How to Transfer Shares of a Philippine Corporation

To transfer shares of a Philippine corporation, the stockholder must endorse the stock certificate to the transferee, and the transfer must be recorded in the corporation's books. Under the Revised Corporation Code, a transfer is only effective against the corporation and third parties once it is recorded in the corporate books. The board of directors must approve the transfer, and the corporation must issue a new stock certificate to the transferee.

Step-by-Step Process for Transferring Shares

1. Review the Articles of Incorporation and Bylaws: Check for any restrictions on the transfer of shares. The articles may contain restrictions, especially for corporations with constitutional or legal ownership requirements, such as those engaged in businesses reserved for Filipino citizens.
2. Execute the Stock Transfer: The transferor must endorse the stock certificate by signing the assignment form on the back of the certificate.
3. Submit Documents to the Corporation: The endorsed certificate, along with a deed of transfer or sale, must be submitted to the corporation's corporate secretary.
4. Board Approval: The board of directors must approve the transfer of shares. This approval is typically documented in a board resolution.
5. Record the Transfer: The corporate secretary must record the transfer in the corporation's stock and transfer book. This step is crucial to make the transfer valid against the corporation and third parties.
6. Issue a New Certificate: The corporation issues a new stock certificate in the name of the transferee.

Legal Basis for Share Transfers

The Revised Corporation Code (Republic Act No. 11232) governs the transfer of shares. While the Code does not prescribe a single, detailed procedure for all transfers, it establishes the framework within which transfers must operate. Key provisions include the classification of shares (Section 6) and the rules on treasury shares (Section 9). The authority of the board of directors to manage corporate affairs, as stated in Section 22, includes the power to approve transfers of shares.

Restrictions on the Transfer of Shares

A corporation may impose restrictions on the transfer of its shares. These restrictions must be indicated in the articles of incorporation and on the stock certificate itself. For example, Section 6 allows a corporation to classify its shares to ensure compliance with constitutional or legal requirements. This is common in corporations where Filipino ownership is required by law. In such cases, the articles of incorporation often contain a provision that no transfer of stock which would reduce Filipino ownership below the required percentage shall be recorded in the corporate books.

Recording the Transfer in the Corporate Books

The transfer of shares is not complete until it is recorded in the corporation's books. The corporation's corporate secretary is responsible for maintaining the stock and transfer book. This record is the official evidence of who the stockholders of the corporation are. Until the transfer is recorded, the transferor remains the stockholder of record and is entitled to vote and receive dividends. The transferee, however, may have rights against the transferor based on their agreement.

Filing Requirements with the Securities and Exchange Commission (SEC)

Generally, the transfer of shares between stockholders does not require prior approval from the SEC. However, certain transfers may trigger filing requirements. For instance, if the transfer results in a change in the directors or officers of the corporation, the corporation must file the necessary documents with the SEC. Additionally, if the transfer is part of a larger transaction, such as a merger or consolidation, SEC approval may be required. The SEC may also require filing if there are changes to the corporation's authorized capital stock.

Special Cases: Treasury Shares and Redeemable Shares

• Treasury Shares: These are shares that have been issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or other lawful means. The board of directors may dispose of these shares at a reasonable price (Section 9).
• Redeemable Shares: These are shares that the corporation may purchase from the holder upon the expiration of a fixed period, as provided in the articles of incorporation (Section 8).

Frequently Asked Questions

Q: Can a stockholder transfer shares without board approval? A: Generally, no. The board of directors exercises the corporate powers and controls the corporation's properties. The transfer of shares must be approved by the board and recorded in the corporate books to be effective against the corporation.

Q: What happens if the transfer is not recorded? A: If the transfer is not recorded in the corporation's books, it is not effective against the corporation and third parties. The transferor remains the stockholder of record.

Q: Are there restrictions on transferring shares to foreigners? A: Yes, for corporations engaged in activities reserved for Filipino citizens. The articles of incorporation typically contain a restriction preventing any transfer that would reduce Filipino ownership below the required percentage.

Practical Takeaways

• Always check the articles of incorporation and bylaws for any restrictions on share transfers before proceeding.
• Ensure the transfer is recorded in the corporation's stock and transfer book to make it valid against the corporation.
• Obtain board approval for the transfer, as the board manages the corporation's affairs.
• Issue a new stock certificate to the transferee after the transfer is recorded.
• Be aware of ownership restrictions for corporations with constitutional or legal requirements, especially those involving Filipino ownership.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.