Trident Development Corporation

December 15, 1982 Trident Development Corporation 202 13th Street Port Area, Manila Attention : Mr . Isidoro A . Panlasiqui Jr . Corporate Secretary Gentlemen: This refers to your letter dated October 26, 1982, seeking the opinion of this Commission on the queries posed therein. cdlex It appears therein that the Trident Development Corporation has an authorized capitalization of P10 million, divided into 3,750 Class "A" shares of stock and 96,250 Class "B" shares of stock at a par value of P100.00 each. Of the authorized total number of shares of stock 3,620 Class "A" shares and 31,136 Class "B" shares have been subscribed, issued and fully paid. Due to urgent need of finances, three (3) stockholders have offered to sell back to the corporation 490 Class "B" shares of stock at par value of P100.00 each. The Board of Directors in a resolution has agreed to buy back the shares of stock, on or before October 30, 1982. Based on the foregoing facts, you posed the following queries: 1. "May we know what legal requirements are needed to be fulfilled." In reply thereto, please be informed that "The prevailing judicial opinion is that in the absence of express constitutional or statutory restrictions, a corporation may make use of its surplus earnings to purchase its own stocks provided the following conditions are complied with: a) its capital is not thereby impaired; b) a legitimate and proper corporate objective is advanced; c) the condition of corporate affairs warrants it; d) the transaction is designed and carried out it good faith; e) there is intended and there results no undue advantage to a few favored stockholders at the expense of the remainder; f) the rights of creditors are not jeopardized; g) there must be surplus to acquire the same. ( Ltr. to Mr. Johnny Roman dtd. Dec. 3, 1975 ) This Commission believes that it is a better corporate practice if the selling stockholders offer the shares of stock to the other stockholders of the corporation in proportion to their existing shares. 2. "When the shares of stock are bought by the corporation, do we issue a certificate of stock in the name of the corporation covering the number of share of stock bought?" In reply thereto, please be informed that this Commission believes that it is discretionary with the corporation's board of directors whether or not to issue a certificate of stock in the name of the corporation covering the number of shares which have been reacquired by the same. Under the circumstances, it is a better corporate practice to issue certificate of stocks in the name of the corporation considering that stock certificates are muniments of ownership in the property of the corporation and documentary vehicles for the transfer of such ownership and considering further that the reacquisition by the corporation of the shares from the selling stockholders is likewise considered as a transfer. LexLib 3. "In the event other stockholders would like to sell their shares of stock, to what extent can the corporation buy back other shares of stocks? The corporation can buy back other shares of stock as long as the conditions mentioned in our answer to your No. 1 query are complied with. In a previous opinion, "As to the price that the corporation will pay to acquire the shares of stock of the selling stockholders, the Supreme Court in the case of National Exchange Co., vs. Dexter, G.R. No. 27872, February 25, 1928 (51 Phil. 601) rules that if in the course of permissible business transaction, shares of its own stock are acquired by the corporation, such shares usually knows as "Treasury Stock" need not be sold at the par value but may be disposed of at the best price obtainable. If it, therefore, for the corporation to determine the price that it will pay for the shares to be sold by your client." ( Ltr. to Mr. Johnny Roman dtd. Dec. 3, 1975 .) 4. "What are the legal implications and consequences of the corporation owning treasury stocks?" 1. "The stocks become treasury shares and may only be sold by the stockholders acting as a body. They do not represent shares by subscription from original issue and hence, they cannot and should not be recorded in the books as shares of original issue." ( Ltr. to Mrs. Milagros Cruz dtd. July 9, 1980 .) 2. Sec. 57 of the Corporation Code provides "Treasury shares shall have no voting right as long as such stock remains in the treasury." Thus, treasury shares while held by the corporation are not entitled to dividends and may not be voted nor are they entitled to any privilege or right (Balbin/Gloria, The Corporate Organization: New Dimension p. 69, citing Ballatine, 472).Consequently, the shares have economic value in the sense that the corporation may reissue it for a valuable consideration as herein before mentioned, but they do not represent any obligation for the reason that the person of the obligor and obligee in respect to such shares are merged in the corporation. ( SEC Opinion, Nov. 2, 1966 ) Please be guided accordingly. prcd Very truly yours, (SGD.) JESUS J. VALDEZ Associate Commissioner