After reading Effects if a Stock of a Close Corporation is issued or Transferred in Breach of Qualifying Conditions, read also Who are Service Users and what are their rights under Republic Act No. 11036 or the “Mental Health Act”?
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A close corporation is one whose articles of incorporation provides that all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20)
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Any corporation may be incorporated as a close corporation except corporations declared to be vested with public interest
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A close corporation may transfer its stock
T he Revised Corporation Code (RCC) states that a close corporation is one whose articles of incorporation provides that:
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all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20);
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all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted under the RCC; and
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the corporation shall not list in any stock exchange or make any public offering of its stocks of any class.
However, take note that a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the provisions of RCC.
May a close corporation transfer its stock?
The law says:
Yes.
However, when a transfer of stock is in breach of qualifying conditions, the following are the effects:
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If a stock of a close corporation is issued or transferred to any person who is not eligible to be a holder of a stock under any provision of the articles of incorporation, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record of the same, such person is conclusively presumed to have notice of the fact of the ineligibility to be a stockholder.
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If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be stockholders of record, and if the certificate for such stock conspicuously states such number, and the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact.
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If a stock certificate of a close corporation conspicuously shows a restriction on transfer of the corporation’s stock and the transferee acquires the stock in violation of such restriction, the transferee is conclusively presumed to have notice of the fact that the stock was acquired in violation of the restriction.
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Whenever a person to whom stock of a close corporation has been issued or transferred has or is conclusively presumed to have notice of:
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the person’s ineligibility to be a stockholder of the corporation; or
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that the transfer of stock would cause the stock of the corporation to be held by more than the number of persons permitted under its articles of incorporation; or
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that the transfer violates a restriction on transfer of stock, and the corporation may, at its option, refuse to register the transfer in the name of the transferee.
However, take note that letter (d) above shall not be applicable if the transfer of stock, though contrary to letters (a), (b) or (c) above, has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with the RCC.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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