Mrs. Virginia A. Maghuyop

October 9, 1992 Mrs. Virginia A. Maghuyop 4th Floor, Ortega Bldg. Rizal Avenue, Ozamiz City M a d a m : This refers to your letter requesting information on the queries posed therein relative to Fil Vision, Inc. which we answer in the order they were presented. 1. Can you avail of copies of the Articles of Incorporation and By-Laws of said corporation for your file record? cdlex You may formally request for the certified true copies thereof from the Records Division of this Commission, the necessary expenses for the xerox and certification to be shouldered by the person making the request. 2. Who are the registered stockholders? To determine who are the present stockholders of a corporation, much would depend on the identities of the stockholders as appearing in the stock and transfer book of the corporation. The stock and transfer book is kept in the principal office of the corporation and shall be open for inspection of any director or stockholder of the corporation at reasonable hours on business days. The registration of stock ownership is a function which pertains to that of the corporate secretary. Since the Commission is not in possession of the stock and transfer book of the corporation we cannot furnish you a definite information on the matter. 3. What are the rights of the minority stockholders? Section 6 of the Corporation Code provides that "except as otherwise provided by the articles of incorporation, each share shall be equal in all respect to every other shares ".Thus, a minority stockholder, even if he is a holder of only one (1) share, is entitled to all rights of a stockholder, such as the right to vote such share, right to participate in the election of the Board of Directors, right to attend and vote in stockholders meeting approving certain corporate transactions, right to receive dividend in proportion to his holdings, right to inspect corporate books, and other rights ordinarily attached to such share. 4. When shall the stockholders receive their share of dividends? 5. Can a minority stockholder demand his dividends yearly? Dividends are declared only when surplus profits are shown to exist. Section 43 of the Corporation Code provides, thus: "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them :Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. (Emphasis supplied) xxx xxx xxx" The right of the stockholders to be paid dividends vests as soon as the same has been lawfully declared in accordance with the above provision. It is the declaration of the dividends which creates both the dividends itself and the right of the stockholders to demand and receive it. 6. Is there any possibility that the share of a minority stockholder be transferred to anybody without his consent? The Corporation Code provides: "SECTION 63. Certificate of stock and transfer of shares . ....Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer .No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. ...(Emphasis supplied) Therefore, as a general rule, shares can be transferred only by the registered owner thereof or authorized person. However, the same may be sold at public auction in a delinquency sale pursuant to Section 68 of the Corporation Code quoted hereunder. "SECTION 68. Delinquent sale . The board of directors may, by resolution, order the sale of delinquent stock and shall specifically state the amount due on each subscription plus all accrued interest, and the date, time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent. Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by registered mail. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located. Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of sale, or unless the board of directors otherwise orders, said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares. Should there be no bidder at the public auction who offers to pay the full amount of the balance of the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share, the corporation may, subject to the provisions of this Code, bid for the same, and the total amount due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code." (Emphasis supplied) 7. Can a minority stockholder be forced to pay his unpaid subscribed shares of stock? The Corporation Code provides: "SECTION 67. Payment of balance of subscriptions . Subject to the provisions of the contract of subscription, the board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage of said unpaid subscriptions, in either case with interest accrued, if any, as it may deem necessary. Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until full payment. If within thirty (30) days from the said date no payment is made, all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise. The above-quoted provision of law authorizes corporations to make calls for the payment of unpaid subscriptions. If a stockholder fails to pay his unpaid subscription after a valid call, there are two (2) remedies under the Corporation Code for the corporation to enforce the liability. The first remedy given by said Law consists of permitting the corporation to put up delinquent shares for sale under Section 68 thereof. The unsuccessful attempt to follow the remedy by sale under said Section will not bar an action in Court to recover the unpaid subscription pursuant to Section 70 thereof which provides: LibLex "SECTION 70. Court action to recover unpaid subscription . Nothing in this Code shall prevent the corporation from collecting by action in a court of proper jurisdiction the amount due on any unpaid subscription, with accrued interest, costs and expenses." 8. What is the usual procedure in demanding dividends? The fact that profits have accrued in the prosecution of the corporate business does not necessarily impose upon the directors the duty of distributing them as dividends to the stockholders. ( SEC letter addressed to A.E. Dacanay dated August 9, 1985 citing 13 Am. Jur.,sec. 676 at 673).Even though the earnings are such as to permit the lawful distribution of dividends, they remain corporate property until so distributed and those entrusted with the control of the corporation must necessarily be left free to deal with them as prudent management and the exigencies of the enterprise may suggest so long as they act in good faith. (Am. Jur.,Supra.,p. 674).The apportionment of net earnings to payment of dividends is largely a question of policy entrusted to the discretion of the directors of the corporation whose duty to the stockholders is to exercise an honest and impartial judgment with reference to the declaration of dividends and to declare them only when, under the circumstances, a declaration will seem best to serve the corporate interest. (Am. Jur.,loc. cit). However, declaration of dividends is mandatory under the following provision of the Corporation Code: "SECTION 43. Power to declare dividends . ... Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock ,except: (1) when justified by definite corporate expansion projects or programs approved by the board of directors; or (2) when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or (3) 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." (Emphasis supplied) Thus, if one feels that a corporation has violated the aforecited provision of law, he may file a verified complaint with the Securities Investigation and Clearing Department of this Commission pursuant to P.D. 902-A, as amended. Regarding your allegation that you have never been issued stock certificate for your shares, the Commission previously ruled that "one may own shares of corporate stock without possessing a certificate thereof, which, after all is but evidence of owning the stock".(11 Fletcher, Sec. 5164 citing Exchange National Bank of Colorado Springs v. Receivers of City Savings, Bldgs.,and Loan Ass'n.,75 Colorado 498, 37 P(2d) 394) However, while a certificate of stock is not a condition precedent to the right of a corporation to sue on a stock subscription, "a certificate of stock is the paper representative or tangible evidence of the stock itself and of the owner's interest therein, and every stockholder has a right to have a proper certificate issued to him by the corporation as soon as he has complied with the conditions which entitle him to one, as by payment for his shares or the like, in the absence of some legal obstacle to issuance created by stockholder himself".(11 Fletcher, sec. 5164). The pertinent provision of the Corporation Code provides: "SECTION 64. Issuance of stock certificates . No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares),if any is due, has been paid." Thus, as a general rule, a corporation is duty bound to issue certificate of stock to a stockholder as soon as his subscription is fully paid. As regards the right of a stockholder to the issuance of stock certificate, it has been held that a demand is necessary before the corporation is required to issue a certificate, at least, to charge the corporation with liability for refusal or failure to issue one".(11 Fletcher, sec. 5164 citing Sevobe v. Brictson Mfg. Co. 297 Fed. 560) The Commission had occasions to rule that there are four (4) remedies available to a stockholder if a corporation wrongfully refuses to issue a certificate of stock ( SEC letter to Cagayan Sugarcane Planters Association, Inc. dated January 7, 1987 ),to wit: 1. He may file a suit for specific performance of an express or implied contract. llcd 2. He may file for an alternative relief by way of damages where specific performance cannot be granted. 3. He may also file a petition for mandamus to compel the issuance of a certificate where the conditions, facts and circumstances of the particular case bring it within the legal rules which govern the granting of that writ. prLL 4. He may rescind his contract of subscription if the corporation wrongfully refuses to deliver a certificate, and sue to recover back what he has paid. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman