After reading “What are Treasury Shares?”, read also “When is tender offer in securities mandatory?”
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Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.
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Treasury shares are considered as issued and fully paid. It cannot be considered as outstanding shares since they are subsequently reacquired and held by the corporation.
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Treasury shares are not entitled to dividends or voting rights until they are reissued. A corporation cannot declare dividends for itself.
The law says:
Section 9, Title I of the Republic Act No. 11232 or the Revised Corporation Code defines treasury shares in the following manner:
“Sec. 9. Treasury shares. – Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.”
Treasury shares are considered as issued and fully paid. It cannot be considered as outstanding shares since they are subsequently reacquired and held by the corporation.
Treasury shares are not entitled to dividends or voting rights until they are reissued. A corporation cannot declare dividends for itself.
Section 56 of the Revised Corporation Code states that:
“Sec. 56. Voting Right for Treasury Shares. – Treasury shares shall have no voting right as long as such shares remain in the Treasury.”
In the same manner, treasury shares, since they are considered as unrealized income, are not part of earned or surplus profits. As a consequence, they cannot be distributed as dividends, either in cash or in the form of stocks.
However, if there are retained earnings, arising from the business of the corporation, treasury shares may be distributed as part of property dividends and not stock dividends since they are considered as part of the corporation.
What is the Doctrine of Equality of Shares?
Section 6, Title I of the Revised Corporation Code further provides that:
“Sec. 6. Classification of Shares. – The classification of shares, their corresponding rights, privileges, or restrictions, 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 share, except as otherwise provided in the articles of incorporation and in the certificate of stock.”
The Doctrine of Equality of Shares provides that where the Articles of Incorporation do not provide for any distinction of the shares of stock, all shares issued by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities.
Jurisprudence says:
The Supreme Court, in the case of Paul Lee Tan, et.al. v. Paul Sycip and Merritto Lim (G.R. No. 153468, 17 August 2006), ruled that:
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, 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.
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 given proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may be voted.
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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