Guidelines for Issuing Stock Certificates in a Philippine Corporation

1) Why stock certificates matter (and what they do not do)

A stock certificate is the corporation’s written evidence that a person is the registered owner of a specified number of shares of stock. It is an important instrument for proof, transfer, pledges, and corporate housekeeping, but it is not the sole source of ownership.

In Philippine corporate practice:

• Ownership is primarily determined by the corporation’s records, particularly the Stock and Transfer Book (STB) and other corporate books.
• A certificate is prima facie evidence of share ownership, but a person may have enforceable rights as a stockholder even before a certificate is physically issued, depending on the subscription, payment status, and registration in corporate records.
• Conversely, a physical certificate does not automatically bind the corporation if it was irregularly issued, unsigned, forged, issued without authority, or not supported by valid consideration and proper recording.

2) Core governing framework (Philippine context)

Issuance and handling of stock certificates are principally governed by:

• The Revised Corporation Code of the Philippines (RCC) (rules on issuance of shares, consideration, subscriptions, transfers, corporate records, and related remedies);
• The corporation’s Articles of Incorporation, By-Laws, and board/shareholder resolutions;
• SEC regulations on corporate records and compliance (particularly for corporations subject to reportorial requirements);
• For certain corporations, additional regimes may apply (e.g., publicly listed or public companies, regulated entities, and companies with nationality restrictions).

3) Fundamental prerequisites before issuing a certificate

A corporation should not treat certificate printing as a clerical act. A valid issuance rests on legal and accounting foundations.

A. The shares must be validly issuable

Confirm that:

1. The shares are within the Authorized Capital Stock (ACS) as stated in the Articles of Incorporation (including the correct class/series, par value or no-par designation, and any preferences/restrictions).

2. If the issuance requires corporate approvals (e.g., issuance from unissued authorized shares), the board resolution (and when required, stockholder approval) exists and is properly recorded in the minutes.

3. The corporation is not attempting an issuance that would violate:

   • pre-emptive rights (if applicable and not waived/denied under the Articles);
   • restrictions in the Articles/By-Laws;
   • nationality/ownership requirements applicable to the business activity;
   • limitations on issuing no-par value shares for certain regulated businesses or under internal corporate restrictions.

B. There must be valid consideration

Shares must be issued for legally recognized consideration and consistent with the RCC and corporate approvals.

Common lawful consideration includes:

• Cash (most straightforward);
• Property (tangible or intangible), subject to valuation and documentation;
• Services actually performed (careful distinction: generally not for future services);
• Previously incurred corporate indebtedness (debt-to-equity conversion), properly documented;
• Other forms allowed by law, subject to the corporation’s instruments and proper valuation.

Practical rule: ensure the consideration is real, documented, and matches the stated issue price.

C. Full payment is the usual condition for issuing certificates

As a matter of Philippine corporate law and standard practice, stock certificates are issued only for shares that are fully paid. Where shares are subscribed but not fully paid, the subscriber’s rights and status may exist, but the corporation typically withholds issuance of a certificate until full payment.

Related implications:

• If a subscriber is delinquent (after valid calls and delinquency procedures), the corporation must follow delinquency rules rather than issuing certificates prematurely.
• If installments are allowed, maintain clear subscription records, official receipts, and board-approved terms.

4) Corporate approvals and internal documentation

A clean paper trail is essential. At minimum, the corporation should maintain:

1. Board resolution approving issuance Typically states:

   • name of subscriber/stockholder,
   • number of shares,
   • class/series,
   • issue price and total consideration,
   • payment terms (if any),
   • authority to issue and sign certificates,
   • instruction to record in STB.

2. Subscription agreement / contract (where applicable) Especially for subscriptions not arising from original incorporators, or where payment terms and conditions are specific.

3. Proof of payment / transfer of consideration

   • Official receipts, bank credits, deed of assignment, valuation reports, deed of exchange, dacion, or debt conversion documents, as applicable.

4. Updated capitalization schedule (internal) A working cap table that reconciles:

   • authorized,
   • subscribed,
   • paid-up,
   • issued and outstanding,
   • treasury shares (if any).

5) The Stock and Transfer Book (STB): the centerpiece

The STB is the corporation’s official registry of stockholders and shareholdings. Before releasing a certificate, ensure that:

• The stockholder’s name and details are properly recorded;

• The issuance is entered with:

  • certificate number,
  • number of shares,
  • class/series,
  • date of issuance,
  • amount paid,
  • other relevant references (board resolution, subscription docs);

• The STB entries reconcile with the General Ledger and capital accounts.

Key practical point: For many disputes, the corporation’s STB and minutes become the primary evidence of rightful ownership and corporate recognition.

6) Form and contents of a stock certificate (what it should contain)

A typical Philippine stock certificate includes:

• Corporate name, SEC registration details, and principal office address;

• Certificate number (unique, sequential control);

• Name of stockholder exactly as in records (and matching IDs for individuals, and SEC records for entities);

• Number of shares represented;

• Class/series (e.g., Common, Preferred Series A);

• Par value (if par value shares) or statement that shares are no-par (if applicable);

• Statement that the shares are fully paid and non-assessable (commonly used phrasing consistent with corporate practice);

• Date of issuance;

• Signature lines, typically for:

  • President (or Vice President) and
  • Corporate Secretary (Exact signatories may be prescribed by the By-Laws or board resolutions.)

• Corporate seal (often used, though modern practice may vary; follow By-Laws and internal policy).

• Transfer/assignment form printed at the back (or attachment), and/or legend referencing transfer requirements.

Legends and restrictions (important)

Where restrictions apply, print a legend on the certificate face, such as:

• Transfer restrictions (e.g., right of first refusal, lock-ups, close corporation restrictions, shareholder agreement restrictions);
• Nationality restrictions or compliance notes (common in partially nationalized activities);
• Preferred share rights (or reference to terms in Articles/SEC filings);
• Lien/pledge notation if the corporation records a pledge (note: recognize legal distinctions between notation and perfection of security interests).

Legends should be accurate and consistent with the Articles, By-Laws, and enforceable agreements, because incorrect legends can create disputes or liability.

7) Signing, custody, and release controls (anti-fraud essentials)

A. Signing requirements

• Certificates should be signed only by the duly authorized officers, consistent with the By-Laws and board authority.
• Use specimen signatures and signing logs when possible.

B. Physical custody of blank certificates

Treat blank certificate forms as controlled documents:

• Store in a secure location;
• Maintain a logbook of certificate forms, serial numbers, and issuance status;
• Limit access to the Corporate Secretary and designated staff.

C. Release procedure

Before releasing a certificate:

• Confirm STB entry is completed;
• Confirm supporting documents are on file;
• Obtain acknowledgement of receipt from the stockholder or authorized representative.

8) Documentary Stamp Tax (DST) and tax compliance (practical compliance point)

In the Philippines, issuance and transfer of shares commonly trigger Documentary Stamp Tax (DST) under the National Internal Revenue Code. In practice:

• Original issuance of shares is generally subject to DST based on par value (or issue price for no-par, depending on the situation).
• Transfers of shares may also attract DST.

Because tax rules can be technical and fact-specific (par vs no-par, original issue vs transfer, exemptions, timing, and filing mechanics), corporations typically:

• compute DST contemporaneously with issuance/transfer,
• keep BIR filings/receipts with the corporate records,
• align accounting entries with tax filings.

A frequent compliance risk is treating certificates as purely internal while overlooking DST and documentation timing.

9) Special scenarios and how issuance should be handled

A. Incorporation-stage subscriptions vs later issuances

• At incorporation, incorporators subscribe to shares as stated in the Articles and other incorporation documents.
• Certificates may be issued after required payments are made and the corporation’s records are organized.

For later issuances:

• Board approvals and pre-emptive rights analysis become more prominent.

B. Issuance of preferred shares

Preferred shares must conform strictly to:

• the terms authorized in the Articles (and any SEC-recognized amendments),
• disclosed preferences (dividends, liquidation preference, redemption features),
• voting rights and limitations.

Certificates should clearly indicate the preferred class/series to avoid confusion with common shares.

C. Treasury shares

Treasury shares are previously issued shares reacquired by the corporation. Key points:

• They are generally considered issued but not outstanding while in treasury.
• When reissued or disposed, proper board authority and documentation are required.
• Certificates related to treasury share transactions must be carefully handled to avoid double-counting or conflicting certificate numbers.

D. Transfers, endorsements, and corporate recognition

A stock certificate is typically transferred by:

1. endorsement by the registered owner (or authorized signatory), and
2. delivery to the transferee, and
3. recording of the transfer in the STB for corporate recognition.

Corporate recognition rule: The corporation usually treats the transferee as a stockholder entitled to vote and receive dividends only after the transfer is recorded in the STB.

E. Pledges and encumbrances

Shares are often pledged as security. The corporation may:

• record the pledge or annotate it, depending on internal policy and documentation,
• require pledge documents before making any annotation.

Care is needed because annotation practices can affect disputes among pledgor, pledgee, and third parties.

F. Uncertificated shares / scripless environments

Some corporations or market environments adopt book-entry systems rather than physical certificates (common in public markets). For close corporations and typical private corporations, physical certificates remain prevalent, but the RCC’s recognition of electronic records supports more modern recordkeeping—subject to SEC rules, corporate instruments, and internal controls.

10) Lost, destroyed, or mutilated certificates (replacement protocol)

When a certificate is lost or destroyed, the corporation should follow a conservative, documented process to protect against double claims. A robust protocol usually includes:

1. Notice to the corporation (written);
2. Affidavit of loss executed by the registered owner (with details of circumstances and undertaking);
3. Indemnity bond (often required) to protect the corporation against claims if the original resurfaces;
4. Board/Corporate Secretary action approving issuance of a replacement;
5. Notation in the STB that a replacement was issued and the original is cancelled (or treated as void upon recovery);
6. If the original is later found, require surrender and cancellation.

The legal details can depend on By-Laws, internal policies, and the circumstances of loss (and whether adverse claims exist).

11) Common compliance pitfalls (and how to avoid them)

1. Issuing certificates without full payment Creates disputes, delinquency complications, and accounting inconsistencies.

2. Issuing shares without proper authority E.g., beyond authorized capital, without board approval, or in violation of pre-emptive rights.

3. Mismatch between certificate details and corporate records Inconsistencies in name spelling, share class, dates, or numbers can cause expensive title disputes.

4. Failure to update the STB promptly Leads to voting and dividend disputes and weakens the corporation’s evidentiary position.

5. Weak custody controls over blank certificates A major fraud vector.

6. Ignoring legends and restrictions A certificate that does not reflect enforceable restrictions invites conflict and undermines governance.

7. Overlooking DST and related filings Creates tax exposure and audit issues.

12) Step-by-step issuance checklist (practical template)

1. Confirm authority

   • Shares available within authorized capital
   • Correct class/series; compliance with Articles/By-Laws

2. Board approval

   • Resolution approving issuance and consideration

3. Subscription and consideration

   • Subscription agreement (if needed)
   • Proof of full payment / completion of consideration

4. Prepare certificate

   • Assign certificate number
   • Populate shareholder name, shares, class, par/no-par, date
   • Add legends/restrictions as applicable

5. Sign and seal

   • Authorized corporate officers sign
   • Apply seal if required by By-Laws/policy

6. Record in the STB

   • Certificate number, shares, owner, date, references

7. Tax documentation

   • Compute and pay DST as applicable; file and retain proof

8. Release

   • Obtain acknowledgment receipt; retain copy in corporate records

9. Archive

   • Store supporting documents (minutes, contracts, receipts, tax proofs) in the stock issuance folder

13) Enforcement and dispute notes (why procedure matters)

Stock certificate issuance sits at the intersection of:

• corporate authority (board powers and capital structure),
• property rights (who owns what),
• creditor protection (capital integrity principles),
• and evidentiary rules (corporate books, signatures, and formalities).

Because share ownership affects voting control, dividends, and valuation, issuance disputes often escalate quickly. Corporations that maintain disciplined documentation, STB accuracy, and controlled certificate handling are in a substantially stronger position in SEC proceedings, court litigation, and due diligence transactions.

14) Drafting and formatting tips (practical governance)

• Keep certificate language consistent across issuances.
• Use a standardized numbering and cancellation system.
• Maintain a “Certificate Register” separate from the STB for operational control (while treating the STB as the primary registry).
• Align corporate secretarial practice with accounting entries so paid-up capital, additional paid-in capital, and subscriptions receivable are properly reflected.
• For corporations with shareholder agreements, ensure the certificate legend matches the agreement’s enforceable provisions and references the existence of transfer restrictions.

15) Bottom line

Issuing stock certificates in a Philippine corporation is a controlled legal act—not just printing paper. Valid issuance requires proper authority, lawful consideration, full payment (as the practical and legal baseline), correct form and signing, accurate STB recording, compliance with transfer and restriction regimes, and careful handling of replacements and taxes. When these elements are consistently observed, certificates function as reliable evidence of ownership and a stable foundation for governance, transactions, and investor confidence.