Legal Capital (usually equal to the subscribed capital

stock)
: Amount equal to the aggregate par value and/or issued
value of the outstanding capital stock
When par value shares are issued above par, the
premium or excess is not to be considered as part of the
legal capital.
When no par value shares are issued, the entire
consideration received forms part of legal capital and
shall not be available for distribution as dividends
Stated capital
: portion of the amount contributed by purchasers of nopar value shares that is credited to the capital account.
Capital
: entire assets of the corporation
: includes the amount invested by stockholders plus
undistributed earnings less losses and expenses
: in its strict sense : portion of the net assets paid by the
stockholders as consideration for shares issued to them,
which is utilized for the prosecution of the business of
the corporation (including balances or installments due
to the corporation for shares of stocks sold by it
subscription receivable)
: in case of stock dividends : amount corporation
transfers from its surplus profit account to its capital
account (trust fund for creditors)
Capital Stock
: Amount subscribed and paid-in and upon which the
corporation is to conduct its operation
Capital
Actual corporate
property (concrete
thing)
Fluctuates or varies
from day to day
according as there
are profits or losses
or appreciation or
depreciation of
corporate assets
May be greater or
lesser than the
amount of capital
stock
Belongs to the
corporation
May either be real
or personal
property

Capital Stock
Amount (abstract)

Amount fixed in
the articles of
incorporation
(where shares are
with par value)
and is unaffected
by profits &
losses

Belongs to the
stockholders
Always personal

Capital stock v legal capital

Legal capital
Merely an amount
and remains
unchanged
except as
outstanding
shares

sets the minimum

amount of the
corporate assets
which for the
protection of
corporate
creditors, may not
be lawfully
distributed to
stockholders

Capital stock
Limits the
maximum amount
or number of
shares that may be
issued without
formal amendment
of incorporation
decrease of the
capital stock may
also result in the
reduction of legal
capital

Stock or share of stock

: one of the units into which capital stock is divided

: represents the interest or right which the owner has 1. Management of the corporation in which he takes part
1
throug h his right to vote
2. portion of corporate earnings (dividend)
3. upon dissolution and winding up in the property and
assets of the corporation remaining after the payment of
corporate debts and liabilities to creditors
Capital stock v share of stock
Capital Stock
used in a collective
sense to signify
the whole body of
shares of stock in
the corporation

Share of stock
commonly used in
a distributive
sense to refer to
the stock in the
hands of the
stockholders and
therefore belongs
to them

Nature of share of stock

1. represents a distinct undivided share or interest
in the common property of the corporation
2. constitute property distinct from the capital or
tangible property of the corporation
3. in the nature of choses in action
chose in action intangible personal property
right recognized by law but has no existence
apart from the recognition given by the law, it
confers no present possession of a tangible
object
4. typifies a proportionate or aliquot part of the
corporations property
Certificate of stock
: written acknowledgment by the corporation of the
interest, right and participation of a person in the
management, profits and assets of a corporation
: formal written evidence of holders ownership of shares
and is a convenient instrument for the transfer of title
Share of stock v certificate of stock
Share of stock
incorporeal or
intangible property
represents the right or
interest of a person in
a corporation
may be issued even if
subscription is not fully
paid, except in no par
shares
situs: State where the
corporation has its
domicile which is
ordinarily the State
under whose laws it
was created
situs: retains that of
the issuing
corporation, even
though the certificate
is without the State
and is owned by a
nonresident

Certificate of stock
tangible property

written evidence of
that right or interest

may not be issued

unless subscription is
fully paid

situs: place where it is

located or at the
domicile of the owner,
even though the
corporation is
domiciled elsewhere
possession is not
essential to ownership
of stock because the
right to stock may exist
independently of the
certificate

Situs of shares of stock for certain purpose

1. execution, attachment & garnishment
domicile/residence of the corporation (place where the
principal office of the corporation is located)
2. registration of chattel mortgages on shares of stock
province or city in which the corporation has its principal
office or place of business
3. property taxation domicile/residence of the owner
exception: inconsistent with express provisions of
statute, or when justice does not demand that it should

Notes - Corporation Code by Viktoria Villo

be, as where the property has in fact a situs elsewhere

(ex. Shares of stock in a domestic corporation of a
nonresident foreigner are taxable in the Philippines, for
purposes of the estate tax the gross estate of a
resident decedent, whether citizen/alien, or a citizen
decedent, whether resident or nonresident, includes his
intangible personal property wherever situated)
Par value
: specific money value fixed in the articles of
incorporation and appearing in the certificate of stock
Purpose : fix the minimum subscription or issue price of
the shares
2. may issue shares with different par value
Watered stock shares issued less than par value
3. par value of a stock remains the same regardless of
market value or book value of the stock except when
there is a stock split
No par value share
: one without any stated value appearing on the fce of
the certificate of stock
: always has an issued value consideration fixed by
the corporation for its issuance
: does not purport to represent any stated proportionate
interest in the capital stock measured by value but only
an aliquot part of the whole number of such shares of
the issuing corporation
Note:
No par value stockholders have the same rights as
holders of par value stock
Voting share
: customary to give right to vote to the common stock
and withhold it from the preferred.
: Application of Doctrine of equality of shares
Corporation are hereby prohibited from issuing multiple
voting & non-voting common shares nor can they limit
the maximum number of votes per stockholder
irrespective of the number of shares he holds
: GR: Only preferred or redeemable shares may be
deprived of voting rights
Exception founders shares may be given the exclusive
right to vote and be voted for in the election of directors
for a limited period
: one share one vote rule, because representation in a
corporation is commensurate to extent of ownership
Non-voting share
: share without right to vote
Note:
If stock is originally issued as voting stock, it may not
thereafter be deprived of the right to vote without the
consent of the holder
Exception (where holders of non-voting shares in stock
corporations shall nevertheless be entitled to vote):
1. Amendment of the articles of incorporation
2. Adoption and amendment of by-laws
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property
4. Incurring, creating or increasing bonded indebtedness
5. Increase or decrease of capital stock
6. Merger or consolidation of the corporation with
another corporation or other corporations
7. Investment of corporate funds in another corporation
or business in accordance with this code
8. Dissolution of the corporation
Note:
Since only preferred or redeemable shares may be
denied the right to voice, the issuance of common stock
with a feature that voting rights thereof shall be
exercised by a trustee violates the rule that common
shares cannot be deprived of voting rights (automatic
assignment of voting rights is an indirect violation)
Common share of stock
: basic class of stock which private corporations
generally issue
: entitles the holder thereof to a pro rata division of the
profits, if any and in its assets upon dissolution, without

any preference or advantage in that respect except

preferred stockholders
: have complete voting rights (cannot be deprived)
: residual owners of the corporation
: preference in the matter of management
Preferred share
: one with stated par value which entitles the holder
thereof to certain preferences over the holders of
common stock
: may be issued only with a stated par value
: GR: presumed to be voting although rarely given voting
privileges
Guaranteed stock payment of dividends is
guaranteed (as opposed to ordinary preferred stock,
guaranteed stock is entitled to arrears in dividends
Interest bearing stock
: corporation agrees to absolutely pay interest before
dividends are paid to common stockholders is legal only
when construed as requiring payment of interest as
dividends from net earnings or surplus only
Promotion shares
: issued to promoters or those in some way interested in
the company, for incorporating the company or for
services rendered in launching or promoting the welfare
of the company
Share in escrow
: share subject to an agreement to which the share is
deposited by the grantor or his agent with a third person
to be kept by the depository until the performance of a
certain condition (makes depository a trustee under an
express trust)
rd
Escrow money held by 3 party on behalf of
transacting parties
: legal title remains with grantor until suspensive
condition is fulfilled
Convertible share
: convertible from one class to another
conversion ratio price at which the common is to be
valued against the preferred
When preferred shares are convertible per Articles,
amendment of the Articles is required to formalize the
conversion which must not result in watering of stock or
issuance of stocks in excess of the capital stock of the
corporation
Convertibility of shares
GR: Preferred shares cannot be converted to common
No par value to par value
: allowed by SEC provided there would be no change in
the stockholders percentage interest in the total assets
of the corporation
The individual allocation of the shares as converted
should be based on the average issue value of the no
par value shares and not on the individual contribution of
the stockholders.
Par value
amount of money or property
contributed by the shareholder to the capital stock of the
corporation
Book value
determined by dividing the total
stockholders equity or the net value of the total
corporate assets (includes unpaid subscriptions but does
not attach to unissued or reacquired shares)
Market value price at which a willing seller would sell
and a willing buyer would buy, assuming that both have
reasonable knowledge of the facts and neither being
under abnormal pressure
Presumption as to value of corporate stock
Conflicting authorities.
At par worth its face value;
Above par/premium worth more

Statutory restrictions regarding the issuance of no

par value shares
1. Banks, trust companies, insurance companies
and building and loan associations shall not be
permitted to issue no par value shares of stock
2. Preferred shares of stock may be issued only
with a stated par value
3. Shares issued without par value shall be
deemed fully paid and non-assessable
(meaning, the holder shall not be liable beyond
the issued price, notwithstanding a change in
their value)
4. Shares without par value may not be issued for
a consideration less than the value of P5 per
share
5. Entire consideration received by the corporation
for its no par value shares shall be treated as
capital & therefore not available as dividends
Par value shares
Advantages
1. Easily sold as the public is more
attracted to buy this kind of
shares
2. Greater protection to creditors
3. Unlikelihood of sale of
subsequently issued shares at a
lower price
4. Unlikelihood of distribution of
dividends that are only ostensible
profits

Disadvantages
1. liable to
corporate
creditors to
unpaid
subscription
2. stated face
value is not
accurate
criterion of
its true value

No par value shares

Advantages
1. issued as fully paid and
non-assessable
2. flexible [price
3. lower priced and enjoy
wider distribution
4. tell no untruth
concerning the value of
holders contribution
5. more easily issued,
thereby simplifying
accounting procedure

Disadvantages
1. legalize large issues
of stock for property
2. conceal the money
or property
represented by the
shares
3. promote the
issuance of watered
stock
4. lesser protection to
creditors

Kinds of preferred shares

1. Preferred share as to assets distribution of assets of
the corporation in case of liquidation
2. As to dividends receive dividends on said share to
the extent agreed upon before any dividends at all are
paid to the holders of common stock
Preferred stock, standing alone, creates a preference
only to dividends and not to assets in case of liquidation.