What You Need to Know About Transferring Shares of Stock

What can you do with shares of stock in a corporation? Shares of stock that were not traded in the Philippine Stock Exchange are considered personal property under Philippine law. This grants you plenty of freedom regarding what you can do with your shares; you can sell, gift, transfer, or assign them to someone else as you please. This is affirmed by Section 63 of the Revised Corporation Code.

There are many different ways you can relinquish your hold on your shares, whether you wish to sell them or give them away. However, the process of transferring them from one person to another stays relatively the same. Here is what you need to know about transferring shares. 

What is a stock certificate? 

Since a share of capital stock is an intangible personalty (meaning it does not have a physical form), the parties involved in the transfer might not have a clear idea of what is being transferred. This is in contrast to personalty with a physical form, such as tangible goods. To solve this, you must ensure that the parties are aware of what is being conveyed. This is achievable with a stock certificate. 

A stock certificate represents a shareholder’s shares of stock. It dictates the number of shares owned by the shareholder, an identification number, date of purchase, and signatures to verify its legitimacy. Stock certificates can be kept online, but you can also request a physical copy.

How do you transfer shares?

1. Gather the necessary documents. You’ll need to secure a stock certificate, as well as a Certificate Authorizing Registration or CAR. The CAR is required by the BIR for stocks that were not traded in the stock exchange. You’ll also need proof of acquisition of the shares. 
2. Get an endorsement of the share. Getting an endorsement validates the transfer of said share. The share can be endorsed by either the shareholder or his/her attorney-in-fact. Ensure to complete this step before delivering the stock certificate to the receiver, as the transfer will not be valid otherwise.
3. Deliver the stock certificate with a Deed showing the proof of transfer. Delivering the stock certificate transfers the ownership of the shares to the person of choice. Your proof of transfer will be in accordance with the method in which you transferred the share to the receiver. For example, selling the share requires you to execute a Deed of Sale, while donating the share will require you to execute a Deed of Donation instead.

What taxes should one keep in mind when transferring shares?

There are certain taxes that must be paid by either the giver or the receiver when transferring shares of stock, regardless of the method of transfer (through selling, gifting, exchanging, etc.). The transfer of shares of stock in a Philippine corporation is subject to the following:

• Capital Gains Tax. This is paid by the individual giving away the share. It is imposed on any earnings the giver may have made from the exchange. If the share was given as a gift, the gifter will still have to pay this tax if said share increased in value while it was under the gifter’s ownership. The rate for non-resident foreign corporations is 5% for the first Php100,000 of net gain, and 10% on amounts exceeding Php100,000. Meanwhile, the rate for resident individuals and domestic corporations is 15% of net gain.
• Documentary Stamp Tax. This is a tax imposed on any documents evidencing the transfer of shares. Its rate is Php1.50 per Php200 of the par value of the shares of stock.
• Donor’s Tax. This tax only applies if the transfer was a donation or gift. Its rate is 6% computed on the basis of the total gifts exceeding P250,000 yearly.

What are the requirements of a valid transfer of shares?

A transfer of shares will only be acknowledged if it has fulfilled the following requirements, depending on whether the shares of stocks are represented by a stock certificate or not.

If the shares are represented by a stock certificate, you must comply with the following requirements:

1. There must be a delivery of the stock certificates;
2. The stock certificate must be endorsed by either the initial owner of the stocks or his/her agent; and
3. The transfer must be 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.

On the other hand, a transfer of shares can still be acknowledged in situations without a stock certificate, such as when a certificate has not yet been issued or if the certificate is not in the possession of the stockholder. In that case, the shares of stock may still be transferred as follows: 

1. By means of a deed of assignment; and 
2. Is duly recorded in the books of the corporation.