PREFERRED SHARES 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: Provided, That preferred shares of stock may be issued only with a stated par value. (Section 6) Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. (77a, 89a, 16a) -Liquidation andwinding up of corporate affairs involves the collection and realization ofassets, settlement of the rights and claims of creditors of the corporation, and distribution of the remaining assets to the shareholders who are entitled thereto. (Ballantine, page 729) The distribution of the remaining corporate assets to all stockholders is done in accordance with their proportionate stockholdings in the corporation or in accordance with their respective contracts of subscription. ---

Occasionally, publicly listed companies go bankrupt. The company'sshareholders, depending on the type of stock they hold, may be entitled to a portion of the liquidated assets, if there are any left over. However, the stock itself will become worthless, leaving shareholders unable to sell their defunct shares. Therefore, in the case of corporate bankruptcy, the only recourse is to hope that there is money left over from the firm's liquidated assets to pay the shareholders.

Upon bankruptcy, a firm will be required to sell all of its assets and pay off alldebts. The usual order of debt repayment, in terms of the lender, will be the government, financial institutions, other creditors (i.e. suppliers and utility companies), bondholders, preferred shareholders and, finally, common shareholders. The common shareholders are last because they have a residual claim on the assets in the firm and are a tier below the preferred stock classification. Common shareholders often receive nothing at all, as there is usually very little left over once a firm has paid its debts. The amount of the payment a common shareholder will receive is based on the proportion of ownership he or she has in the bankrupt firm. For example, suppose that a common stockholder owns 0.5% of the firm in question. If the firm has $100,000 to pay to its common shareholders post liquidation, this owner would receive a cash payment of $500. If a shareholder owns preferred shares, he or she will have an increased chance of receiving a payment upon liquidation because this class of ownership has a higher claim on assets. (For further reading, see A Primer On Preferred Stocks and Knowing Your Rights As Shareholder.)

In the liquidating of a corporation, after the payment of all corporate debts and liabilities, the remaining assets, if any, must be distributed to the stockholders in proportion to their interests in the corporation. The share of each stockholder in the assets upon liquidation is what is known as liquidating dividend. President of PDIC v. Reyes, 460 SCRA 473 (2005)
Classification of Shares (Sec. 6) Section 6 of the Corporation Code which prohibits the classification of shares as non-voting, except when they are expressly classified as preferred or redeemable shares, will apply to corporation organized under the old Corporation Law. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Castillo v. Balinghasay, 440 SCRA 442 (2004). (a) Common Shares A common stock represents the residual ownership interest in the corporation. It is a basic class of stock ordinarily and usually issued without extraordinary rights or privileges and entitles the shareholder to a pro rata division of profits. Commissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152 (1999). (b) Preferred Shares (Republic Planters Bank v. Agana, 269 SCRA 1 [1997]). Participating and Non-participating Cumulative and Non-cumulative Par Value and No Par Value Preferred stocks are those which entitle the shareholder to some priority on dividends and asset distribution. Commissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152 (1999).