From Wikipedia:

In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal
document that certifies ownership of a specific number of shares or stock in a corporation. Historically,
certificates may have been required to evidence entitlement to dividends, with a receipt for the
payment being endorsed on the back; and the original certificate may have been required to be
provided to effect the transfer of the shareholding. Over time, these functions have been rendered
redundant by statutory schemes to streamline the administrative burden on corporations, and to
facilitate and streamline trading on a stock exchange. For example, most jurisdictions now impose an
obligation on corporations to pay dividends to shareholders registered at a relevant point of time
without the need to produce the share certificate as proof of entitlement and the certificate is no longer
required to be produced with a transfer of a shareholding. In some jurisdictions today, the issue of
paper stock certificates may be dispensed with, at least in some circumstances, and many corporations
now provide a holding statement in lieu of a share certificate for each parcel of shares owned.

Most jurisdictions now require corporations to maintain records of ownership or transfers of

From Batas Natin Website:

Why is a stock certificate not negotiable?

Because the holder thereof takes it without prejudice to such rights or defenses as the registered
owners or transferor’s creditor may have under the law, except insofar as such rights or defenses are
subject to the limitations imposed by the principles governing estoppel. (De los Santos v. Republic, G.R.
No. L-4818, Feb. 28, 1955)

What are the requirements for a valid transfer of stock?

1. The certificate of stock must be duly endorsed by the transferor or his legal representative.

2. There must be delivery of the stock certificate.

3. To be valid against third parties, the transfer must be recorded in the books of the corporation. (G.R.
No. 124535, September 28, 2001)

How are shares of stock transferred?

1. If represented by a certificate, the following must be strictly complied with:

a. Indorsement by the owner and his agent

b. Delivery of the certificate

c. To be valid to third parties, the transfer must be recorded in the books of the corporation. (Rural Bank
of Lipa v. CA, G.R. No. 124535, Sept 28, 2001).

2. If not represented by a certificate (such as when the certificate has not yet been issued or where for
some reason is not in the possession of the stockholder).

a. By means of deed of assignment: and

b. Such is duly recorded in the books of the corporation.

What effect does the civil code provision on succession have in the corporation with respect to the
shares of stock registered under the name of the decedent? Is there any exception?
Article 777 of the Civil Code declares that he successional rights are transferred from the moment of
death of the decedent. Accordingly, upon the decedent’s death, the heirs acquired legal right to his
estate (which includes his shareholdings with the corporation), and they are, prior to the estate’s
partition, deemed to be co- owners thereof. This status as co-owners, however, does not immediately
and necessarily make them stockholders of the corporation. Unless and until there is compliance with
Section 63 of the Corporation Code on the manner of transferring shares, the heirs do not become
registered stockholders of the corporation. Section 63 provides:“x x x No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in 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 or certificates, and the number of shares transferred. x x x”

Simply stated, the transfer of title by means of succession, though effective and valid between the
parties involves (i.e., between the decedent’s estate and his heirs), does not bind the corporation and
third parties. The transfer must be registered in the books of the corporation to make the transferee-
heirs a stockholder entitled to recognition as such by both the corporation and by third parties. It is
noted, that in relation with the above statement, that in Abejo vs. Dela Cruz and TCL Sales Corporation
vs. Court of Appeals, it did not require the registration of the transfer before considering the transferee
a stockholder of the corporation. A marked difference, however, exists between these cases and the
present one.

In Abjeo and TCL Sales, the transferee held definite and uncontested titles to a specific number of shares
of the corporation; after the transferee has established prima facie ownership over the shares of stocks
in question, registration became a mere formality in confirming their status as stockholders. In the
present case, each of the decedent’s heirs holds only an undivided interest in the shares. This interest,
at this point, is still inchoate and subject to the outcome of a settlement proceeding; the right of the
heirs to specific, distributive shares of inheritance will not be determined until all the debts of the estate
of the decedent are paid. In short, the heirs are only entitled to what remains after payment of the
decedent’s debts; whether there will be residue remains to be seen.

Justice Jurado aptly puts it as follows: “No succession shall be declared unless and until a liquidation of
the assets and debts left by the decedent shall have been made and all his creditors are fully paid. Until
a final liquidation is made and all the debts are paid, the right of the heirs to inherit remains inchoate.
This is so because under our rules of procedure, liquidation is necessary in order to determine whether
or not the decedent has left any liquid assets which may be transmitted to the heirs.” An heir must,
therefore, hurdle two obstacles before he can be considered a stockholder of the corporation with
respect to the shareholdings originally belonging to the decedent. First, he must prove that there are
shareholdings that will be left to him and his co-heirs, and this can be determined only in a settlement of
the decedent’s estate. Second, he must register the transfer of the share allotted to him to make it
binding against the corporation. He cannot demand that this be done unless and until he has established
his specific allotment (and prima facie ownership) of the shares.

Without the settlement of the decedent’s estate, there can be no definite partition and distribution of
the estate to the heirs. Without the partition and distribution, there can be no registration of the
transfer. And without the registration, we cannot consider the transferee-heir a stockholder who may
invoke the existence of an intra- corporate relationship as premise for an intracorporate controversy
within the jurisdiction of a special commercial court. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744,
August 11, 2008, [Brion, J.])