Corporate Control, Pre-emptive Rights, and the Power of the Stockholder’s Book: A Supreme Court Case Insight

Yasser Aureada
Aug 4
2 min read

Case Reference: Lily C. Lopez v. Lolito S. Lopez, et al., G.R. Nos. 254957-58Date Promulgated: April 21, 2025Topic Areas: Corporation Law, Intra-Corporate Disputes, Stockholder Rights, Pre-emptive Rights, Ultra Vires Acts

The Legal Backdrop

In a recent landmark case decided by the Supreme Court, the Court tackled multiple fundamental issues involving corporate governance, shareholder legitimacy, and the legal bounds of issuing shares without board authority.

The case involved a family-owned group of corporations, where conflicting elections and alleged irregularities in issuing shares led to a power struggle within the companies. The central issues revolved around:

The validity of corporate elections;
The recognition of stockholders;
The issuance of unissued shares without board resolution;
And the violation of pre-emptive rights.

Supreme Court Ruling: Key Takeaways

Stock and Transfer Book Trumps the GIS

While the General Information Sheet (GIS) submitted to the SEC may list certain individuals as stockholders, the Court emphasized that the stock and transfer book remains the controlling evidence of ownership. Without entries in this book or stock certificates, one cannot claim legal status as a stockholder.

Pre-Emptive Rights Must Be Respected

The pre-emptive right under Section 39 of the Corporation Code protects existing shareholders from dilution of their ownership. The Supreme Court held that issuing shares to a director without offering them first to a qualified stockholder renders the transaction legally defective.

Unauthorized Share Issuance Is Voidable, Not Void Ab Initio

Issuing unissued shares without board authority is considered an ultra vires act — it is not inherently void, but it is voidable unless ratified by the stockholders. However, in this case, no ratification took place, and the act was found to be invalid.

Valid Quorum Depends on Legally Issued Shares

The Court clarified that only lawfully issued shares may be considered in determining quorum. Shares improperly issued in violation of corporate by-laws and pre-emptive rights cannot be used to justify the legitimacy of an election.

Why This Case Matters for Corporations and Shareholders

This case is a critical reminder of the importance of corporate housekeeping, including:

Maintaining accurate and updated stock and transfer books;
Ensuring board resolutions for share issuances;
Respecting the rights of minority stockholders;
Properly documenting and authorizing transactions to prevent internal disputes.

Failure to comply with corporate formalities may lead to costly litigation and potentially invalid corporate actions.

A Note on the Dissent

Justice Rosario’s dissenting opinion offered a different perspective:

He believed the stockholder status of certain individuals could be upheld based on estoppel and testimony, even absent entries in the stock book.
He also emphasized that the delayed ratification of share issuances should not be excused.

This dissent reflects the gray areas in corporate practice where legal formality and business realities sometimes clash — and why legal guidance is essential.

How We Can Help

At Aureada Law and YRA Consulting Group, we guide corporations in:

Navigating intra-corporate disputes;
Structuring lawful board and shareholder actions;
Ensuring compliance with pre-emptive rights and SEC regulations;
Conducting forensic corporate reviews and legal audits.

Whether you are a majority shareholder seeking to preserve control, or a minority investor safeguarding your rights — we are here to help.

Need legal advice on your corporate governance issues?