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Transfer of Shares of Stock

1) To transfer shares of stock, the Corporation Code requires that the shares be covered by a stock certificate. The certificate defines the shareholder's ownership and outlines regulations that must be disclosed to potential buyers. 2) For a transfer to be valid against the corporation and third parties, the certificate must be endorsed by the owner and the transfer must be recorded in the corporation's books. 3) As between the corporation and shareholders/third parties, the corporation only recognizes the registered owner in its books when determining shareholders.

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597 views

Transfer of Shares of Stock

1) To transfer shares of stock, the Corporation Code requires that the shares be covered by a stock certificate. The certificate defines the shareholder's ownership and outlines regulations that must be disclosed to potential buyers. 2) For a transfer to be valid against the corporation and third parties, the certificate must be endorsed by the owner and the transfer must be recorded in the corporation's books. 3) As between the corporation and shareholders/third parties, the corporation only recognizes the registered owner in its books when determining shareholders.

Uploaded by

JDR JDR
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TRANSFER OF SHARES OF STOCK

Before us are Certificates of Stock from the Technological Institute


of the Philipines issued to Dominador F. Corpuz. Below is a guideline on
how to effectuate the transfer of these Certificates of Stock to another
person and how to determine their valuation.

1. As provided under the Corporation Code:

Sec. 63. Certificate of stock and transfer of shares. The


capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock
so issued are personal property and may be transferred by
delivery of the certificate or certificates endorsed by the
owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names
of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number
of shares transferred.

No shares of stock against which the corporation holds any


unpaid claim shall be transferable in the books of the
corporation.

Being intangible personalty, the Corporation Code requires that, before


a share of capital stock is validly sold, transferred, assigned or in any
manner conveyed, it must be covered by a stock certificate. This
requirement is borne out of practical considerations. It is a
fundamental principle of contract law (be it of sale, assignment or any
other conveyance) in the Philippines and probably in any jurisdiction,
that the parties to any contract must be aware of the subject matter
what is being sold, transferred or otherwise conveyed. On the other
hand, shares of stock in a corporation do not have physical form,
unlike ordinary chattel such as goods or vehicles, where a person has
a clear notion of what is being sold or conveyed.
The stock certificate is evidence of the personalty owned by the
stockholder. It defines the nature and extent of his ownership over the
share/s of stock. It also outlines the regulations and limitations of
ownership, which must be considered and made known to the parties
prior to any conveyance. Obviously, without the stock certificate, these
matters would be unknown to a prospective buyer or transferee of
shares of stock. Simply stated, the subject matter of the conveyance
will not be clear. Therefore, only shares of stock covered by a stock
certificate can be subject of a legally demandable and binding sale or
disposition.
There may be instances where shares of stock are sold or transferred
prior to the issuance of stock certificates. At best, these transactions
are only binding between the parties, and will not bind the corporation.
As a matter of fact, the corporation can legally refuse to recognize
such transfers, especially if the shares which were sold have not yet
been fully paid. The last paragraph of Section 63 states that no shares
of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. This means that the
corporation can altogether refuse to recognize the validity of a sale or
transfer of a share of capital stock that has not been fully paid, or
which the corporation has a lien. In this case, the purchasers only
remedy lies with the stockholder.
In the case of De los Santos, et al. vs. MacGrath, et al., G.R. No. L-
4818, 28 February 1955, the Supreme Court interpreted the provisions
of Section 63 of the Corporation Code. The Supreme Court held that
any voluntary transfer of shares of stock in a corporation that is
represented by a certificate of stock must strictly comply with the
following conditions:
a. There must be delivery of the certificate;
b. The share must be indorsed by the owner or his agent; and
c. To be valid to the corporation and third parties, the transfer must be
recorded in the books of the corporation.
One of the requirements to effect a valid transfer of shares of stock is
that the certificate of stock must be indorsed by the owner or his
agent. Mere delivery or handing over of the stock certificate is
insufficient, and does not produce the effects of a transfer or
conveyance to another. Indorsement of the stock certificate is one of
the operative acts which validates the transfer. Without the act of
indorsement by the stockholder, the sale or disposition will not be
binding upon the corporation. Of course, there are remedies under the
law to compel the owner to indorse the stock certificate which he or
she has already conveyed to another. But before indorsement of the
stock certificate, the corporation can refuse recognize the transferee
stockholder.
Moreover, as between the corporation on one hand, and its
shareholders and third persons on the other, the corporation looks
only to its books for the purpose of determining who its shareholders
are. Thus, as between the real owner of a stock certificate and the
registered owner or the person actually registered in the Stock and
Transfer Book of a corporation, it is the person registered in the Stock
and Transfer Book who must sign or endorse the certificate of stock to
allow its sale or transfer.

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