Stock certificates and stock and transfer book
When acquiring a stake in a corporation, buyers typically recognize the stock certificate as a representation of their ownership in the company, signifying the specific share of stock they are purchasing.
It is crucial for buyers to acknowledge the limitations of depending solely on the stock certificate as evidence of ownership, and to consider the significance of the corporation’s stock and transfer book (STB). Therefore, it is essential to understand the legal importance of stock certificates and STBs and their respective roles in the context of share ownership and transfer in a corporation.
A stock certificate serves as proof of a shareholder’s ownership in a company containing vital information such as the shareholder’s name, the number of shares owned, the stock’s par value, certificate number and bears the signatures of company representatives.
It is considered prima facie evidence that the holder of the certificate is a shareholder of the corporation. However, possession of the certificate is not the sole determining factor of one’s stock ownership, since a certificate of stock is merely the paper representation or tangible evidence of the stock itself and of the various interests therein. The 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. (Borgonia, et al. v. Abra Valley Colleges, Inc., et al., G.R. No. 204089, July 29, 2015)
On the other hand, the STB is a record maintained by the corporation to track the ownership of its shares. It is crucial for ensuring accurate record-keeping and managing the issuance of new shares, dividend payments, and other shareholder-related matters. This is one of the mandatory records of a corporation which are required to be kept and maintained by the Revised Corporation Code. (Section 73, Revised Corporation Code).
In the words of the Securities and Exchange Commission, the STB is the quintessential record of all stockholders and their corresponding stockholdings in the corporation. It is the best evidence to prove the status of a person as a stockholder of a corporation. (SEC OGC Opinion 19-51, October 11, 2019)
It is important to know for buyers of shares of stock that it is only when the transfer has been recorded in the STB that a corporation is obligated and mandated by law to rightfully recognize the transferee as one of its stockholders. In addition, it is also at this point when the buyer – transferee acquires the rights of a stockholder provided for under the law. (Borgonia, et al. v. Abra Valley Colleges, Inc., et al., G.R. No. 204089, July 29, 2015 and Sec. 62, Revised Corporation Code)
While it is essential for the corporation to record shares of stock of the transferee in its STB for recognition of the stockholder and its ownership of the shares, the STB and its entries may not always be conclusive to prove one’s stockholdings.
Should the STB be lost or destroyed, or should there by ambiguities or missing information, other pieces of evidence such as but not limited to the latest general information sheet of the corporation or the certificate of stock may be presented to substantiate one’s claim as a stockholder of a corporation.
It is critical, however, for shareholders and owners to note that a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the 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 and who may exercise their rights as a stockholder.
In a case where a party cites their inclusion as a shareholder or director in a corporation by virtue of entries in the general information sheet, the Supreme Court has ruled that this fact does not guarantee one’s status as a shareholder as the entries in the general information sheet may be due to a mistake, made for convenience or made by negligence. Prolonged adherence to this practice does not result in any vested rights. (Lao vs. Lao, G.R. No. 170585, October 6, 2008)
In view of the foregoing, some key takeaways are:
1. The share certificate is not the sole determining factor of one’s stock ownership since the certificate is merely the paper representative or tangible evidence of the stock itself and of the various interests therein
2. Inclusion in the General Information Sheet as a stockholder, no matter how long the practice has been made, does not give rise to any vested right for one to claim they are stockholders of a company
3. The STB is still the best evidence of one’s shareholding in a corporation
4. A transfer of shares of stock not recorded in the STB of the corporation is non-existent as far as the corporation and third parties are concerned
5. If the STB is lost or there are ambiguities or missing information, there can be other evidence relied upon such as the general information sheet and the stock certificate
Since both the stock certificate and STB play significant roles in the functioning of a corporation, their importance can be weighed based on the legal implications and consequences of their respective uses.
In conclusion, a person who has purchased stock, and who desires to be recognized as a stockholder, must secure a standing by having the transfer recorded upon the books. If the transfer is not duly made upon request, it has, as its remedy, the right to compel such registration to be made. (Andaya vs. Rural Bank of Cabadbaran, Inc. G.R. No. 188769, August 3, 2016)
(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, teaches law at the MLQU School of Law, and an Arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)
