Preferred Shares (Republic Planters Bank x Sample Clauses

Preferred Shares (Republic Planters Bank x. Xxxxx, 269 SCRA 1 [1997]). - Participating and Non-participating - Cumulative and Non-cumulative “Preferred stocks are those which entitle the shareholder to some priority on dividends and asset distribution.” xCommissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152 (1999). “A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of common stock. The preferences are designed to induce persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former is a share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation; the latter is a share the holder of which entitled to receive dividends on said shares to the extent agreed upon before any dividends at all are paid to the holders of common stock. There is no guaranty, however, that the share will receive any dividends. . . Similarly, the present Corporation Code provides that the board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings. The Code, in Section 43, adopting the change made in accounting terminology, substituted the phrase “unrestricted retained earnings,” which may be a more precise term, in place of “surplus profits arising from its business” in the former law. Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter. Dividends are thus payable only when there are profits earned by the corporation and as a general rule, even if there are existing profits, the board of directors has the discretion to determine whether or not dividends are to be declared. Shareholders, both common and preferred, are considered risk takers who invest capital in the business and who can look only to what is left after corporate debts and liabilities are fully paid. xRepublic Planters Bank x. Xxxxx, 269 SCRA 1 (1997).