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Corporate Securities Info

Proof of stock ownership

/ 11:05 PM January 17, 2016

BY THIS time, most corporations, especially those listed on the stock exchange or are considered public corporations, are making preparations for their annual stockholders meeting.

It’s a yearly ritual required by law that gives stockholders the opportunity to touch base with the people who manage the affairs of the corporation. All stockholders, regardless of the number of stocks they own or registered in their name, have the right to attend the meeting.

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In determining who to send the notice of meeting, the corporate secretary is guided by the entries in the Stock and Transfer Book (STB), in the case of stock corporations, and Members Book, for nonstock corporations.

These books show, among others, the names of the persons to whom stock or membership certificates have been issued and the number of shares registered in their names.

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As in all human activities, errors or lapses are unavoidable in the preparation and safekeeping of these records.

Thus, there are occasions when stockholders are not issued their stock certificates even if they’ve paid for their stocks, or deeds of transfer or donation of stocks in their favor have been sent to the corporate secretary.

But not being in possession of or losing a stock certificate is not an excuse to deprive a stockholder of his right to attend the stockholders meetings, or demand the benefits that accrue to such stock ownership.

Differences

In a recent case, “Grace Borgoña, et al. vs. Abra Valley Colleges Inc., G.R. No. 204089, dated July 29, 2015,” the Supreme Court ruled that the presentation of a stock certificate was not required to prove one’s shareholdings in a corporation.

The case, in a nutshell, involves full- and -half blood members of a family who were fighting for control over a school founded by their deceased father.

A full-blood member refused to open the books of the corporation to his half-blood siblings, in spite of repeated demands, unless the latter presented stock certificates to show proof of their ownership of stocks of the school.

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All that the latter had were stock certificates endorsed in their favor by the original stockholders and entries in the company’s STB indicating that a certain number of shares were listed in their names.

After efforts to amicably settle their differences failed, the disgruntled siblings went to court to resolve the dispute.

The regional trial court, and later the Court of Appeals, ruled that stock certificates had to be presented to justify the demand to look into the school’s financial records and minutes of board meetings.

With the rebuff, the losers went to the high court.

Membership

The justices stated that a stock certificate “is not stock in the corporation but is merely evidence of the holder’s interest and status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of such ownership.”

The records of the case showed that, in lieu of stock certificates, the family members concerned had submitted to the lower court copies of official receipts of payments for their subscriptions to the shares of the school, and letters by the corporate secretary on file with and duly certified by the Securities and Exchange Commission (SEC) stating that certain shares have been issued to them.

The same information was also contained in the General Information Sheet for 1989 that the school submitted to the SEC, and the minutes of a special meeting of the board of directors confirming and ratifying the issuance of shares to them.

What’s more, the minutes of board meetings showed that the members of the other faction had been elected as directors and participated in the deliberations of the board.

On this point, the court stated that, in light of the requirement of the law that every director should hold at least one share of stock, their presence or attendance in the board meetings without any objections from the other directors was proof that they have been recognized as legitimate stockholders.

Accordingly, the justices ruled that the half-blood siblings are stockholders of the school and therefore entitled to examine the financial records of the corporation, including the minutes of board meetings.

Family feud

The instant case is illustrative of intra-corporate disputes that often arise in family-controlled corporations when their patriarch or matriarch kicks the bucket without leaving a clear succession plan.

While the founding father or mother is alive, the children are often in good behavior among themselves either out of respect to the old folks or for fear that any act of misconduct could adversely affect their share in the inheritance pie.

Unless management and ownership issues are clearly resolved or agreed beforehand, it is not uncommon for sibling rivalries, past jealousies and hurt feelings to rear their ugly heads when the Grim Reaper decides to take away the head of the family.

Often, the failure of feuding family members to amicably settle their differences give rise to bad blood and recriminations that go on for generations or, worse, the filing of civil and criminal charges against each other with everyone losing, financially and emotionally, in the long run.

If the dispute plays out in the media, including the now ubiquitous social media, the family’s dirty linens find themselves being embarrassingly washed in public.

Blood supposedly runs thicker than water, but not when lots of money and big egos are involved.

For comments, please send your e-mail to [email protected]

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