BUSINESS LAW REVIEWER
What are the distinctions between shares of stock and certificate of stock?
Stocks are financial securities that represent part-ownership in one or more companies. Upon
buying a company’s stock, you become a shareholder of that company. The stock certificate
serves as proof of ownership and mentions the number of stocks you hold. You can buy stocks
of a single company or several companies. While share is the smallest denomination of a
company’s stock. So, each unit of stock is a share, and each share of stock is equal to a piece
of the company’s ownership.
Classification of Shares
The classification of shares, their corresponding rights, privileges, or restrictions,
and their stated par value, if any, must be indicated in the articles of
incorporation. Each share shall be equal in all respects to every other share,
except as otherwise provided in the articles of incorporation and in the certificate
of stock. These are the relevant provisions in the Revised Corporation
Code (Republic Act No. 11232).
COMMON SHARES- Common shares are issued to business owners and other
investors as proof of the money they have paid into a company. Of all
shareholders, common shareholders have the least claim on a company’s
assets.
NON-VOTING SHARES- Non-voting shares do not give the holder any voting
rights in the company. This means that the holder is entitled to a portion of the
company’s capital, but is not able to take part in its general meetings. Non-voting
shares are mostly issued to employees or to family members of the main
shareholders. This class of shares allows the main shareholders to retain control
of the company whilst multiplying the number of shareholders.
Redeemable shares - are shares that can be bought back by the company at
some point in the future. The redemption date can either be fixed in advance (eg
3 years from the date the share is issued) or decided at the company's discretion.
, The redemption price is usually the same as the issue price, but not necessarily.
Shares given to employees are often redeemable, so that the company can get
its shares back if the employee leaves. However, the ability to redeem shares is
limited and is subject to specific statutory requirements. For instance, the
company may only redeem the shares out of accumulated profits or the proceeds
of a new issue of shares.
TREASURY SHARES- are shares of stock which have been issued and fully
paid for, but subsequently reacquired by the issuing corporation through
purchase, redemption, donation, or some other lawful means. Such shares may
again be disposed of for a reasonable price fixed by the board of directors.
PREFERRED SHARES- Preference shares, more commonly referred
to as preferred stock, are shares of a company’s stock with dividends
that are paid out to shareholders before common stock dividends are
issued. If the company enters bankruptcy, preferred stockholders are
entitled to be paid from company assets before common stockholders.
TYPES OF PREFERRED SHARES
Callable shares are preferred shares that the issuing company can
choose to buy back at a fixed price in the future. This stipulation
benefits the issuing company more than the shareholder because it
essentially enables the company to put a cap on the value of the stock.
Convertible shares are preferred shares that can be exchanged for
common shares at a fixed rate. T his can be especially lucrative for
preferred shareholders if the market value of common shares
increases.
Cumulative Preferred Shares
Preference shares that include a cumulative clause protect the investor against a
downturn in company profits. If revenues are down, the issuing company may not be
able to afford to pay dividends. Cumulative shares require that any unpaid
What are the distinctions between shares of stock and certificate of stock?
Stocks are financial securities that represent part-ownership in one or more companies. Upon
buying a company’s stock, you become a shareholder of that company. The stock certificate
serves as proof of ownership and mentions the number of stocks you hold. You can buy stocks
of a single company or several companies. While share is the smallest denomination of a
company’s stock. So, each unit of stock is a share, and each share of stock is equal to a piece
of the company’s ownership.
Classification of Shares
The classification of shares, their corresponding rights, privileges, or restrictions,
and their stated par value, if any, must be indicated in the articles of
incorporation. Each share shall be equal in all respects to every other share,
except as otherwise provided in the articles of incorporation and in the certificate
of stock. These are the relevant provisions in the Revised Corporation
Code (Republic Act No. 11232).
COMMON SHARES- Common shares are issued to business owners and other
investors as proof of the money they have paid into a company. Of all
shareholders, common shareholders have the least claim on a company’s
assets.
NON-VOTING SHARES- Non-voting shares do not give the holder any voting
rights in the company. This means that the holder is entitled to a portion of the
company’s capital, but is not able to take part in its general meetings. Non-voting
shares are mostly issued to employees or to family members of the main
shareholders. This class of shares allows the main shareholders to retain control
of the company whilst multiplying the number of shareholders.
Redeemable shares - are shares that can be bought back by the company at
some point in the future. The redemption date can either be fixed in advance (eg
3 years from the date the share is issued) or decided at the company's discretion.
, The redemption price is usually the same as the issue price, but not necessarily.
Shares given to employees are often redeemable, so that the company can get
its shares back if the employee leaves. However, the ability to redeem shares is
limited and is subject to specific statutory requirements. For instance, the
company may only redeem the shares out of accumulated profits or the proceeds
of a new issue of shares.
TREASURY SHARES- are shares of stock which have been issued and fully
paid for, but subsequently reacquired by the issuing corporation through
purchase, redemption, donation, or some other lawful means. Such shares may
again be disposed of for a reasonable price fixed by the board of directors.
PREFERRED SHARES- Preference shares, more commonly referred
to as preferred stock, are shares of a company’s stock with dividends
that are paid out to shareholders before common stock dividends are
issued. If the company enters bankruptcy, preferred stockholders are
entitled to be paid from company assets before common stockholders.
TYPES OF PREFERRED SHARES
Callable shares are preferred shares that the issuing company can
choose to buy back at a fixed price in the future. This stipulation
benefits the issuing company more than the shareholder because it
essentially enables the company to put a cap on the value of the stock.
Convertible shares are preferred shares that can be exchanged for
common shares at a fixed rate. T his can be especially lucrative for
preferred shareholders if the market value of common shares
increases.
Cumulative Preferred Shares
Preference shares that include a cumulative clause protect the investor against a
downturn in company profits. If revenues are down, the issuing company may not be
able to afford to pay dividends. Cumulative shares require that any unpaid
