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Research CAR and Nominal Shares
Research CAR and Nominal Shares
What is a CAR? Mandated by the National Internal Revenue Code (NIRC), the
Certificate Authorizing Registration is a tax clearance document required by the Bureau
of Internal Revenue (BIR). In essence, the CAR states that you have paid in full all of
the taxes incurred in the sale, exchange, or barter of your shares of stock.
The Certificate Authorizing Registration applies to the transfer of shares of stocks that
are not traded on the stock exchange. This certification is required by the BIR to prove
that the transfer of your property was reported and that all necessary taxes were paid in
full.
Anyone planning to sell their shares of stock must secure a CAR before the transfer is
recorded in the books of the domestic corporation. If the seller, whether local or foreign,
is unable to obtain a CAR by the time of the transfer, the activity will not be recognized.
Even if you show receipts as proof of payment, the transfer will still not be recorded by
the corporate secretary.
“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.“
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:
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.
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 codecontemplates 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.
ANSWER
Section 62. Certificate of Stock and Transfer of Shares. - The capital stock of 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 bylaws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner, his
attorney-in-fact, or any 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.
The Commission may require corporations whose securities are traded in trading markets and
which can reasonably demonstrate their capability to do so to issue their securities or shares of
stocks in uncertificated or scripless form in accordance with the rules of the Commission.
Pursuant to BIR RMC No. 37-2012, a CAR is necessary before any transfer of shares of stock
not traded in the Stock Exchange may be transferred in the books of the Corporation. The RMC
did not make a distinction between a nominal share and a non-nominal share.
The Corporation Code makes the qualification, however, that no transfer of shares shall be valid
except as between parties until the transfer has been duly recorded in the books of the
corporation (i.e., stock and transfer book). Thus, until the name of the transferee is recorded, the
corporation is not obliged to recognize the transferee as a stockholder and accord such transferee
the rights of a stockholder, such as notice of stockholders’ meetings and voting rights.
Until a CAR is secured, the transfer cannot be recognized by the corporate secretary even if the
stockholder has already provided the receipts proving payment of the required taxes, which is all
that was previously required by RR No. 06-2008.
Ultimately, it is the transferee who will be prejudiced because although the payment for shares
has been made and there is proof of payment of required taxes, until the CAR can be presented to
the corporate secretary, the corporation will not be bound to accord the transferee the rights of a
stockholder.