a. Rights of a Stockholder

Appraisal rights available to dissenting stockholders

• In case of extension of term – right of appraisal exists
• In shortening of term – right of appraisal recognized in Sec 80¹ – amendment of Articles to shorten or extend corporate term

Power to Deny Pre-Emptive Rights (Sec. 38)

Power to Deny Pre-Emptive Rights (Sec. 38, RA 11232)

General rule: Stockholders have the pre-emptive right to subscribe to all issues or disposition of shares by the corporation of any class in proportion to their shareholdings

Right To Dividends

The right to dividends vests at the time of its declaration by the Board of Directors.

Although stock certificates grant the stockholder the right to receive quarterly dividends of 1%, cumulative and participating, the stockholders do not become entitled to the payment thereof without necessity of a prior declaration of dividends. (Republic Planters Bank v. Agana, G.R. No. 51765, 3 March 1997)²

Stock Corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock, except:

• When justified by definite corporate expansion projects or programs approved by the board of directors
• Corporation is prohibited under a loan agreement from declaring dividends without the creditor’s consent.
• Under special circumstances such as when there is a need for special reserve for probable contingencies

Unless:

• Denied by the Articles of Incorporation or amendment thereto;
• Shares are issued in compliance with laws requiring minimum stock ownership by the public
• Shares issued in good faith in exchange for property for corporate purposes approved by 2/3 of the OCS
• Shares in payment of previously contracted debts approved by 2/3 of OCS

Form of Dividends

• Cash Dividends (once validly declared, they become payable obligations of the corporation and generally cannot be revoked unilaterally).
• Property Dividends (once validly declared, they generally cannot be revoked unilaterally).
• Stock Dividends, which requires, aside from the declaration by the Board, the approval of 2/3 of the outstanding capital stock (revocable before issuance).

Note: No dividends can be declared out of capital, except liquidating dividends distributed at dissolution.

Right Of Appraisal

The right to withdraw from the corporation and demand payment of the fair value of his shares after dissenting from certain corporate acts involving fundamental changes in corporate structure.

When available

• Extension or shortening of corporate term; (Secs. 36 and 80, RA 11232)³
• In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class; (Sec. 80)⁴
• Investing of corporate funds for any purpose other than the primary purpose; (Sec. 80)
• Sell or dispose all or substantially all assets of corporation;(Sec. 80)
• Merger or consolidation.(Sec. 80)

Manner of exercise of right (Sec 81, RCC)

• A written demand on the corporation within 30 days after the vote was taken (failure to do so means waiver);(Sec. 81)⁵
• From the time of demand, all rights accruing to such shares including voting and dividend rights shall be suspended except the right of such stockholder to receive payment of the fair value of stockholder’s shares. (Sec. 82)⁶
• Ten (10) days from demand, the dissenting stockholder must submit his certificates of stocks for notation that such certificates represent dissenting shares. (Sec. 85)⁷
• The price to be paid is the fair value of the shares as of the day before the vote was taken, excluding any appreciation or depreciation in anticipation of the corporate action; (Sec. 81)
• The fair value shall be agreed upon by the corporation and the dissenting stockholders within 60 days from the approval of the corporate action by the stockholders. In case there is no agreement, the fair value shall be determined by a majority of the three disinterested persons one of whom shall be named by the stockholder another by the corporation and the third by the two who were chosen; (Sec. 81)
• The right of appraisal is extinguished when: (Sec. 83)⁸
• He withdraws the demand with the corporation’s consent;
• The proposed action is abandoned;
• The SEC disapproves of such action where approval is necessary
• The SEC determines that such dissenting stockholder is not entitled to the appraisal right.
• If the dissenting stockholder is not paid within 30 days from the award, voting and dividend rights shall immediately be restored. (Sec. 82)

Dissenting stockholders have appraisal rights.

After authorization or approval by the stockholders/members, the Board may however, abandon proposed action without prior authorization/approval of stockholders/members, subject to rights of 3rd parties.

However, stockholders’/members’ authorization not needed if

• Disposition of property and assets is necessary in the usual and regular course of business, or
• If the proceeds of sale or disposition is appropriated for the conduct of the remaining business

Pre-Emptive Right

The shareholders’ right to subscribe to all issues or dispositions of shares of any class in proportion to his present stockholdings, the purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus.

Instances When Preemptive Right Is Not Available

• Shares to be issued to comply with laws requiring stock offering or minimum stock ownership by the public;
• Shares issued in good faith with approval of the stockholders representing 2/3 of the outstanding capital stock in exchange for property needed for corporate purposes;
• Shares issued in good faith with approval of the stockholders representing 2/3 of the outstanding capital stock issued in payment of previously contracted debts;
• In case the right is denied in the Articles of Incorporation;
• Waiver of the right by the stockholder;
• If the shares of a corporation are offered and not subscribed and purchased by the stockholders, and the shares are being offered again, there is no pre-emptive right with respect to the latter offer of shares (Benito v. Securities and Exchange Commission, G.R. No. L-56655, 25 July 1983)⁹

Pre-Emptive Right v. Right of First Refusal