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How Stock Certificates Are Issued

Posted on May 7, 2010 by Hector M. de Leon Jr • Posted in Commercial Law
• Tagged corporation, stamp tax, stockholders •
A stock certificate is a written instrument signed by the proper
officers of the corporation certifying that the person named therein
is the registered owned of a designated number of shares of stock
in the corporation. It indicates the name of the registered holder,
the number, kind and class of shares represented and the date of
the issuance. (see Corporation Code Annotated, P. 542 [2006]). A
stock certificate is not necessary to render a person a stockholder
in a corporation. However, a stock certificate is tangible evidence
of the stock itself (see Corporation Code Annotated, P. 543
[2006]).
After the corporation is formed, the Corporate Secretary (or the
Assistant Corporate Secretary) may issue the stock certificates to
the stockholders who fully paid their subscription. For this
purpose, the Corporate Secretary will take the following steps:
(a) obtain a stock and transfer book;
(b) register the stock and transfer book with the Securities and
Exchange Commission (SEC);
(c) obtain blank stock certificates (which the Corporate
Secretary can obtain from bookstores or from printers);
(d) fill-up the relevant information in the stock and transfer book
and in the stock certificate;
(e) sign the stock certificate as Corporate Secretary;
(f) forward the stock certificate to the President (or the Vice-
President) of the corporation for signature;
(g) seal the stock certificate with the corporate seal; and
(h) deliver the stock certificate to the stockholder.
The by-laws of the corporation may provide other requirements
for the issuance of stock certificates.
The Corporate Secretary may issue the stock certificate only if the
stockholder has paid the full amount of subscription (Corporation
Code, sec. 64) In other words, no stock certificate can be issued if
the subscription price is not yet fully paid. Holders of subscribed
shares not fully paid have all the rights of a stockholder (even if
they don’t hold stock certificates), provided that the shares are not
delinquent (see Corporation Code, sec. 72). Shares are considered
delinquent if the stockholder failed to pay any unpaid subscription
within 30 days from the due date thereof (Corporation Code, sec.
67).
The Tax Code subjects the original issuance of shares by a
Philippine corporation to documentary stamp tax (DST), which
must be paid by either the corporation or the stockholder. If the
shares have par value, the DST payable is PhP1 for every PhP200
of par value. Thus, if 1,000,000 shares with a par value of PhP1
each are issued, DST of PhP5,000 is payable. If the DST is not
paid on time, the BIR will impose a surcharge of 25% (plus
interest).
In this regard, the date of payment of DST on the issuance of
shares is counted from the date the SEC approves the
incorporation of the corporation, and not from the date the stock
certificates are actually issued. For example, if the SEC approved
the incorporation of the corporation on May 7, DST on the
issuance of the shares must be paid not later than June 5 (in
accordance with the rule that DST should be paid not later than
the 5th day of the next month after the date of the transaction). If
the stockholder subscribes to shares after incorporation, then the
date of the subscription will be deemed to be the date of the
transaction (and DST paid not later than the due date thereof).
Note that DST is due on the issuance of shares (which should not
be confused with the issuance of stock certificates), whether or not
the subscription price on the shares was fully paid. Under RMC
Circular 8-98 (as amended), citing Commissioner of Internal
Revenue vs. Construction Resources of Asia, Inc., the DST on
original issuance of shares attaches upon acceptance of the
stockholder’s subscription in the capital stock of a corporation
regardless of the physical issuance and delivery to the stockholder
of the certificate of stock evidencing his stockholding. According
to the BIR, “what is being taxed is the privilege of issuing shares
of stock, and, therefore, the taxes accrue at the time the shares are
issued. . . issuance means the point at which the stockholder
acquires and may exercise attributes of ownership over the stocks.
. . ” As stated previously, holders of subscribed shared not fully
paid generally have all the rights of a stockholder.
(Note: This is part of a series of “How To” articles. These articles
intend to give the reader a general overview of the legal aspects of
doing certain things and they will not contain all details regarding
the proposed action. There may be changes to applicable laws
and regulations after the article is posted. You should consult
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