SEC Opinion 21-03: Deed of Trust and Assignment over Share of Stock

In SEC-OGC Opinion No. 21-03 dated February 18, 2021, the Securities and Exchange Commission (“SEC”) resolved the following issues:

1. Whether a company with nominee shareholder can register in its Stock and Transfer Book (“STB”) and General Information Sheet (“GIS”) the changes in nominee shareholders pursuant to an existing Deed of Trust and Assignment without the need of an actual sale; and
2. Whether there is a need to report to the SEC, through the company’s GIS, the said new nominee director.

Sysmex Philippines, Inc. (“Sysmex”) has five (5) nominee shareholders who also constitute the Board of Directors. One nominee shareholder/director is no longer connected with Sysmex; thus, the latter intends to appoint a new shareholder/director. However, Sysmex is in quandary on whether to execute a Deed of Trust and Assignment or Deed of Absolute Sale to effect such change. 

Since the contemplated transfer of share/s to the new nominee shareholder is for purposes of qualifying the said nominee shareholder to be a member of the Board, and to complete the number of directors composing the same, the SEC cited its previous opinions where it held that:

“For purposes of complying with the statutory minimum number of stockholders/directors, the owner may transfer one (1) qualifying share to each nominee stockholders for purposes of qualifying them to become members of the Board, without giving them the beneficial ownership of the shares. Said transfer would be more of a “trust” and not a transfer of “ownership,” hence, the beneficial interest in such shares will remain with the assignor while the assignee will hold only the legal title to the stock. 

In such case, the transferee should be described in the Deed of Assignment, corporate books and certificate of stock merely as a qualifying shareholder or nominee of the transferor. The fact that the stock standing on the corporate books is in the name of the person only as a qualifying shareholder or that the holder of the stock certificate is described merely as a nominee serves as a notice to the corporation and third parties that the holder thereof does not hold the share in his own right but holds it only as a nominee for the benefit of the real owner.”  [emphasis supplied]

Thus, the SEC opined that Sysmex can validly report in its GIS changes in nominee shareholders pursuant to a validly executed Deed of Trust and Assignment.

With respect to the second issue, the SEC held that Section 25 of the Revised Corporation Code (“RCC”), which categorically mandates the submission of information relating to the election of directors, trustees and officers, is intended to timely apprise the SEC of any relevant changes in the submitted information on file with the latter as they arise. Section 25 of the RCC thus provides:

“Section 25. Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Commission, the names, nationalities, shareholdings, and residence addresses of the directors, trustees, and officers elected. x x x” [Emphasis supplied]

The election or appointment of a new director is a circumstance of Sysmex’s governance structure that needs to be reported to the SEC through its GIS as it involves a material change in the Board’s composition.