Fundamental Rights of a Stockholder - ALBURO ALBURO AND ASSOCIATES LAW OFFICES

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The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

The rights of a stockholder are categorized into three: Management Rights, Proprietary Rights, and Remedial Rights.

Management Right

To attend and vote in person or by proxy at stockholders’ meetings;
To elect and remove directors;
To approve certain corporate acts;
To adopt and amend or repeal the by-laws or adopt new by-laws;
To compel the calling of the meetings;
To enter into a voting trust agreement; and,
To have the corporation voluntarily dissolved.

Proprietary Right

To transfer stocks in the corporate book;
To receive dividends when declared;
To be issued a stock certificate or other evidence of stock ownership;
To participate in the distribution of corporate assets upon dissolution; and,
To pre-emption/ to subscribe to all issues or disposition of shares of any class.

Remedial Right

To inspect corporate books;
To recover stock unlawfully sold for delinquent payment of subscription;
To be furnished with the most recent financial statements or reports of the corporation’s operation;
To bring suits (derivative suit, individual suit, and representative suit); and,
To demand payment in the exercise of appraisal right.

(Republic Act No. 11232 or The Revised Corporation Code)

Becoming a stockholder means more than just putting money into a company; it is like getting a key to the inner workings of that business. Whether you buy shares from a stock market, get in on a company’s first-time sale of shares, or inherit them from family, you are getting a piece of that company.

As a stockholder, you are not just along for the ride; you are part of the team making decisions that affect the company’s future. So, knowing what being a stockholder means and understanding your rights is very important if you want to be part of the big picture in investing and business.

To begin, let us talk about how one becomes a stockholder.

Jurisprudence says:

A person becomes a stockholder of a corporation by acquiring a share through either purchase or subscription. (Grace Borgona Insigne vs. Abra Valley Colleges, Inc., G.R. No. 204089, July 29, 2015)

Ownership of stocks happens when you obtain a share of the company’s ownership through either buying it directly or subscribing to it. For instance, if you decide to invest in a company by purchasing shares of its stock, you become a stockholder.

Similarly, if you enter into a subscription contract with a corporation, meaning you agree to buy shares from them at a later date or over a period of time, once the corporation accepts your offer, you officially become a stockholder, regardless of whether you’ve paid for the shares in full yet.

Moreover, there are a few other ways to become a shareholder. One way is by purchasing treasury shares directly from the corporation itself. Treasury shares are shares that the company has bought back from existing shareholders and are being held in its own treasury.

Another way is by acquiring shares from existing shareholders through a sale or other contractual arrangement. Additionally, you can become a shareholder through inheritance or other legal means, such as succession.

In light of the foregoing, a person becomes a shareholder the moment he:

(1) Enters into a subscription contract with an existing corporation. One becomes a stockholder upon acceptance of the corporation of his offer to subscribe whether the consideration is fully paid or not.

(2) Purchases treasury shares from the corporation.

(3) Acquires shares from existing shareholders by sale or any other contract, or acquires shares by operation of law like succession. (Sundiang Sr. & Aquino, 2009)

Once any of these actions occur, you gain ownership rights in the corporation and are considered a stockholder with all the associated privileges and responsibilities. As a stockholder, it’s important to understand your fundamental rights.

Your fundamental rights as a stockholder are categorized into three: Management Rights, Proprietary Rights, and Remedial Rights.

Management Right

One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the legislature or by the corporation, without his consent, through amending the charter, or the by-laws. (Cecilia Castillo vs. Angeles Balinghasay, G.R. No. 150976, October 18, 2004)

Specifically, your management rights include the following:

To attend and vote in person or by proxy at stockholders’ meetings;
To elect and remove directors;
To approve certain corporate acts;
To adopt and amend or repeal the by-laws or adopt new by-laws;
To compel the calling of the meetings;
To enter into a voting trust agreement; and,
To have the corporation voluntarily dissolved.

Proprietary Right

The interest of each stockholder consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation, during its existence, under its charter, and to a like proportion of the property remaining, upon the termination or dissolution of the corporation, after payment of its debts. (Frederick Fisher vs. Wenceslao Trinidad, G.R. No. L-17518, October 30, 1922)

As such, you are entitled to the following proprietary rights:

To transfer stocks in the corporate book;
To receive dividends when declared;
To be issued a stock certificate or other evidence of stock ownership;
To participate in the distribution of corporate assets upon dissolution; and,
To pre-emption/ to subscribe to all issues or disposition of shares of any class.

Remedial Right

The right of stockholders to bring derivative suits is not based on any provision of the Corporation Code or the Securities Regulation Code, but is a right that is implied by the fiduciary duties that directors owe corporations and stockholders. Derivative suits are, therefore, grounded not on law, but on equity. (Metropolitan Bank & Trust Company vs. Salazar Realty Corporation, G.R. No. 218738, March 9, 2022)

Based on the Revised Corporation Code, the following are your remedial rights as a stockholder:

To inspect corporate books;
To recover stock unlawfully sold for delinquent payment of subscription;
To be furnished with the most recent financial statements or reports of the corporation’s operation;
To bring suits (derivative suit, individual suit, and representative suit); and,
To demand payment in the exercise of appraisal right.

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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