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Chapter 10 Reviewer

 Rights of Stockholders

Rights of Members – Applies when corporation is a non stock corporation.

The Board of Directors shall ensure that all the rights of the stockholders as mandated
or set forth in the Corporation Code of the Philippines, Articles of Incorporation and By-
Laws of the Company shall be respected.

1. The Board shall respect the rights of the stockholders as provided for in the
Corporation Code; namely
i. Right to vote on all matters that require their consent or approval
 Shareholders shall have the right to elect, remove and replace
directors and vote on certain corporate acts in accordance with the
Corporation Code.
 Cumulative voting shall be used in the election of directors.
 A director shall not be removed without cause if it will deny minority
shareholders representation in the Board.
ii. Pre-emptive right to all stock issuances of the corporation

Article Seventh of the Company’s Amended Articles of Incorporation


contains a denial of the pre-emptive right of the stockholders.

iii. Right to inspect corporate books and records, Power of Inspection

All shareholders shall be allowed to inspect corporate books and records


including minutes of Board meetings and stock registries in accordance
with the Corporation Code and shall be furnished with annual reports,
including financial statements, without cost or restrictions.

iv. Right to information


 The Shareholders shall be provided, upon request, with periodic
reports which disclose personal and professional information about
the directors and officers and certain other matters such as their
holdings of the company’s shares, dealings with the company,
relationships among directors and key officers, and the aggregate
compensation of directors and officers.
 The minority shareholders shall be granted the right to propose the
holding of a meeting, and the right to propose items in the agenda
of the meeting, provided the items are for legitimate business
purposes.
 The minority shareholders shall have access to any and all
information relating to matters for which the management is
accountable for and to those relating to matters for which the
management shall include such information and, if not included,
then the minority shareholders shall be allowed to propose to
include such matters in the agenda of stockholders’ meeting, being
within the definition of “legitimate purposes”.
v. Right to dividends
 Shareholders shall have the right to receive dividends subject to the
discretion of the Board.
 The company shall be compelled to declare dividends when its
retained earnings shall be in excess of 100% of its paid-in capital
stock, except: a) when justified by definite corporate expansion
projects or programs approved by the Board or b) when the
corporation is prohibited under any loan agreement with any
financial institution or creditor, whether local or foreign, from
declaring dividends without its consent, and such consent has not
been secured; or c) when it can be clearly shown that such
retention is necessary under special circumstances obtaining in the
Corporation, such as when there is a need for special reserve for
probable contingencies.
vi. Appraisal right

The shareholders’ shall have appraisal right or the right to dissent and
demand payment of the fair value of their shares in the manner provided
for under Section 82 of the Corporation Code of the Philippines, under any
of the following circumstances:

 In case any amendment to the articles of incorporation has the


effect of changing or restricting the rights of any stockholders or
class of shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class, or of
extending or shortening the term of corporate existence;

 In case of sale, lease, exchange, transfer, mortgage, pledge or


other disposition of all or substantially all of the corporate property
and assets as provided in the Corporation Code; and
 In case of merger or consolidation.

1. It shall be the duty of the Board to promote shareholder


rights, remove impediments to exercise of shareholders’
rights, and allow possibilities to seek redress for violation of
their rights. The Board shall encourage the exercise of
shareholders’ voting rights and the solution of collective
action problems through appropriate mechanisms. The
Board shall pave the way for the electronic filing and
distribution of shareholder information necessary to make
informed decisions, subject to legal constraints.

2. The Board should be transparent and fair in the conduct of the annual and
special stockholders' meetings of the corporation. The stockholders should be
encouraged to personally attend such meetings. If they cannot attend, they
should be apprised ahead of time of their right to appoint a proxy. Subject to the
requirements of the by-laws, the exercise of that right shall not be unduly
restricted and any doubt about the validity of a proxy should be resolved in the
stockholder's favor.

It is the duty of the Board to promote the rights of the stockholders, remove
impediments to the exercise of those rights and provide an adequate avenue for them to
seek timely redress for breach of their rights.

The Board should take the appropriate steps to remove excessive or unnecessary costs
and other administrative impediments to the stockholders' meaningful participation in
meetings, whether in person or by proxy. Accurate and timely information should be
made available to the stockholders to enable them to make a sound judgment on all
matters brought to their attention for consideration or approval.

Although all stockholders should be treated equally or without discrimination, the Board
should give minority stockholders the right to propose the holding of meetings and the
items for discussion in the agenda that relate directly to the business of the corporation.

 Power of Preemptive Rights


Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is denied by the articles
of incorporation or an amendment thereto: Provided, That such pre-emptive right shall
not extend to shares to be issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares to be issued in good faith with the
approval of the stockholders representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate purposes or in payment of a
previously contracted debt.
- Requires Secretary Certificate for waiver of Pre-emptive Rights
Preemptive rights basically give the stockholder the first option to purchase any issues
or disposition of shares in proportion to the percentage of shares that they own before
others can purchase it.
All stockholders shall have pre-emptive rights, unless the same is denied in the Articles
of Incorporation, or an amendment thereto, of the Company. All stockholders shall have
the right to subscribe to the capital stock of the Company. The Articles of Incorporation
shall lay down the specific rights and powers of the shareholders with respect to the
particular shares they hold, all of which shall be protected by law so long as they shall
not be in conflict with the Corporation Code.

Right of First Refusal


In the event any stockholder (hereinafter referred to as the Offeror) desires to dispose,
transfer, sell or assign any shares of stock of the Corporation (hereinafter referred to as
the Offered Stock), except in the case of any disposal, transfer, sale or assignment
between or among the incorporators or to corporation controlled by the incorporators,
the Offeror shall give a right of first refusal to the Corporation and, thereafter in the
event that the Corporation shall refuse or fail to accept all of the Offered Stock to all
then stockholders of record of the Corporation (except the Offeror) to purchase the
Offered Stock pro rata, at a price and upon terms and conditions specified by the
Offeror based upon a firm, bona fide, written cash offer from a bona fide purchaser.
The Corporation shall be entitled to exercise its right of first refusal with respect to all,
but not less than all, of the Offered Stock for a period (hereinafter referred to as the First
Period) of thirty (30) days, from the receipt by it of a written offer to sell from the Offeror.

If the Corporation shall fail or refuse within the First Period to accept the offer for all of
the Offered Stock, then on or before the end of such First Period, the Secretary of the
Corporation shall transmit by registered mail and by telegram or cable a copy of such
offer to each stockholder of record (other than the Offeror) at his/its address appearing
on the books of the Corporation and shall also notify each stockholder of the expiry date
of such offer (such expiry date being thirty (30) days after the end of the First Period).
All then stockholders of record of the Corporation, other than the Offeror, shall be
entitled for a period (hereinafter referred to as the Second Period) ending thirty (30)
days after the First Period to exercise their rights of first refusal with respect to all or any
portion of the Offered Stock for which they have a right of first refusal and may in
addition offer to purchase any shares thereof not subscribed for by the other
stockholders pursuant to rights of first refusal. Such shares shall be allocated among
stockholders offering to purchase such shares, pro rata, up to the limits, if any, specified
by such purchasing stockholders. Each such purchasing stockholder shall transmit to
the Corporation with his/its acceptance cash, or a certified check or checks drawn on a
Philippine bank or banks, in an amount sufficient to meet the terms of the offer
corresponding to such number of shares of Offered Stock specified in his/its
acceptance.

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