirements. For instance, shares can be classified to meet foreign ownership restrictions or to ensure certain shareholder demographics. This classification allows a corporation to tailor its governance structure and shareholder rights in accordance with legal mandates while maximizing strategic advantages and maintaining regulatory compliance .

The SEC plays a crucial role in approving the issuance of founders' shares with special voting rights. Founders' shares may grant exclusive rights to vote and be voted for during director elections but only for a limited period of five years. This authority and the time limitation are subject to SEC approval, ensuring regulatory oversight and preventing long-term concentration of power among founders .

Corporations may issue no-par value shares to provide flexibility in setting share prices and simplifying the accounting process by avoiding the traditional par value constraints. Restrictions include a minimum issuance value of five pesos per share, and proceeds from no-par shares must be treated as capital, which cannot be distributed as dividends. This ensures a minimum capital base protecting creditors' interests .

Non-voting shares generally do not have voting rights, except on specific matters where the Corporation Code grants them such rights. These matters include amendments of the articles of incorporation, adoption and amendment of by-laws, and decisions involving corporate property disposition, bonded indebtedness, capital stock adjustments, mergers, investments, and dissolution. These exceptions ensure that holders of non-voting shares have a say in significant corporate changes .

Preferred shares may have special rights such as preference in the distribution of corporate assets upon liquidation and preference in dividend payments. They may also include other preferences not violating the Corporation Code, which must be stated in the articles of incorporation. Unlike common shares, preferred shares must have a stated par value. However, they often do not hold voting rights unless specified otherwise. This structure can attract investors seeking prioritized returns over voting power .

Issuing founders' shares with special rights can centralize control, at least temporarily, by granting founders disproportionate influence over corporate decisions. While this can foster stability and visionary leadership in the early stages, it might also delay broader shareholder engagement and potentially cause conflicts once the special rights expire. Hence, corporations must strategically balance this concentrated control with normal corporate governance practices to ensure sustainable governance .

Treasury shares are issued stocks that have been reacquired by the corporation. They can be re-issued at a reasonable price determined by the board of directors. Legal considerations include ensuring compliance with corporate governance laws and the requirement to provide transparency in the pricing and sale process. The decision to reissue such shares must align with the corporation's financial strategy and market conditions .

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