The importance of the stock and transfer book and what to do if it’s inaccessible

With Q1 2019 drawing to a close, many corporations are gearing up for their annual stockholders’ meeting. This yearly ritual is not just for corporate compliance, but also for stakeholders to touch base with the people managing their investments.

Before one can hold a stockholders’ meeting, however, one must first send out an invitation to each and every stakeholder. And the best reference for this is the stock and transfer book (STB).

Per Section 74 of the Corporation Code of the Philippines, the STB “contains the records of all stocks in the names of the stockholders alphabetically arranged; the installment paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe.”

But what should happen if the all-important STB becomes inaccessible? Below are just two scenarios and possible steps one can take:

Determining who is a stockholder

Not having a master list of stockholders can make organizing an annual meeting quite problematic. Such was the dilemma faced by Golden Dragon International Terminals, Inc. (GDITI), which prompted its corporate secretary to write the Security and Exchange Commission (SEC) for guidance.

As per the SEC, while the STB is a crucial document as far as recording stock ownership is concerned, it is not a public record. As such, it is not the only way to establish ownership of stock. It stated that “extrinsic records” such as certified/sworn records of copies and even parol (verbal) testimony can be valid.

However, it does offer further guidelines. First, justifiable cause for the inaccessibility of the STB must first be established before extrinsic records can be admitted as duly recognized. Moreover, it advised the corporate secretary to file a court action for it to regain access to the STB.

Proving you are a stockholder

On the flip side, there is the dilemma of proving that you are a stockholder in a company. Without an STB to cross-check your stock ownership with, you may not be invited to the annual stockholders’ meeting. Hence, you will not know the business’s state of affairs or have a say in the way things are run. Lack of proof may also mean that you can be barred from accessing board meeting minutes, financial records, and the like.

Once again, the courts will admit extrinsic evidence to establish ownership. These could be official receipts from your purchase of shares or letters from the corporate secretary, duly noted by the SEC. Likewise, board meeting minutes or resolutions that recognize you as a bona fide shareholder shall also be deemed valid.

In any business, accurate record-keeping is a matter of utmost importance. Unavoidable scenarios such as internal squabbles or disasters can prohibit access to crucial records such as the STB. But as you can see in the scenarios above, not all is lost.

Also, with expert legal counsel at your side, such dilemmas can be handled effectively and efficiently. Should you need expert advice on corporate law, just reach out to Duran & Duran-Schulze Law at (+632) 478 5826 or via email at info@duranschulze.com.