e. Corporate Books and Records

What Records Can Be Inspected?

Corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation in person or by a representative at reasonable hours on business days, and a demand in writing may be made by such director, trustee, stockholder or member at their expense, for copies of such records or excerpts from said records. (Sec. 73)¹.

Also, a corporation shall furnish a stockholder or member, within 10 days from receipt of their written request, its most recent financial statement (Sec. 74)².

The first three are the formulation of the old code. Under the Revised Corporation Code, inspection rights covers a’’ “corporate records, regardless of the form in which they are stored” (see Sec. 73)

Stock and transfer book

Record of:

• All stocks in the names of the stockholders alphabetically arranged;
• The installment paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment;
• A statement of every alienation, sale or transfer of stock made; and
• Such other entries as the by-laws may prescribe.

Notes: Stock and Transfer Book

Section [73]⁴, while specific in the kinds of records that must be maintained, is not limiting, thus, the inspection right is applicable to the stock and transfer book (Yujuico v. Quiambao, G.R. No. 180416, 2 June 2014)⁵

The corporate secretary is the officer who is duly authorized to make entries on the stock and transfer book (Gokongwei v. Securities and Exchange Commission, G.R. No. L-45911, 11 April 1979)⁶.

All transfers of shares not entered in the stock and transfer book of the corporation are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to subsequent purchasers in good faith and to all persons interested, except the parties to such transfers: “All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because they are made so void by statute (Uson v. Diosomito, G.R. No. 42135, 17 June 1935)⁷.

The entries are considered prima facie evidence only and may be subject to proof to the contrary (Bitong v. Court of Appeals, G.R. No. 123553, 13 July 1998)⁸.

The stock and transfer book of the corporation cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, and more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book (Jesus v. Lanuza, G.R. No. 131394, 28 March 2005)⁹.

Grounds for Not Allowing Inspection by a Stockholder

• He is not acting in good faith,
• A requesting party who is not a stockholder or member of record, or is a competitor shall have no right to inspect or demand reproduction of corporate records. (Sec. 73)

Competitor - competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor shall have no right to inspect or demand reproduction of corporate records. (Sec. 73)

In one case, the Supreme Court clarified that the right of inspection may only be exercised by a stockholder of record. As such, the corporation may validly set up the defense in its refusal to grant a claim of the right of inspection on the ground that the person is not a stockholder of record. (Puno v. Puno Enterprises, Inc., G.R. No. 177066, 11 September 2009)¹⁰

In Terelay Investment and Development Corporation v. Yulo, G.R. No. 160924, 5 August 2015¹¹, the court ruled that although the corporation may deny a stockholder's request to inspect corporate records, the corporation must show that the purpose of the shareholder is improper by way of defense.

The purposes held to justify a demand for inspection are the following:

• To ascertain the financial condition of the company or the propriety of dividends;
• the value of the shares of stock for sale or investment;
• whether there has been mismanagement;
• in anticipation of shareholders' meetings to obtain a mailing list of shareholders to solicit proxies or influence voting;
• to obtain information in aid of litigation with the corporation or its officers as to corporate transactions.

The improper purposes which may warrant the denial of the right of inspection:

• Obtaining of information as to business secrets or to aid a competitor;
• to secure business "prospects" or investment or advertising lists;
• to find technical defects in corporate transactions in order to bring "strike suits" for purposes of blackmail or extortion. (Terelay Investment and Development Corporation v. Yulo)¹³

The Right to Inspect Corporate Records is Subject to Confidentiality rules

The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws, such as:

• Trade secrets or processes under Republic Act No. 8293¹⁴, or the “Intellectual Property Code of the Philippines”, as amended,
• Republic Act No. 10173¹⁵, or the “Data Privacy Act of 2012”,
• Republic Act No. 8799¹⁶, or “The Securities Regulation Code”, and
• the Rules of Court¹⁷. (Sec. 73)¹⁸

Doctrinal Rulings on Right to Inspect

• The demand for inspection should cover only reasonable hours on business days;
• The stockholder, member, director or trustees demanding the right is one who has not improperly used any information secured through any previous examination of the records;
• The demand must be accompanied with statement of the purpose of the inspection, which must show good faith or legitimate purpose.
• Illegitimate purposes include to obtain corporate secrets (formula), nuisance suit, or to embarrass the company. (Terelay Investment and Development Corporation v. Yulo, G.R. No. 160924, 5 August 2015)¹⁹
• The RTC, and not the Sandiganbayan, has jurisdiction over a stockholder’s suit to enforce its right to inspect under the Corporation Code where the case does not involve a sequestration-related incident, but an intra-corporate controversy (Abad v. Araneta, G.R. No. 200620, 18 March 2015)²⁰
• A stockholder’s right to inspect corporate records subsists during the period of liquidation (three year period for dissolution per Sec. 139²¹). (Chua v. People, G.R. No. 216146, 24 August 2016)²²

Mandamus

Refusal to allow stockholders (or members of a non-stock corporation) to examine books of the company is not a ground for appointing a receiver (or creating a mgt. committee) since there are other adequate remedies, such as mandamus. (Ao-as v. CA, G.R. No. 128464)²³

Administrative Sanction (Sec. 158)

Historical doctrine on refusal of inspection under the former Corporation Code²⁴ (Ang-Abaya v. Ang, G.R. No. 178511, 4 December 2008)²⁵

• A director, trustee, stockholder or member has made a prior demand in writing for a copy of excerpts from the corporations records or minutes;
• Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee, stockholder or member of the corporation to examine and copy said excerpts;
• If refusal is made per a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for refusal;

Under Section 73 of RA 11232, inspection of corporate records is governed by that section, not Section 158. Grounds for denying an inspection demand include improper prior use of information and lack of good faith or a legitimate purpose:

• Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from the corporation’s records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand, the contrary must be shown or proved.
• The person demanding to examine has improperly used any information secured through any prior examination of the records or minutes of such corporation or for any other corporation; and
• The one requesting to inspect was not acting in good faith or for a legitimate purpose in making his demand

Section 158 of RA 11232 separately authorizes the Commission, after due notice and hearing and a finding of a violation of the Code, its rules or regulations, or its orders, to impose administrative sanctions.

Criminal sanctions under Sec. 170

refer to discussion at the respective topic below