DIADEM PEARL R.

MANSAYON
LLB 3
CORPORATION CODE
Sec. 6. Classification of shares. - The shares of stock of stock corporations
may be divided into classes or series of shares, or both, any of which
classes or series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation: Provided, That no share
may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise provided in this
Code: Provided, further, That there shall always be a class or series of
shares which have complete voting rights. 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: Provided, That preferred shares of stock may
be issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided,
That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed
fully paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided;
That shares without par value may not be issued for a consideration less
than the value of five (P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose
of insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all respects
to every other share.
Where the articles of incorporation provide for non-voting shares in
the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
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.
Shares of stock in a corporation represent the interest of the
shareholder in a stock corporation.
Shares may be classified into:
2 Main Classes of corporation
1. Common shares
2. Preferred shares
Other Classes:
1. Par Value Shares
2. No Par Value Shares
3. Voting Shares
4. Non-voting Shares
5. Promotion Shares
6. Share in Escrow
7. Convertible Shares
8. Founders shares
9. Redeemable shares
10.
Treasury shares
1. Common Shares are the most commonly issued shares of stock of a
corporation. It has been described as one which entitles it owner to an equal or
pro-rata division of profits, if there are any, but without any preference or
advantage in that respect over any other stockholder or class of stockholders.
- A holder of such stock is a partial owner of the company and are entitled
to certain voting rights regarding company matters.
Example: in the event of liquidation or if the company goes bankrupt, the common
stockholders will not receive their money until the creditors and preferred
shareholders have receive their respective share of the leftover assets.
-

are the last in line to receive the companys money

2. Preferred shares Is a stock that gives the holder preference over the holder
of common stocks with respect to the payment of dividends and/or with respect
to the distribution of capital upon liquidation.
- It represents partial ownership in a company, although they are not
entitled any voting rights except enumerated in Section 6 of the
Corporation Code.
- Have greater claim to a companys assets and earnings than common
stockholders.

Different Types of Preferred Shares

a) Cumulative Preferred Shares these shares give their owners the right to
accumulate dividend payments that were skipped due to financial
problems; if the company later resumes paying dividends, cumulative
shareholders receive their missed payment first.
b) Non-cumulative Preferred Shares - these shares do not give their owners
back payments for skipped dividends.
c) Participating Preferred Shares one which entitles the shareholder to
participate with the common shares in excess distribution at some
predetermined or at a fixed ratio as may be determined.
d) Non-Participating Preferred Shares one which entitles the shareholders
thereof to receive the stipulated preferred dividends and no more.
3. Par Value Shares shares with a value fixed in the Articles of Incorporation
and in the Certificate of Stock.
1.
2.
3.
4.

Advantages:
Can easily be sold to the public is more attracted to buy this kind of share
Has greater protection to creditors
Unlikelihood of sale of subsequently issued shares at a lower price
Unlikelihood of distribution of dividends that are only ostensible profits
Disadvantages:

1. Subscribers are liable to the corporate creditors for their unpaid

subscription
2. The state value of the share is not an accurate criterion of its value
4.No par Value Shares those issued price that are not in the certificate of stock
but may be fixed in the Articles of Incorporation, or by the Board of Directors when
so authorized the articles of the by-laws, or in the absence thereof, the stockholders
themselves.
- the code allows the issuance of no par value shares, subject to the following
limitations provided in Section 6.
1) Such shares once issued, are deemed fully paid and thus, non-assessable;
2) The consideration for its issuance should not be less than 5.oo;
3) The entire consideration constitute capital, hence, not available for dividend
declaration;
4) They cannot be issued as preferred stocks; and
5) They cannot be issued by banks, trust, companies, insurance companies,
public utilities and building and loans associations.
1.
2.
3.
4.

Advantages:
Issued as fully paid and non-assessable;
Price is flexible no par value shares may be issued from time to time at
different prices with the exception only that bit shall not be issued at less
than 5.00;
Enjoy wider distribution because of it being low-priced;
Tell no untruth concerning the value of the stockholders;

5. More easily issued, thereby simplifying accounting procedures;

6. There is disappearance of personal liability on the part of the holder for
unpaid subscription since they are already deemed fully paid and nonassessable.
1.
2.
3.
4.

Disadvantages:
Legalize issuance of legal stock for property;
Conceal money or property represented by the shares;
Promote the issuance of watered stock;
Lesser protection to creditors;

5. Voting Shares it gives the holder thereof the right to vote and participate in
the management of the corporation, through the election of the Board of
Directors, or in any matter requiring stockholders approval.
However, voting shares may practically be denied the right to vote where
there exist founders shares.
6. Non-voting Shares shares without right to vote
Only preferred and redeemable shares may be denied the right to vote.
But, even if denied such right, they may still vote on the following matters
as enumerated in Section 6, par. 6.
1. Amendment of Articles of Incorporation
2. Adoption and amendment of by-laws
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property
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.
7. Promotion Shares such shares as are issued to promoters, or those in some
way interested in the company, for incorporating the company, or for services
rendered in launching or promoting the welfare of the company.
8. Share in Escrow is a share subject to an agreement by virtue of which the
share is deposited by the grantor or his agent with a third person to be kept by
the escrow agent until the performance of a certain condition or the happening
of a certain event contained in the agreement is fulfilled.
- The escrow deposit makes the depositary a trustee under an express
trust. Title does not pass under such an agreement until the performance
of a certain condition and does not relate back to the time the shares are
deposited.
- Shares that are in escrow may be common shares or preferred shares.
9. Convertible Shares a share that is changeable by the stockholder from one
class to another at a certain price and within a certain period.

Preferred shares may be stipulated as convertible into common share

must be stipulated in the Article of Incorporation.
If the Article of Incorporation do not reflect the convertibility feature, it is
necessary that the Article of Incorporation is amended before the
conversion is formalized. The amendment must not result in the watering
of stock or the issuance of stock in excess of the authorized capital stock
of the corporation.
Conversion is also subject to the appraisal right of dissenting stockholders
because conversion varies the right of the stockholders.

10.
Founders shares (section 7) are shares issued to the founders of the
corporation which are granted certain rights and privileges such as the exclusive
right to vote and be voted for in the election of directors. But if an exclusive right
to vote and be voted for as directors is granted, this privilege is subject to the
approval by the Security of Exchange Commission, and cannot exceed 5 years
from the date of approval.
11.
Redeemable shares (Section 8) these types of shares grants the
corporation the right to repurchase the shares at its option or at the option of the
holder based on the face or issued value plus specified premium, such
redemption may be optional or mandatory at a fixed or future date
Limitations:
1. it may be issued only when expressly provided for in the Article of
Incorporation
2. The terms and conditions affecting said shares must be stated both in the
Article of Incorporation and in the certificate of stock representing such
shares
3. Redeemable shares may be deprived of voting rights in the Article of
Incorporation, unless otherwise provided in the Code.
Redemption may not be made where the corporation is insolvent or if such
redemption would cause insolvency or inability of the corporation to meet its
debts as they mature. Such limitation is based on the principle that corporate
assets are a trust fund for creditors.
When redeemable shares are reacquired, the same shall be considered
retired and no longer issuable unless otherwise provided for in the Article of
Incorporation.
12.
Treasury shares (section 9) treasury shares are not retired shares. They
do not form revert to the unissued shares of the corporation but are regarded as
property acquired by the corporation which may be reissued or resold at a price
to be fixed by the Board of Director.
- Shares issued in the name of corporation. Usually refers to stock that was
once traded in the market but has since been repurchase by the
corporation. These shares dont pay dividends, have no voting rights, and
should not be included in shares outstanding calculations.