In the Philippines, family-run businesses remain a dominant force. Some of these companies would include Ayala Corporation, Metrobank, and SM Prime Holdings.
Family-owned businesses are mostly owned by family members having at least 50% to 60% share, making them part of the board of directors and/or corporate officers. However, there comes a point where a family member would wish to sell his share in the business.
Section 62 of the Revised Corporation Code affirms that the owner of a share of stock in a corporation has the right to transfer his shares.
Sec. 62. Certificate of stock and transfer of shares. – The capital stock of corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner, his attorney-in-fact or any other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. The Commission may require corporations whose securities are traded in trading markets and which can reasonably demonstrate their capability to do so to issue their securities or shares of stocks in uncertified or scripless form in accordance with the rules of the Corporation.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.
Further, in the case of Padgett vs. Babcock & Templeton, Inc., G.R. No. 38684, 21 December 1933, held that shares of corporate stock are regarded as personal property and may be disposed of by the owner as he sees fit, unless the corporation is dissolved, or unless the right to do so is properly restricted or the owner’s privilege is hampered by his actions. A corporation cannot impose undue restrictions upon the owner’s right to sell, transfer or otherwise convey his shares of stock.
Before a share of capital stock is validly sold, transferred, assigned or in any manner conveyed, it must be covered by a stock certificate.
The stock certificate is the nature and extent of ownership of a person over the share/s of stock. It also outlines the regulations and limitations of ownership, which must be considered and made known to the parties prior to any conveyance. Note that only shares of stock covered by a stock certificate can be subject of a legally demandable and binding sale or disposition.
To process the sale of shares of stocks, the following should be considered:
- Negotiation and execution of the deed of sale;The Deed of Sale shall contain:
- The name and other personal details (e.g., civil status, citizenship, address, etc.) of the seller and the buyer;
- a description of the shares of stock being sold (including the number of shares sold, the par value of shares, the class of shares (if applicable) and the relevant stock certificate numbers);
- the purchase price for the shares (and terms of payment, if applicable).
- Payment of the capital gains tax/donor’s tax (if any) and the documentary stamp tax, and the filing of the appropriate returns with the Bureau of Internal Revenue (BIR);
- Issuance of the tax clearance certificate/Certificate Authorizing Registration (CAR) by the BIR;Anyone planning to sell their shares of stock must secure a Certificate Authorizing Registration (CAR) before the transfer is recorded in the books of the domestic corporation. If the seller, whether local or foreign, is unable to obtain a CAR by the time of the transfer, the activity will not be recognized. Even if you show receipts as proof of payment, the transfer will still not be recorded by the corporate secretary.
- Presentation of the CAR to the Corporate Secretary, the registration by the Corporate Secretary of the sale in the stock and transfer book of the corporation, the cancellation by the Corporate Secretary of the stock certificates in the name of the seller and the issuance by the Corporate Secretary of new stock certificates to the buyer.
Sec. 62 of the Revised Corporation Code provides that “no transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of transfer, the number of the certificate or certificates, and the number of shares transferred.
Note that no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.