Stockholders Rights and Liabilities
statement upon request and to receive a financial report
Stocks and Stockholders
A. Rights of stockholders in general
Principle (at least in stock corp) - stockholders may have
all the profits but shall turn over the complete
management of the enterprise to directors.
But stockhoders retain certain rights as follows:
(1) Right to attend and vote in person or by proxy at
stockholders meetings Secs. 50, 58.);
(2) Right to elect and remove directors (Secs. 24, 28.);
(3) Right to approve certain corporate acts (see comments
under Secs. 49-54.);
(4) Right to adopt and amend or repeal the by-laws or
adopt new by-laws (Secs. 46, 48.);
(5) Right to compel the calling of meetings of stockholders
when for any cause there is no person authorized to call a
meeting (Sec. 50, last par.);
(6) Right to issuance of certificate of stock or other
evidence of stock ownership and be registered as
shareholder (see comments under Sec. 63.);
(7) Right to receive dividends when declared (see
comments under Sec. 43.);
(8) Right to participate in the distribution of corporate
assets upon dissolution (see comments under Secs. 118-
119.);
(9) Right to transfer of stock on the corporate books (see
comments under Sec. 63.);
(10) Right to pre-emption in the issue of shares (see
comments under Sec. 39.);
(11) Right to inspect corporate books and records and to
receive financial report of the corporations operations
(Secs. 74-75.);
(12) Right to be furnished the most recent financial
of the corporations operations (Sec. 75.);
(13) Right to bring individual and representative or
derivative suits (infra.);
(14) Right to recover stock unlawfully sold for delinquency
(Sec. 69.);
(15) Right to enter into a voting trust agreement (Sec.
59.);
(16) Right to demand payment of the value of his shares
and withdraw from the corporation in certain cases (see
comments under Secs. 41 and 81.); and
(17) Right to have the corporation voluntarily dissolved.
(see comments under Secs. 118-119.)
B. Derivative suit
A derivative suit - one brought by one or more
stockholders or members in the name and on behalf of the
corporation to redress wrongs committed against it or to
protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones
to be sued or hold control of the corporation. In such
action, the suing stockholder is regarded as a nominal
party with the corporation as the real party in interest.
(Ibid., Gamboa vs. Victoriano, 90 SCRA 40.)
Reason:
Minority stockholders, petitioners do not have any
statutory right to override the business judgments of
SBGCCIs officers and Board of Directors on the ground of
the latters alleged lack of qualification to manage a golf
course. (Nestor Ching v. Subic Bay Golf)
Individual suit
When a wrong is directly inflicted against a shareholder,
the latter can maintain an individual or direct suit in his
own name against the corporation. Any recovery by the
stockholder belongs to him.
Representative suit
When a wrong is committed against a group of
stockholders, a stockholder may bring a suit in behalf of
himself and all other stockholders who are similarly
situated. This is called a shareholders representative
suit which is a kind of class suit. Thus, suppose a group
of stockholders has been denied the right to vote. On the
ground of economy, a stockholder may file a suit in behalf
of himself and all others because the questions of law and
fact involved are common to all of them. (Rule 3, Sec. 12,
Rules of Court.)
A representative suit is also the method used by
minority stockholders to compel the declaration of
dividends.
a. Nestor Ching and Andrew Wellington v. Subic Bay
Golf and Country Club, G.R. No. 174353, September
10, 2014
Petitioners claimed in the Complaint that defendant
corporation did not disclose to them the above
amendment which allegedly makes the shares non-
proprietary, as it takes away the right of the shareholders
to participate in the pro-rata distribution of the assets of
the corporation after its dissolution. According to
petitioners, this is in fraud.
Ruling:
Complaint is indeed a derivative suit:
The reliefs sought in the Complaint, namely that of
enjoining defendants from acting as officers and Board of
Directors of the corporation, the appointment of a
receiver, and the prayer for damages in the amount of the
decrease in the value of the shares of stock, clearly show
that the Complaint was filed to curb the alleged
mismanagement of SBGCCI. The causes of action pleaded
by petitioners do not accrue to a single shareholder or a
class of shareholders but to the corporation itself.
Derivative suits is not a statutory right, there being no
provision in the Corporation Code or related statutes
authorizing the same, but is instead a product of
jurisprudence based on equity.
However, a derivative suit cannot prosper without first
complying with the legal requisites for its institution.
cralawred
Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies imposes the
following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts
or transactions subject of the action occurred and at the
time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same
with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership to obtain
the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with
the second and fourth requisites above.
Upon a careful examination of the Complaint, this Court
finds that the same should not have been dismissed on the
ground that it is a nuisance or harassment suit. Although
the shareholdings of petitioners are indeed only two out of
the 409 alleged outstanding shares or 0.24%, the Court
has held that it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a
corporation. alawred
With regard, however, to the second requisite, we find that
petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to
exhaust all remedies available under the articles of
incorporation, by-laws, and laws or rules governing the
corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail
of intra-corporate remedies. Indeed, even if petitioners
thought it was futile to exhaust intra-corporate remedies,
they should have stated the same in the Complaint and
specified the reasons for such opinion. Failure to do so
allows the RTC to dismiss the Complaint, even motu
proprio, in accordance with the Interim Rules. The
requirement of this allegation in the Complaint is not a
useless formality which may be disregarded at will.
b. Alfredo Villamor, Jr. v. John Umale, In
substitution of Hernando Balmores, G.R. No.
172843, September 24, 2014
MC Home Depot occupied a prime property (Rockland
area) in Pasig. The property was part of the area owned
by Mid-Pasig Development Corporation (Mid-Pasig).
Respondent Balmores prayed that a receiver be appointed
from his list of nominees. He also prayed for petitioners'
prohibition from "selling, encumbering, transferring or
disposing in any manner any of [PPC's] properties,
including the MC Home [Depot] checks and/or their
proceeds." He prayed for the accounting and remittance
to PPC of the MC Home Depot checks or their proceeds and
for the annulment of the board's resolution "vaiving PPC's
rights in favor of Villamor's law firm.alawlawlibrary
Ruling: Balmores' action in the trial court is not a
derivative suit
The fifth requisite for filing derivative suits, while not
included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The
action brought by the stockholder or member must be "in
the name of [the] corporation or association. ..." This
requirement has already been settled in jurisprudence.
Respondent Balmores' action in the trial court failed to
satisfy all the requisites of a derivative suit.
Respondent Balmores failed to exhaust all available
remedies to obtain the reliefs he prayed for. Balmores was
not able to show that this comprised -all the remedies
available under the articles of incorporation, by-laws,
laws, or rules governing PPC.
An allegation that appraisal rights were not available
for the acts complained of is another requisite for filing
derivative suits under Rule 8, Section 1(3) of the Interim
Rules.
Section 81 of the Corporation Code provides the instances
of appraisal right:
SEC. 81. Instances of appraisal right. Any stockholder of
a corporation shah1 have the right to dissent and demand
payment of the fair value of his shares in the following
instances:
[if !supportLists]1. [endif]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, or of extending
or shortening the term of corporate existence;
[if !supportLists]2. [endif]In case of sale, lease, exchange,
transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as
provided in this Code; and
[if !supportLists]3. [endif]In case of merger or
consolidation.
Section 82 of the Corporation Code provides that the
stockholder may exercise the right if he or she voted
against the proposed corporate action and if he made a
written demand for payment on the corporation within
thirty (30) days after the date of voting.
Granting that (a) respondent Balmores' attempt to
communicate with the other PPC directors already
comprised all the available remedies that he could have
exhausted and (b) the corporation was under full- control
of petitioners that exhaustion of remedies became
impossible or futile, respondent Balmores failed to allege
that appraisal rights were not available for the acts
complained of here.
Neither did respondent Balmores implead PPC as
party in the case nor did he allege that he was filing
on behalf of the corporation.
The non-derivative character of respondent Balmores'
action may also be gleaned from his allegations in the trial
court complaint. In the complaint, he described the nature
of his action as an action under Rule 1, Section l(a)(l) of
the Interim Rules, and not an action under Rule 1, Section
l(a)(4) of the Interim Rules, which refers to derivative
suits. Thus, respondent Balmores said:
1.1 This is an action under Section 1 (a) (1), Rule 1
of the Interim Rules of Procedure for Intra-
corporate Controversies, involving devices or schemes
employed by, or acts of, the defendants as board of
directors, business associates and officers of Pasig Printing
Corporation (PPC), amounting to fraud or
misrepresentation, which are detrimental to the interest of
the plaintiff as stockholder of PPC.75 (Emphasis supplied)
Rule 1, Section 1 (a)(1) of the Interim Rules refers to acts
of the board, associates, and officers, amounting to fraud
or misrepresentation, which may be detrimental to the
interest of the stockholders. This is different from a
derivative suit.
While devices and schemes of the board of directors,
business associates,-or officers amounting to fraud under
Rule 1, Section l(a)(l) of the Interim Rules are causes of a
derivative suit, it is not always the case that derivative
suits are limited to such causes or that they are necessarily
derivative suits. Hence, they are separately enumerated in
Rule 1, Section 1 (a) of the Interim Rules:
Respondent Balmores' intent to file an individual suit
removes it from the coverage of derivative suits.
Liabilities of stockholders
(1) Liability to the corporation for unpaid subscription
(Secs. 67-70.);
(2) Liability to the corporation for interest on unpaid
subscription (Sec. 66.);
(3) Liability to creditors of the corporation on unpaid
subscription (Sec. 60.);
(4) Liability for watered stock (Sec. 65.);
(5) Liability for dividends unlawfully paid (Sec. 43.); and
(6) Liability for failure to create corporation. (Sec. 10.)
Liability to the corporation for unpaid subscription
(Secs. 67-70.);
Subscription Contract - contract for the acquisition of
unissued stock in an existing corporation or a corporation
still to be formed shall be deemed a subscription contract.
(Sec. 60)
Pre-incorporation subscription (Sec. 61)
Under Sections 13 and 14 (last par.), SEC shall not accept
the articles of incorporation of any stock corporation
unless at least 25% of the authorized capital stock has
been subscribed and at least 25% of the total subscription
has been fully paid. Pre-incorporation subscriptions
are, therefore, mandatory.
A subscriber becomes a stockholder upon
subscription even before full payment and may not
legally be released by the corporation from the
obligation to pay for his shares.
Revocability of pre-incorporation
subscription.
(1) Conditions for revocation. Section 61 prescribes the
conditions for the revocation of a pre-incorporation
subscription contract either by the subscriber or the
corporation.
(2) When irrevocable. The subscription is irrevocable for
a period of at least six (6) months from the date of
subscription, notwithstanding any agreement to the
contrary, except in the two instances mentioned. In any
case, it cannot be revoked after the submission of the
articles of incorporation to the Commission, although
beyond the six (6) months period.
(3) Reason for irrevocability. To prevent a subscriber
from spec-ulating on the stocks of a proposed
corporation. The rule protects the corporation from
financially irresponsible subscribers.
Effect of filing of articles of incorporation.
(1) The subscriber is not bound indefinitely for the period
of irrevocability is limited. However, after submission of
the articles of incorporation to the Securities and Exchange
Commission, a pre-incorporation subscription may no
longer be revoked although the period of six (6) months
has already elapsed.
(2) Upon incorporation (see Sec. 19.), both the
incorporators and subscribers become shareholders.
Certificate of stock
(1) A certificate of stock is a written instrument signed by
the proper officer of a corporation stating or
acknowledging that the person named therein is the owner
of a designated number of shares of its stock.
(2) It indicates the name of the holder, the number, kind
and class of shares represented, and the date of issuance.
(3) It is not essential to make one a stockholder in a
corporation.
Consideration for stocks (Sec. 62)
(1) Actual cash paid to the corporation;
(2) Property, tangible or intangible, actually received by
the corporation and necessary or con-venient for its use
and lawful purposes at a fair valu-ation equal to the par or
issued value of the stock issued;
(3) Labor performed for or services actually rendered to
the corporation;
(4) Previously incurred indebtedness by the corporation;
(5) Amounts transferred from unrestricted re-tained
earnings to stated capital; and
(6) Outstanding shares exchanged for stocks in the event
of reclassification or conversion.
Certificate of stock and transfer of shares (Sec. 63)
Right to issuance of certificate
of stock.
While a certificate of stock is not necessary to render one
a stockholder in a corporation, every stockholder has a
right to have a proper certificate issued to him as soon as
he has complied with the conditions which entitle him to
one as by payment for his shares or the like. (11 Fletcher
329-331.)
Right to transfer shares of stock.
Section 63 expressly authorizes the transfer of the shares
represented by the certificate by its endorsement by the
owner or his agent and delivery, so indorsed, to the
transferee.
Shares of stock are personal property and the owner, as
in the case of other personal property, has an absolute and
inherent right as an incident of his ownership, to sell and
transfer the same at will. (12 Fletcher 206.) To be
binding on the corporation, however, the transfer
must be registered in the corporate books.
Restrictions on transfer of stock.
The law (Sec. 47[a].) grants to stock corporations the
authority to determine in the by-laws the manner of
issuing certificates of shares of stock. However, the
power to regulate is not the power to prohibit, or to impose
unreasonable restrictions on the right of stockholders
to transfer their shares.
Examples:
(1) A by-law which prohibits a transfer of stock without
the consent or approval of all the stockholders or of the
president or board of directors is illegal as constituting
undue limitation on the right of ownership (Fleischer vs.
Botica Nolasco Co., Inc., 47 Phil. 583 [1925].) and in
restraint of trade. (In re Klaus, 67 Wis. 401.)
(2) A provision in the certificate that it is transferable only
to some person first approved by the board of directors
unreasonably restricts the right of the stockholder to
dispose of his shares. (Douglas vs. Aurora Daily News Co.,
160 III., A. 506.)
(3) For the same reason, the condition non-transferable
appearing on certificates of stock is null and void. (Padget
vs. Babcock, 59 Phil. 232 [1933].)
(a) In close corporations, restrictions reasonably
protect-ing existing stockholders in their interests by
giving them or the corporation the option to purchase
stock offered for sale (i.e., right of first refusal), are lawful
as promotive of good management and sound business
enterprise. (see Casper vs. Kaltz-Simmer, 150 N.W.
1101.) Such restrictions must appear in the articles of
incorporation and in the by-laws as well as in the
certificate of stock, otherwise, the same shall not be
binding on any purchaser in good faith. (Sec. 98.)
(b) Even in widely-held corporations, the same restriction
is legally permitted provided it is stated in the articles of
incorporation (see Sec. 6, par. 1.) and the option period is
not too long. A period of one (1) month is sufficient for the
stockholders or corporation to signify their desire to buy
the shares of stock being offered for sale by a stockholder.
(SEC Opinion, Oct. 13, 1964.)
(4) Corporations which will engage in any business or
activ-ity reserved for Filipino citizens are required to
indicate in the articles of incorporation and in all the
certificates the restriction against the transfer of stock or
interest which will reduce the ownership of Filipino citizens
to less than the required percent-age of the capital stock
as provided by existing laws x x x. (Sec. 15 [eleventh].)
Effects of an unregistered transfer
of shares.
(1) It is valid and binding as between the transferor and
the transferee (Sec. 63.);
(2) It is invalid insofar as the corporation is concerned
except when notice is given to the corporation for
purposes of registration:
(a) The transferor has the right to vote and be voted
for, and has the right to participate in any meeting;
(b) The transferor has the right to dividends as against
the corporation but the transferor, as the nominal owner
of the share, is the trustee for the benefit of the real
owner;
(3) It is invalid as against corporate creditors, and the
transferor is still liable to the corporation. The transfer of
stock by a shareholder does not relieve him from liability
to creditors of the corporation for unpaid subscription until
the transfer is consummated by being registered in the
books of the corporation; and
(4) It is invalid as against the creditors of the transferor
without notice of the transfer.
Liability for watered stock (Sec. 65.);
Issue of watered stock prohibited.

The law prohibits the issuance of watered stock or stock
issued for no value at all or for a value less than its
equivalent either in cash, property, shares, stock
dividends, or services. (see Sec. 62.)
Liability of subscriber
Subscriber is liable for the difference of P20.00. The issue
itself is not void, but the agreement that the share shall
be paid for less than its par or issued value is illegal and
void and cannot be enforced. (Phil. Trust and Company vs.
Rivera, 44 Phil. 470.)
Reason for prohibition.
The issuance of watered stock is prohibited to protect
persons who may acquire stock and those who may
become creditors of the corporation on the faith of its
outstanding capital stock being fully paid.
The prohibition secures equality among subscribers and
prevents discrimination against those who have paid in full
the par or issued value of their shares.
Prohibition refers to original issue.
The prohibition to issue watered stock refers only to the
original issue of stocks but not to a subsequent transfer of
such stocks by the corporation, for then it would no longer
be an issue but a sale thereof. (Rochelle Roofing Co. vs.
Burley, [Mass.] 115 N.E. 478.)
Liability of consenting director and officer
The liability of the consenting director or officer for the
water in the stock is solidary (see Arts. 1207, 1208, Civil
Code.) with the stockholder concerned. This means either
of them can be held liable for the whole amount of the
difference.
Payment of balance (Sec. 67)
When balance of subscription payable.
Under Section 67 (par. 2.), the payment of any unpaid
subscription or any percentage thereof, together with
interest, if any, shall be made:
(a) on the date specified in the contract of subscription;
or
(b) in the absence of any specified date in the contract of
subscription, on the date stated in the CALL made by
the board of directors.
The contract of subscription or the call by the board of
directors, as the case may be, may require the payment
of the entire unpaid subscription or only a certain
percentage thereof on the date specified for payment.
Requisites for a valid call.
The requisites for a valid call are:
(1) It must be made in the manner prescribed by law;
(2) It must be made by the board of directors; and
(3) It must operate uniformly upon all the shareholders.
It has been held that a call made upon some of the
subscribers is void (Seybreth vs. American Commander
Min. & Mill. Co., Idaho 254.) or which requires some to pay
a higher rate than others. (Great Western Peleg. Co. vs.
Burnham, 79 Wis. 47.) A call cannot be of such a character
as to permit the directors to practice favoritism or act
oppressively. (North Milwaukee Town Site Co. vs. Bishop,
103 Wis. 492.)
Necessity for call.
The necessity for call depends upon the provisions of the
subscription contract. Call is necessary when required by
the contract, or when no time is fixed for payment.
Notice
Notice must be given to the stockholder concerned. A call
without notice to the subscriber is practically no call at all.
(Pike vs. Bangor Co., Short Line R.R., 68 Me. 445.) The
notice is regarded as a condition precedent to the right of
recovery. It must, therefore, be alleged and proved to
maintain an action for the call. (Baltazar vs. Lingayen Gulf
Electric Power Co., Inc., 14 SCRA 522.) The right to notice
of call, however, may be waived by the subscriber.
Exception to Notice Requirement
1. When the corporation becomes insolvent, the payment
of stock subscription may be enforced without the
necessity of a prior call. (Velasco vs. Poizat, 37 Phil. 802.)
2. Also, no call is necessary when the subscription is
payable not upon call or demand by the directors but
immediately or on a specified day or on or before a
specified day, or when it is payable in installments at
specified times. (Miranda vs. Tarlac Rice Mill Co., 57 Phil.
619.)
Effect of failure to pay.
Failure to pay on such date shall render the entire balance
due and payable and make all the stock covered by said
subscriptions delinquent and subject to sale at public
auction.
Liability to pay interest
The stockholder shall be liable for interest at the legal rate
(see Sec. 66.) on such balance, unless a different rate of
interest is provided in the by-laws, computed from such
date until full payment. (Sec. 67, par. 2.)
When stock becomes delinquent.
A stock becomes delinquent upon failure of the holder
to pay the unpaid subscription or balance thereof
within 30 days from the date specified in the contract of
subscription, or in the absence of a date fixed in the
contract of subscription, from the date stated in the call
made by the board of directors. (Ibid.)
Remedies to enforce payment of stock
subscription.
They are as follows:
(1) Extra-judicial sale at public auction.
(2) Judicial action.
(3) Collection from cash dividends and withholding of stock
dividends.

Statutory sanctions on stock delinquency.
(1) Rights denied to stockholder. Under Section 71, a
stock delinquent for unpaid subscription shall not be
voted or be entitled to vote or representation at any
stockholders meeting, nor entitle the holder thereof to
any of the rights of a stockholder except the right to
dividends subject to the provisions of Section 43. At
all elections of directors, it is expressly declared by Section
24 that no delinquent stock shall be voted.
(2) Right given to the corporation. Under Section 43,
the corporation has the right to first apply cash
dividends due on delinquent stock to the unpaid
balance on the subscription plus cost and expenses, while
as to stock dividends, to withhold the same from the
delinquent stockholder until his unpaid subscription is fully
paid. This right may be exercised by the corporation
although it is not provided in its by-laws.
Delinquency sale (Sec. 68)
Procedure for the sale of delinquent
stocks.
(1) BOARD RESO (CALL) - The board of directors passes a
resolution declaring payable the whole or a certain
percentage of the unpaid subscriptions, stating the date
fixed for payment. If the date for payment is specified in
the contract of subscription, no call is necessary (see Sec.
67, par. 1.);
(2) NOTICE - The stockholders are given notice of the
resolution by the secretary of the corporation. If the
stockholders do not pay within 30 days from the date
specified in the contract of subscription or on the date
specified in the call made by the board, all the stocks
covered by the subscription shall thereupon become
delinquent and be subject to sale. (Ibid., par. 2.)
Conversely, unpaid shares which are not delinquent are
not subject to sale (see Sec. 72.);
(3) BOARD RESO (SALE) - The board of directors, by
resolution, orders the sale of the delinquent stocks, stating
the amount due and the date, time, and place of sale with
notice to the delinquent stockholders which notice shall be
published (Sec. 68, pars. 1, 2.); and
(4) PUBLIC AUCTION - On the date of the sale, so many
shares of the stock as may be necessary to pay the
amount due on subscription, with accrued interest, costs
of advertisement and expenses of sale, will be sold at
public auction to the highest bidder for cash. (Sec. 68,
par. 3.)
When sale may be questioned (Sec. 69)
Recovery of stock unlawfully sold.
The grounds for the recovery of stock unlawfully sold for
delinquency are:
(1) irregularity or defect in the notice of sale; and
(2) irregularity or defect in the sale itself of the delinquent
stock.
Court action to recover unpaid subscription (Sec.
70)
Remedy by judicial action.

As a general rule, a corporation may not maintain a suit

for the enforcement of unpaid subscription without first
making a call as provided by law. (see Sec. 67.)

The statutory authority for the recovery of unpaid

subscription through judicial action is found in the above
provision. Note that the judicial remedy is limited to the
amount due on any unpaid subscription with accrued
interest, costs and expenses. Therefore, the corporation
cannot recover any other claim against the subscriber. The
foregoing is also true in case of the extra-judicial sale at
public auction of delinquent shares. (Sec. 68, par. 3.)

Lost or destroyed certificates (Sec. 72)

Section 73 prescribes the procedure to be followed for the

issuance by a corporation of new certificate(s) in lieu of
those which have been lost, stolen, or destroyed.

The corporation is not liable to any person prejudiced by

the issuance of new certificate(s) of stock pursuant to the
procedure described except in case of fraud, bad faith, or
negligence on the part of the corporation and its officers.