g. Certificate of Stock

Doctrine of Individuality of Subscription

No certificate of stock shall be issued to a subscriber until the full amount of the subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid. (Sec. 63)¹

The foregoing provision sets forth the Doctrine of Indivisibility/Individuality of Subscription. For purposes of issuing a certificate on an unpaid subscription, the subscription contract is treated as one, entire, indivisible and whole contract. Accordingly, no stockholder shall be entitled to a certificate of stock until said stockholder has paid the entire value of the shares subscribed, including the interest and expenses. The prohibition in Section 63² concerns issuance of a certificate on a subscription that remains unpaid in full; it does not, by itself, resolve the stated alternative treatment of a portion of a subscription as fully paid.

The purpose of the prohibition is to prevent the partial disposition of a subscription which is not fully paid, because if it is permitted, and the subscriber subsequently becomes delinquent in the payment of his subscription, the corporation may not be able to sell as many of his subscribed shares as would be necessary to cover the total amount due from him, which is authorized under section [67]³. (SEC OGC Opinion No. 16-05)⁴

Other Rights

• Right to issuance of stock certificate for fully paid shares - Under Section 63 of the Revised Corporation Code⁵, no certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid. A subscriber must first totally pay his subscription before a certificate of stock covering shares subscribed and paid for could be issued to him. But an unpaid subscription (not declared delinquent) can be voted upon in corporate meetings. For delinquent shares, cash dividends are applied to the unpaid balance, while stock dividends are withheld until the subscription is fully paid (Secs. 42, 66–67, Revised Corporation Code)⁶.

Nevertheless, Section 63 of the Revised Corporation Code⁷ does not prohibit the corporation from “dividing” the subscription of a subscriber by considering portion thereof as fully paid and issuing a corresponding certificate over the paid- up shares. Thus, in the absence of provisions in the by- laws to the contrary, a corporation may apply payments made by subscribers on account of their subscriptions either as:

• Full payment for the corresponding number of shares, the par value of which is covered by such payment; or
• Payment pro rata to each and all the entire number of shares subscribed for

Once an alternative is chosen, it must be applied uniformly to all stockholders similarly situated, and therefore, it cannot be changed without the consent of all stockholders who might be affected.

• Proportionate participation in the distribution of assets in liquidation
• Stockholders and stock corporation – Except by decrease of capital stock, and as otherwise allowed by the Corporation Code, no corporation shall distribute any of its assets or property to its stockholders except upon lawful dissolution and after payment of all its liabilities (Sec. 122)⁸
• Members and foundations – Upon dissolution of a non-stock corporation, all liabilities and obligations must first be paid, and assets received and held subject to limitations permitting their use for specified eleemosynary purposes shall be properly transferred or returned, then the net assets remaining, if any, shall be distributed to the members, or any class or classes of members, to the extent that the articles of incorporation or by- laws provide for a plan of distribution. Otherwise, a plan of distribution may be adopted in the process of dissolution by:
• Majority vote of the Board of Trustees
• Adopted by at least 2/3 of the members having voting rights present or represented by proxy at the meeting (Sec. 94, Revised Corporation Code)⁹
• Right to transfer of stocks in corporate books;

Nature of the certificate

Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the transfer [Sec. 62, RCC]¹⁰.

A certificate of stock is — An instrument formally issued by the corporation with the intention that the same constitute the best evidence of the rights and status of a shareholder

An instrument signed by the proper corporate officer acknowledging that the person named in the document is the owner of a designated number of shares of stock. It is prima facie evidence that the holder is a shareholder of a corporation [Lao v. Lao]¹¹.

The paper representative or tangible evidence of the stock itself and of the various interests therein.

It is merely evidence of the holder’s interest and status in the corporation, his ownership of the share represented thereby.

It expresses the contract between the corporation and the stockholder [Makati Sports Club, Inc. v. Cheng, G.R. No. 178523, 16 June 2010]¹².

A certificate of stock is NOT —

• A condition precedent to the acquisition of the rights and status of a shareholder
• A stock in the corporation
• The equivalent of ownership of the share it represents
• Essential to the existence of a share of stock or the nature of the relation of shareholder to the corporation [Makati Sports Club, Inc. v. Cheng]¹³.

Uncertificated shares<br>

A share may exist before a stock certificate is issued; the absence of a certificate alone does not make it an uncertificated share.

Uncertificated shares or securities are those evidenced by electronic or similar records [Sec. 3.14, Securities Regulation Code¹⁴].

Added provision in Sec. 62 of the Revised Corporation Code:

The Commission may require corporations whose securities are traded in trading markets and, which can reasonably demonstrate their capability to do so, to issue their securities or shares of stocks in uncertificated or scripless form in accordance with the rules of the Commission.

Notwithstanding Sec. 63 of the Corporation Code of the Philippines (Certificate of Stock and Transfer of Shares, now found in Sec. 62 of the Revised Corporation Code), Sec. 43 of the SRC¹⁵ provides that a corporation whose securities are registered pursuant to the SRC or listed on securities exchange may:

• If so resolved by the BOD and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all its shares into the name of such shareholders, investors or, securities intermediary in the form of uncertified securities.

The use of uncertified securities in these circumstances shall be without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name; and

If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name [Sec. 43, Securities Regulation Code¹⁶].