CLASSIFICATION OF SHARES
The classification of shares, their corresponding rights, privileges, or restriction, and their stated par value, if any, must be
indicated in the articles of incorporation. Each share shall be equal in all respects to every other shares, except as otherwise
provided in the articles of incorporation and in the certificate of stock.
The shares in stock corporation may be divided into classes or series of shares, or both. No shares may be deprived of voting
rights except those classified and issued as “preferred” or “redeemable” shares, unless otherwise provided in the Code: Provide,
That there shall always be a class or series of shares with complete voting rights. (RCC Sec. 6 par 2)
COMMON SHARES
PREFERRED SHARES
VOTING SHARES
NON-VOTING SHARES
PAR VALUES SHARES
NO PAR VALUE SHARES
FOUNDERS’ SHARES
REDEEMABLE SHARES
TREASURY SHARES
CONVERTIBLE SHARES
WATERED STOCKS
FRACTIONAL SHARES
SHARES IS ESCROW
OVER-ISSUED STOCK
STREET CERTIFICATE
PROMOTERS STOCK
PREFERRED SHARES VERSUS COMMON SHARES
PREFERRED SHARES
- Preferred shares, also known as preference shares or preferred stock, are a type of ownership in a corporation that have
a higher claim than common shares on the earnings and assets of a corporation.
- Preferred shares take a multiplicity of forms. The most common forms may be classified into two:
1. Preferred shares as to assets
2. Preferred shares as to dividends
KEY CHARACTERISTICS OF PREFERRED SHARES
1. DIVIDENDS - Preferred shareholders receive dividends before common shareholders.
2. PRIORITY IN LIQUIDATION - In the event of a company's liquidation, preferred shareholders have a higher claim on any
remaining assets than common shareholders.
3. NO VOTING RIGHTS - Usually, preferred shares do not come with voting rights. This means preferred shareholders can't
vote on certain matters, such as electing the board of directors or approving mergers or acquisitions.
4. CONVERITIBLE - Some preferred shares are convertible, which means they can be converted into a certain number of
common shares
5. CALLABLE - Some preferred shares are callable, meaning the company can buy back the shares at a predetermined price.
COMMON SHARES
- also known as common stock, represent ownership in a corporation.
- A class of stock entitling the holder to vote on corporate matters, to receive dividends after other claims and dividends
have been paid(especially to preferred shareholders), and to share in assets upon liquidation.
- often called as capital stock if it is the corporation’s only class of stock outstanding.
KEY CHARACTERISTICS OF COMMON SHARES
1. OWNERSHIP - When you own common shares, you own a stake in the company,
2. VOTING RIGHTS - One of the key features of common shares is that they typically come with voting rights. This means
shareholders can vote on certain matters, including electing the board of directors and approving mergers or acquisitions
3. DIVIDENDS - Common shareholders may receive dividends, which are a portion of the company's profits distributed to
shareholders. However, dividends are not guaranteed and are less than those received by preferred shareholders.
4. LIQUIDATION RIGHTS - In the event of a company's liquidation, common shareholders are last in line to receive any
remaining assets. They get paid after creditors, bondholders, and preferred shareholders.
5. RISK AND RETURN - Common shares carry a higher risk compared to preferred shares because they are last in line during
liquidation.
SCOPE OF VOTING RIGHTS SUBJECT TO CLASSIFICATION
What are VOTING SHARES?
- Shares with a right to vote. There shall always be a class or series of shares which have complete
voting shares.
What are NON-VOTING SHARES?
- shares without a right to vote
- the law provides that shares classified and issued as preferred or redeemable shares may be
deprived of voting rights.
HOLDERS OF NON-VOTING SHARES SHALL BE NEVERTHELESS BE ENTITLED TO VOTE ON THE
FOLLOWING MATTERS:
a) Amendments of the articles of incorporation;
b) Adoption and amendment of bylaws;
c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate
property.
d) Incurring, creating. increasing bonded indebtedness;
e) Increase or decrease of authorized capital stock;
f) Merger or consolidation of the corporation with another corporation or other corporations;
g) Investment of corporate funds in another corporation or business in accordance with this Code; and
h) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote required under this Code to approve
a particular corporate act shall be deemed to refer only to stocks with voting rights.
The shares or series of shares may or may not have a par value: Provided, that banks, trust, insurance, and
preneed companies, public utilities, building and loan associations, and other corporations authorized to
obtain or access funds from the public, whether publicly listed or not, shall not be permitted to issue no-
par value shares of stock.
Preferred shares of stock issued by a corporation may be given preference in the distribution of dividends
and in the distribution of corporate assets in case of liquidation, or such other preferences: Provided, That
preferred shares of stock may be issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or
any series thereof: Provided, further, That such terms and conditions shall be effective upon filing of a
certificate thereof with the Securities and Exchange Commission, hereinafter referred to as the
“Commission”.
Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the
holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided,
That no-par value shares must be issued for a consideration of at least Five pesos (P5.00) per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares
shall be treated as capital and shall not be available for distribution as dividends.
WHAT ARE PAR VALUES SHARES?
- shares with a value fixed in the articles of incorporation and the certificate of stock.
WHAT ARE NO PAR VALUE SHARES?
- shares with no par value.
Note: Stocks shall not be issued for a consideration less than the par or issued price thereof.
Limitations on no par values shares
1. It cannot have an issued price of less than P5.00;
2. It is deemed fully paid and non-assessable;
3. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as
dividends;
4. It cannot be issued as preferred shares;
5. It cannot be issued by banks, trust, insurance, an preneed companies, public utilities, building and loan
associations, and other corporations authorized to obtain or access funds from the public whether publicly
listed or not; and
6. The articles of incorporation must state the fact that it is issued no par value shares as well as the
number of said shares.
THE RIGHT TO VOTE IN STOCK CORPORATION
The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled that
unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholders’ meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a
certain measure or act. Only stock actually issued and outstanding may be voted. Under Section 6 of the
Corporation Code(Also, Section 6, Revised Corporation Code), each share of stock is entitled to vote, unless
otherwise provided in the articles of incorporation or declared delinquent under Section 67 of the
Code(Now section 66, Revised Corporation Code).
Neither the stockholders nor the corporation can vote or represent shares that have never passed to
the ownership of stockholders; or, having so passed, have again been purchased by the corporation. These
shares are not to be taken into consideration in determining majorities. When the law speaks of a give
proportion of the stock, it must be constructed to mean the shares that have passed from the corporation,
and they may be voted.
THE RIGHT TO VOTE IN NON-STOCK CORPORATION
In non-stock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the by-laws of the corporation. Each member shall be entitled to one vote
unless so limited, broadened, or denied in the articles of incorporation or by-laws. We hold that when the
principle for determining the quorum for stock corporations is applied by analogy to non-stock
corporations, only those who are actual members with voting rights should be counted.
