SHARES OF STOCK

STOCK CORPORATION

“Corporations formed or organized under this Code may be stock

or nonstock corporations. Stock corporations are those which have
capital stock divided into shares and are authorized to distribute
to the holders of such shares, dividends, or allotments of the
surplus profits on the basis of the shares held. All other
corporations are nonstock corporations.”
[Sec. 3, RA 11232]
 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. xxx” [Sec. 6, RA 11232]
PREFERENCE IN THE DISTRIBUTION
OF DIVIDENDS

“Preferred shares of stock issued by a corporation

may be given preference in the distribution of
dividends and in the distribution of corporate assets in
case of liquidation, or such other preferences.”[Sec. 6, RA
11232]
METHODS OF ACQUIRING EQUITY
IN A COMPANY

Common Preferred
Buy either Stock Stock
PREFERRED
STOCK
 REASON OF ISSUING PREFERRED
STOCK

To raise funds to finance the expansion projects

or developments of a company without sacrificing
the control over the company.
 ADVANTAGE OF PREFERRED STOCK

Issuing company

Issuing company will retain the general control over the

company.
ADVANTAGES OF PREFERRED STOCK

Investor

Consistent dividends (usually higher compared to

common stock)

More protection against bankruptcy (ahead of

common stocks)
Dividend for preferred stock
is not guaranteed.
 CUMULATIVE PREFERRED STOCK

 Dividends accumulate if they are not paid in any

year.

 Must be paid in future before ahead of common

stock dividend.
 NON-CUMULATIVE PREFERRED STOCK

 If the income is insufficient to pay preferred

stock dividends, the unpaid amount will not be
paid in the future.

 The company has no obligation to pay it

 Rarely issued
 PAR VALUE OF PREFERRED STOCK

 Face value of the preferred stock

 Used to calculate dividend payments
 Not related to trading price of such share
 COST OF PREFERRED STOCK

 Rate of Return required by holders of preferred

stock.

 Formula: Dividend per share / Price per share

COMMON STOCK
 EARNINGS FOR COMMON
STOCKHOLDERS

Net income minus preferred dividends.

 ARTICLES OF INCORPORATION

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