2nd Feb 2015
Philippine law treats shares of stock in a corporation as personal property. Similar to other personalty, the owner of the property can sell, assign, transfer or convey his property to another as he wishes. This is an attribute and principle of ownership which cannot be taken away. However, being in the nature of intangible personal property, the law regulates such kinds of properties, including the manner in which they can be conveyed or transferred.
Section 63 of the Corporation Codeaffirms that the owner of a share of stock in a corporation has the right to transfer his shares. It is the provision that outlines the fundamental requirements which must be complied with if a stockholder in a corporation wishes to transfer his shares to another. Section 63 reads:
“Sec. 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws.Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed 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 showing 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.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.“
Being intangible personalty, the Corporation Code requires that, before a share of capital stock is validly sold, transferred, assigned or in any manner conveyed, it must be covered by a stock certificate. This requirement is borne out of practical considerations. It is a fundamental principle of contract law (be it of sale, assignment or any other conveyance) in the Philippines and probably in any jurisdiction, that the parties to any contract must be aware of the subject matter – what is being sold, transferred or otherwise conveyed. On the other hand, shares of stock in a corporation do not have physical form, unlike ordinary chattel such as goods or vehicles, where a person has a clear notion of what is being sold or conveyed.
The stock certificate is evidence of the personalty owned by the stockholder. It defines the nature and extent of his ownership over the share/s of stock. It also outlines the regulations and limitations of ownership, which must be considered and made known to the parties prior to any conveyance. Obviously, without the stock certificate, these matters would be unknown to a prospective buyer or transferee of shares of stock. Simply stated, the subject matter of the conveyance will not be clear. Therefore, only shares of stock covered by a stock certificate can be subject of a legally demandable and binding sale or disposition.
There may be instances where shares of stock are sold or transferred prior to the issuance of stock certificates. At best, these transactions are only binding between the parties, and will not bind the corporation. As a matter of fact, the corporation can legally refuse to recognize such transfers, especially if the shares which were sold have not yet been fully paid. The last paragraph of Section 63 states that no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. This means that the corporation can altogether refuse to recognize the validity of a sale or transfer of a share of capital stock that has not been fully paid, or which the corporation has a lien. In this case, the purchaser’s only remedy lies with the stockholder.
In the case of De los Santos, et al. vs. MacGrath, et al., G.R. No. L-4818, 28 February 1955, the Supreme Court interpreted the provisions of Section 63 of the Corporation Code. The Supreme Court held that any voluntary transfer of shares of stock in a corporation that is represented by a certificate of stock must strictly comply with the following conditions:
a. There must be delivery of the certificate;
b. The share must be indorsed by the owner or his agent; and
c. To be valid to the corporation and third parties, the transfer must be recorded in the books of the corporation.
One of the requirements to effect a valid transfer of shares of stock is that the certificate of stock must be endorsed by the owner or his agent. Mere delivery or handing over of the stock certificate is insufficient, and does not produce the effects of a transfer or conveyance to another. Endorsement of the stock certificate is one of the operative acts which validates the transfer. Without the act of endorsement by the stockholder, the sale or disposition will not be binding upon the corporation. Of course, there are remedies under the law to compel the owner to endorse the stock certificate which he or she has already conveyed to another. But before endorsement of the stock certificate, the corporation can refuse recognize the transferee stockholder.
Moreover, as between the corporation on one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. Thus, as between the “real” owner of a stock certificate and the registered owner or the person actually registered in the Stock and Transfer Book of a corporation, it is the person registered in the Stock and Transfer Book who must sign or endorse the certificate of stock to allow its sale or transfer.
Further, the Supreme Court in the case of Padgett vs. Babcock & Templeton, Inc., G.R. No. 38684, 21 December 1933, held that shares of corporate stock are regarded as personal property and may be disposed by the owner as he sees fit, unless the corporation is dissolved, or unless the right to do so is properly restricted or the owner’s privilege is hampered by his actions. A corporation cannot impose undue restrictions upon the owner’s right to sell, transfer or otherwise convey his shares of stock.
According to the Supreme Court, a restriction imposed upon a stock certificate, which unduly prohibits the owner from conveying his property, is null and void on the ground that it constitutes and unreasonable limitation of the right of ownership and is in restraint of trade. It was also held that any restriction on a stockholder’s right to dispose of his shares must be construed strictly; and any attempt to restrain a transfer of shares is regarded as being in restraint of trade, in the absence of a valid lien upon its shares, and except to the extent that valid restrictive regulations and agreements exist and are applicable. Subject only to such restrictions, a stockholder cannot be controlled in or restrained from exercising his right to transfer by the corporation or its officers or by other stockholders, even though the sale is to a competitor of the company, or to an insolvent person, or even though a controlling interest is sold to one purchaser.
However, recognizing the right of the corporation to regulate the transfer of shares of stock in a corporation, the Supreme Court stated that there can be restrictive regulations or agreements which can be entered into between the corporation and the stockholder, to regulate ownership of the shares of stock. These regulations or agreements pertain to those indicated in the certificates of stock, and also those that may be found in the By-Laws of the corporation. The Supreme Court emphasized that these regulations are construed strictly against the corporation, and in favor of the ownership rights of the stockholder. An absolute prohibition from selling shares of stock was held as null and void on the ground that it constitutes and unreasonable limitation of the right of ownership and is in restraint of trade.
An example of a invalid restriction upon the right of a stockholder to dispose of a share of stock in a corporation is found in the case of in the case of Fleischer vs. Botica Nolasco Co., 47 Phil 583. In this case, the Supreme Court discussed the validity of a clause in the by-laws of a corporation which prohibited the owner of a stock certificate from selling his shares to any person other than the corporation. The by-laws mandated that the owner of a share of stock could not sell it to another person except to the corporation.
In deciding the legality and validity of said restriction, the Supreme Court ruled that the only restraint imposed by the Corporation Law upon transfer of shares is that no transfer of shares of stock shall be valid, except as between the parties, until the transfer is entered and noted upon 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, and the number of shares transferred. According to the Supreme Court, this restriction is necessary in order that the officers of the corporation may know who its stockholders are, which is essential in conducting elections of officers, in calling meetings of stockholders, and for other purposes.
The Supreme Court declared that any restriction in the by-laws which exceeds what is provided in the Corporation Code is ultra vires, violative of the property rights of shareholders, and in restraint of trade. This is because the by-laws of a corporation cannot contradict the general policy of the laws of the land, and must always be strictly subordinate to Philippine laws.
In Rural Bank of Salinas vs. Court of Appeals, G.R. No. 96674, 26 June 1992, the Supreme Court held that a corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers. The Corporation Code contemplates no restriction as to whom the stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of, or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to dispose them in favor of whomever he pleases, without limitation in this respect, than the general provisions of law. The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the shares intended to be transferred, which was not present in the case.
This is how to transfer shares of stock in the Philippines.
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PandaTip: This is an agreement for the transfer of shares (or stocks). This share transfer agreement template is suitable for the transfer of shares in both private and public companies and can be used in place of a stock transfer form, or in addition to one. This share transfer agreement can also be amended to include any special terms connected with the transfer which would not be possible with a stock transfer form and is suitable for the transfer of shares in more than one company as well as multiple classes of shares.
Share Transfer Agreement Template
This share transfer Agreement (the “Agreement”) sets out the terms and conditions upon which [TRANSFEROR NAME] (the “Transferor”), being a Company duly registered under the laws of [STATE] with registered number [REGISTERED NUMBER] and having its registered address at [REGISTERED ADDRESS], will transfer certain shares held by him to [TRANSFEREE NAME] (the “Transferee”), being a Company duly registered under the laws of [STATE] with registered number [REGISTERED NUMBER] and having its registered address at [REGISTERED ADDRESS] (together, the “Parties”).
PandaTip:If the Transferor or Transferee are natural people (rather than companies) then you should amend the above clause like this: “[TRANSFEROR NAME] (the “Transferor”) holder of [TRANSFEROR ID DOCUMENT] number [TRANSFEROR ID NUMBER] and residing at [TRANSFEROR ADDRESS].”
PandaTip: If the shares being transferred are being sold then the ‘Transferor’ means the seller and the ‘Transferee’ means the buyer.
WHEREAS, the Transferor is the registered proprietor of those shares or stocks set out in Schedule A (the “Shares”).
WHEREAS, the Transferor is desirous of transferring the Shares to the Transferee on such terms as are set out throughout this share transfer Agreement.
WHEREAS, the Transferee for his part is desirous of acquiring the Shares on such terms as are set out in this share transfer Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
1. TRANSFER OF SHARES It is agreed that:
1.1 the Transferor transfers absolutely all title over the Shares to the Transferee in consideration of that amount set out in clause 2.
1.2 the transfer is absolute and includes all rights and obligations connected to the Shares including but not limited to all rights to dividends, capital and voting rights and for avoidance of doubt any dividends which are due but not yet paid will become due and be paid to the Transferee.
1.3 the transfer is effective on the execution of this share transfer Agreement and payment of the amount set out in clause 2.
2. TRANSFER PRICE It is agreed that the Shares shall be transferred for the price of [PRICE].
PandaTip: Add in the cost here. If the shares are being transferred as a gift then you should list 10 USD as the cost. This is because in many states and countries a contract requires some detriment or loss on behalf of both Parties (even though it may be a nominal amount).
3. COST OF TRANSFER It is agreed that the cost of registering the transfer of the Shares (if any) will be borne by the Transferee.
PandaTip: Sometimes companies charge a fee for transferring shares and issuing new share certificates, it is likely to be under 50 USD but you may wish to check this out first. If you wish this cost to be borne by the Transferor or shared between the two Parties then you can amend the above clause.
4. EFFECT OF LACK OF FORMALITY It is agreed that should the envisaged transfer of shares fail to be effective due to a lack of formality (including but not limited to a failure to register the transfer correctly in the registers of the company or due to a refusal by the directors of the company whose Shares are being transferred) then the effect shall be the transfer of all beneficial interest in the Shares to the Transferee by the creation of a trust in favour of the Transferee as beneficiary in which the Shares comprise the subject, and the Transferor is the trustee.
5. WARRANTIES AND INDEMNITIES It is agreed that:
5.1 The Transferor warrants that he is the true owner of the Shares and is absolutely entitled to all of their benefit.
5.2 The Transferor warrants that he is not acting as a nominee or trustee and that no other rights exist in connection with the Shares.
5.3 The Transferor warrants that no charge or other obligation exists over the shares whether or not registered and they are completely unencumbered (excepting any obligation to payment of capital in the case of part paid shares).
5.4 Each Party hereby declares that they have all necessary powers and approvals to enter into this share transfer Agreement.
5.5 Each Party hereby declares that they are not aware of any matter within their control which might have any negative or adverse effect upon the performance of their obligations under this share transfer Agreement.
5.6 The rights, benefits, liabilities and responsibilities contained within the terms of this share transfer Agreement can be assigned by any Party with the prior written agreement of the other Party.
5.7 Any delay or failure to enforce the terms of this share transfer Agreement and any delay to act on a breach of its term by any party does not constitute a waiver of those rights.
5.8 Each Party hereby warrants that they will not do any action which might harm, hinder or negatively affect the duties of the other Party set out within this share transfer Agreement.
5.9 The Parties hereby irrevocably warrant that they accept the exclusive jurisdiction laws and courts of that jurisdiction set out in clause 8 below.
5.10 Except if it is clear from the wording of a clause and with regard to the whole of the share transfer Agreement that a specific clause is intended to mean otherwise than: any words which are in the singular only will be deemed to include the plural (and vice versa) and any words denoted in a specific gender will be deemed to include all genders and any terms which denote any form of person or people shall be deemed to include both legal persons (such as companies) as well as natural person (and vice versa).
5.11 The heading titles contained within in this share transfer Agreement are included as an drafting reference only and for ease of reference, they do not comprise part of the share transfer Agreement.
5.12 This share transfer Agreement may be executed in more than one language by agreement between the Parties and if there arises some conflict between the various translation of this share transfer Agreement then the English version shall prevail.
5.13 In the event that any clause (or any part of any clause) shall be deemed to be illegal or invalid by a competent court or other legal authority then this shall have the effect of invalidity and striking out only that clause (or any part of any clause) only and shall not invalidate this share transfer Agreement in its entirety.
5.14 This share transfer Agreement can be executed either in one original or in more than one counterpart.
5.15 This share transfer Agreement is binding on both Parties by virtue of the conduct of both parties and in spite of any defect or error in the formality of its execution.
5.16 The Transferor hereby irrevocably indemnifies and agrees to keep indemnified and hold harmless the Transferee against any and all losses howsoever caused arising from a breach of the warranties or other terms of this share transfer Agreement.
6. VARIATION This share transfer Agreement may be varied and any variation must be made in writing by both Parties.
7. NOTICES Notices served pursuant to any term of this share transfer Agreement must be served in writing and will be served only if it handed from one Party to another in person or if delivered to the address for service of the Party in question. Notices may only be served and delivered in English.
8. GOVERNING LAW, DISPUTES AND ARBITRATION It is agreed that:
8.1 This share transfer Agreement is made under the exclusive jurisdiction of the laws of [STATE AND COUNTRY].
8.2 Disputes under this share transfer Agreement are subject to the exclusive jurisdiction of the courts of [STATE AND COUNTRY].
8.3 Notwithstanding the terms of 8.2 both Parties agree that in the event of a dispute they will enter into arbitration before the International Chamber of Commerce before a single arbitrator whose decision shall be final.
PandaTip: If you do not wish to include the right to arbitration, or if you wish to choose a different arbitrator then you can amend or remove this clause. Arbitration sometimes serves to demonstrate that in the event of a dispute the Parties must attend a private arbitration hearing and cannot use the threat of legal action to force the other Party’s hand.
IN WITNESS WHEREOF, each of the Parties has executed this share transfer Agreement:
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Schedule A (the Shares)
The following shall comprise the Shares:
PandaTip: This schedule should include all the shares or stocks being transferred under this share transfer agreement. If shares or stocks in more than one company are being transferred they should each have their own row in a table like the one below. You should set out the shares being transferred in as much detail as possible. Try to include the class of shares, the face value of the shares and whether or not they are paid up. We include some examples below:
PandaTip: WARNING! The transfer of partly paid shares (less than 100%) creates an obligation on the transferee and is the same as transferring a debt. In the last example (Acorn Trading) the receipt of these shares would create a 9,000 dollar obligation on the new shareholder.
PandaTip: You may wish to initial the pages in this agreement to ensure that the schedule could not be changed later.
Name and Address of Company
Number of Shares
Class of Shares
Those Securities Numbered
ABC Corporation Inc
123 Main Street
1 USD each
XYZ Holding Corp Ltd
140-150 North Street
1 USD each
20,001 to 30,000
Acorn Trading Inc
1,000 USD each
1 to 10