A legal article in Philippine context (Revised Corporation Code and related practice)

1) Concept and legal meaning

A stock corporation is a private juridical entity organized under Philippine corporate law whose capital is divided into shares of stock and which is authorized to distribute dividends (profits) to stockholders in proportion to their shareholdings, subject to the law and corporate financial rules.

In practical terms, a corporation is “stock” when it is designed for investment ownership: investors contribute capital, receive shares, and may earn returns through dividends and/or appreciation in share value.

A corporation is non-stock when it does not issue shares and is formed primarily for purposes such as civic, charitable, educational, religious, professional, or similar objectives, with no distribution of profits to members (except limited return of contributions or as allowed by law).

2) Why the distinction matters

Whether a corporation is “stock” affects:

Ownership structure (stockholders vs. members)
Profit distribution rules (dividends vs. no profit distribution)
Governance mechanics (e.g., voting tied to shares; board elections often use cumulative voting)
Capital-raising tools (share subscriptions, share issuances, classes of shares, transfers)
Exit and liquidity (transfer or sale of shares, buybacks, redemption, appraisal rights)

Most business entities organized for profit in the Philippines are stock corporations.

3) Core characteristics of a stock corporation

A. Separate juridical personality

Once registered with the SEC, the corporation becomes a person in law, distinct from its stockholders, directors, and officers. It can own property, enter contracts, sue and be sued.

B. Limited liability (general rule)

Stockholders generally risk only what they invested. Corporate debts are the corporation’s obligations, not the personal obligations of stockholders—unless special grounds exist to hold individuals liable (see “Piercing the corporate veil” below).

C. Capital is divided into shares

Shares represent units of ownership. They may be:

Common (typical voting shares with residual claim on profits/assets)
Preferred (priority as to dividends and/or liquidation, often with limited voting unless law/terms provide)
Voting / Non-voting (subject to statutory limits; even “non-voting” shares may vote on certain fundamental matters)
Par value / No-par value (with rules on issuance price and accounting treatment)
Redeemable (subject to redemption terms)
Treasury shares (previously issued and reacquired by the corporation, held in treasury)
Founders’ shares (may carry special rights within statutory limits)

D. Profit distribution through dividends

Stock corporations may declare cash, property, or stock dividends, but only when permitted by law and when the corporation has the requisite financial basis and proper board/stockholder approvals where required.

E. Transferability of ownership

Ownership is generally transferable by selling or assigning shares, subject to:

statutory requirements (recording transfers, compliance with nationality restrictions, etc.)
lawful restrictions in the articles, bylaws, or a valid stockholders’ agreement (e.g., right of first refusal in close corporations or family corporations)

4) Creation and existence: how a stock corporation is formed

A. Incorporation, not mere agreement

Unlike partnerships, corporations are created by law through SEC registration. Incorporators file Articles of Incorporation (AOI) and other requirements.

B. Minimum number of incorporators and the One Person Corporation option

Under modern Philippine corporate law, a stock corporation can be formed by the usual multi-person route or as a One Person Corporation (OPC) (where a single stockholder forms the corporation), subject to eligibility limitations set by law and regulation. An OPC is still a corporation—separate personality, limited liability, and corporate governance—though governance is simplified.

C. Required constitutional documents

Articles of Incorporation (AOI) – the corporation’s “constitution,” typically stating:
- corporate name
- purpose(s)
- principal office (Philippines)
- term (often perpetual unless stated otherwise)
- incorporators and their subscriptions (for stock corporations)
- authorized capital structure (classes of shares, par/no-par, etc.)
- number of directors
- other lawful provisions (transfer restrictions, arbitration clauses, dispute mechanisms, etc.)
Bylaws – internal rules on meetings, elections, notices, officers, quorum, etc.

D. Corporate term

Philippine corporations generally have perpetual existence unless the AOI provides otherwise.

5) Capital structure: what “capital stock” means (and what it doesn’t)

A. Authorized capital stock vs. subscribed vs. paid-up

Authorized capital stock: the maximum shares the corporation may issue as stated in the AOI (unless it uses a structure allowed by law where “authorized” is not the central framing).
Subscribed capital: shares that investors have committed to take and pay for (by subscription).
Paid-up capital: amount actually paid on subscribed shares.

A frequent misunderstanding is equating “authorized” with “money in the bank.” Authorized shares are not funds; they are the capacity to issue shares.

B. Consideration for shares (what can be accepted)

Shares may be issued for adequate consideration, commonly:

cash
property (tangible or intangible, subject to valuation standards)
services already rendered (subject to rules; future services are typically not valid consideration for share issuance unless allowed under specific frameworks)
debt conversion (subject to accounting and corporate approvals)

Issuing shares without adequate consideration can create serious legal issues: void/voidable issuances, director/officer liability, and disputes over ownership.

C. Par and no-par shares (basic implications)

Par value shares have a stated minimum value; issuance below par is generally prohibited.
No-par shares have no stated par; issuance price is set by the board within legal constraints, and accounting treatment differs.

D. Treasury shares

Treasury shares are issued shares the corporation reacquired. They:

are not considered outstanding for dividend/voting purposes while in treasury
may be reissued under board authority (subject to law and restrictions)

6) Stockholders: rights, powers, and obligations

A. Fundamental rights commonly recognized

Voting rights Stockholders vote on key matters, including:
- election of directors
- approval of certain fundamental corporate acts (e.g., amendments, mergers, dissolution, major asset dispositions) Voting is usually proportional to shares owned. Certain share classes may have limited voting, but the law typically reserves voting on fundamental matters even to “non-voting” shares.
Dividend rights Stockholders may receive dividends when declared. Dividends are not automatic; they require corporate action and legal/financial basis.
Pre-emptive right (general principle, subject to exceptions) Stockholders may have the right to subscribe to new issuances to maintain percentage ownership, unless validly denied or limited in the AOI and subject to statutory exceptions.
Appraisal right In certain major corporate actions, dissenting stockholders may demand the corporation buy back their shares at fair value under the legal process.
Right to inspect corporate books and records Stockholders generally may inspect corporate records during reasonable hours for a legitimate purpose, subject to lawful limitations and confidentiality protections.
Right to information and notice Proper notice of meetings and access to agenda/materials as required by law and bylaws.

B. Obligations

Pay subscription obligations (and comply with calls on unpaid subscriptions)
Observe lawful transfer requirements and nationality restrictions
Act in good faith when exercising rights (e.g., inspection cannot be used to improperly harm the corporation)

C. Delinquency and remedies

If a subscriber fails to pay amounts due, shares may become delinquent after due process. The corporation may sell delinquent shares at public auction (or as allowed) to satisfy unpaid obligations, following statutory procedures.

7) Governance: board of directors, officers, and fiduciary duties

A. Board-centered management

A stock corporation is generally managed by a board of directors elected by stockholders. The board exercises corporate powers, sets policy, and oversees management.

B. Election of directors and cumulative voting

In stock corporations, cumulative voting is a key protective mechanism for minority shareholders in director elections: it allows a stockholder to allocate votes in a way that can help elect at least one representative, depending on ownership percentages.

C. Corporate officers

Officers (e.g., President, Treasurer, Corporate Secretary, and others required by bylaws) handle day-to-day operations as delegated by the board. Certain positions have legal qualifications and restrictions (especially the Corporate Secretary and Treasurer).

D. Fiduciary duties and standards of conduct

Directors and officers generally owe duties of:

obedience (act within corporate powers and purposes)
diligence/care (act with due care; informed decision-making)
loyalty (avoid conflicts; prioritize corporate interest)

Transactions involving conflicts of interest may be voidable unless properly disclosed and approved under legal standards and fairness tests.

E. Derivative suits and minority protection

When the corporation is harmed and those in control refuse to act, stockholders may bring derivative actions in the corporation’s name, subject to procedural and substantive requirements.

8) Shares and transfers: how ownership changes hands

A. Evidence of ownership

Ownership is evidenced by:

share certificates (if issued) and
the corporation’s Stock and Transfer Book (STB) (critical for recognition against the corporation)

The corporation typically recognizes transfers only when recorded in the STB.

B. Transfer restrictions

Restrictions must be lawful and usually must be:

in the AOI/bylaws and/or
printed on the certificate (if certificated) Common examples: right of first refusal, board consent requirements (must be reasonable), and restrictions in close corporations.

C. Nationality and constitutional/statutory limits

In regulated or partially nationalized activities (e.g., certain public utilities, natural resources, mass media, land ownership rules, etc.), share transfers must comply with foreign ownership limits and beneficial ownership rules. Corporations often implement compliance measures like nationality attestations and transfer vetting.

9) Corporate finance rules: dividends, retained earnings, and trust fund concept

A. Dividends require proper declaration and legal availability

Dividends generally require:

board declaration (and in some cases stockholder concurrence for stock dividends or other matters)
that the corporation has unrestricted retained earnings or other lawful basis

B. “Trust fund doctrine” (classic corporate finance principle)

Corporate capital is often treated as a fund held for the protection of corporate creditors. This underpins rules limiting return of capital to stockholders and regulating distributions.

C. Share buybacks, redemptions, and distributions

A corporation may reacquire shares (creating treasury shares) or redeem shares, but it must comply with statutory limits, solvency/financial tests, and required approvals.

10) Major corporate acts requiring stockholder approval

Stockholders typically vote on “fundamental changes,” commonly including:

amendments to AOI
merger or consolidation
sale or disposition of all or substantially all assets
investment in another business or purpose changes (depending on structure)
dissolution
increase/decrease of capital stock and other capital restructuring (depending on the exact act)

The precise voting thresholds depend on the action and the governing law/bylaws.

11) Liability exceptions: when stockholders, directors, or officers may be personally liable

A. Piercing the corporate veil

Courts may disregard separate personality when the corporation is used to:

defeat public convenience
justify wrong
protect fraud
defend crime or when it is a mere alter ego or instrumentality and inequity would result.

B. Statutory and special liabilities

Directors/officers may incur liability for:

unlawful distributions
self-dealing without compliance
gross negligence or bad faith
violations of specific laws (tax, labor, environmental, securities, anti-dummy, anti-money laundering, etc.)

Stockholders may be liable beyond investment in special cases (e.g., unpaid subscriptions, or when veil-piercing applies).

12) Tax and regulatory overlay (Philippine practice notes)

A stock corporation typically encounters:

BIR registration, income tax, withholding taxes, and local business taxes
SEC reportorial requirements (annual filings, GIS, audited financial statements when required)
Special licensing depending on industry (BSP, IC, DOE, LTFRB/CAAP/MARINA, PEZA/BOI, etc.)
Securities regulation if it becomes a publicly listed or public company issuing securities to the public (prospectus, disclosure, corporate governance rules)

13) Types of stock corporations in practice

A. Closely held / family corporations

Few stockholders, restrictions on transfer, governance often driven by shareholder agreements.

B. Close corporations (special framework)

A “close corporation” (as defined by law) generally has a small number of shareholders and restrictions on share transfers; governance can be tailored more tightly and sometimes differs from ordinary stock corporations.

C. Listed/public companies

Subject to heightened disclosure, corporate governance, and securities compliance.

D. One Person Corporation (OPC)

Single stockholder; simplified governance, but still must follow corporate separateness and reportorial obligations.

14) Common misconceptions (quick clarifiers)

“Authorized capital = cash.” No—authorized shares are capacity, not funds.
“Dividends are guaranteed.” No—dividends require declaration and legal availability.
“Non-voting shares can never vote.” Even non-voting shares often vote on fundamental matters.
“A corporation shields all personal liability.” Usually yes, but not against fraud, bad faith, statutory violations, or veil-piercing scenarios.
“Shares can be transferred informally and the corporation must honor it.” The corporation generally honors transfers upon compliance and recording in the Stock and Transfer Book.

15) A concise definition to remember

A stock corporation in the Philippines is a corporation organized for profit with capital divided into shares, where investors become stockholders, enjoy ownership and voting rights based on shares, and may receive dividends when lawfully declared—while the corporation remains a separate legal person managed primarily by a board of directors under statutory governance and creditor-protection rules.

If you want, I can also add (1) a sample capital structure section for Articles of Incorporation, (2) a practical checklist for forming a stock corporation with SEC filings, or (3) a short comparison chart: stock vs. non-stock vs. OPC.