What Investors should know about buying Hospital Stocks

Wise investment is necessary especially with increasing inflation rate of commodities. Your 100,000 pesos today will definitely be worth less during your old age. Our health is our wealth. We need to invest in our health thru health insurances offered by the different insurance companies, thru health maintenance organization (HMO) or by buying stocks with benefits being offered by the hospitals themselves. We need to invest for our future now while we are still earning money. Reality will be harsh if we become sickly after retirement with no health investments. We should not depend on our children because we do not want to burden them or we will never know the future that lies ahead of them.

Buying hospital stocks seemed to be a very enticing option. With 150,000 to 500,000 pesos investments depending on the hospital- you and your family will have lifetime free board and lodging , discounts and benefits for a duration of least 50 years (life of a corporation) not to mention the dividend and the right to sell your stocks with capital appreciation.

We need to be aware of certain information in order to invest wisely.

Licenses

1. To be a valid corporation, the hospital needs to be registered with the Securities Exchange Commission (SEC for short). Ask a copy of this primary license from the hospital or better by inquiring from SEC. Get a copy of the articles of incorporation (AOI) from SEC in order to know the hospital better.

2. If the hospital is selling to more than 19 investors, it needs a secondary license or certificate of permit to offer securities. The hospital must register their securities/stocks by submitting a registration statement and approved by SEC before stocks can be sold to more than 19 investors. You can ask a copy from the hospital or from SEC. According to section 10k of the Securities Regulation Code (SRC), The following are exempt transactions if “The sale of securities (or stocks) by an issuer to fever than 20 persons in the Philippines during any twelve month period”. This means a secondary license or registration of the securities of stocks is needed if sold to more than 19 investors.

Official Receipt

3. Ask for an official receipt from the hospital if full payment was done or ask a copy of provisional/official receipt/ acknowledgement of your payment/s if payments were made in installments.

Stock Certificate

4. When fully paid, ask a copy of your stock certificate. It does not matter whether the hospital has commenced construction, is ongoing construction or is fully operational. It is the right of the buyer to a stock certificate once fully paid. Do not agree to any substitute because a stock certificate certifies ownership that you bought/owe stock in the hospital.

Stock and Transfer Book

5. Make sure that your name is entered into the Stock and Transfer Book (STB) of the hospital. Every sale made of the stock should be properly recorded in the STB.

According to sec 74 of the Corporation Code “… The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days.”  It is your right as a stockholder to look at the STB anytime during business hours.

According to section 63 of the Corporation Code of the Philippines,  “no transfer, however, shall be valid, except as between the parties, until the transfer is 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.”

In corollary, you can go to the hospital and look at its STB anytime during office hours.

Taxes  and issuance of Certificate Authorizing Registration

6. Make sure that documentary stamp tax (DST) was paid if this is a subscription sale or bought from the original issue of shares (meaning stocks/s were bought directly from the hospital) and make sure that DST tax and capital gain tax (CGT) was paid when you bought hospital stocks from someone else other than the hospital. 

7. The DST represents the tax amount that was paid during the transfer of ownership of the stocks. For original issue of stocks/shares/subscription sale, the documentary tax is P2 for every P200 pesos of par value. For sale /transfer of shares/ stock certificate other than original issue of stocks, the DST is   5 per P200 of par value. For example, if you bought the stock from hospital for a market value P150,000 but the par value is only P15,000 then the DST would be P112.5  (15,000/200 X P1.5). The par value can be seen in the GIS. The DST should be paid within 5 days from the close of the month (meaning every 5^th of the month) when the transfer document was made, signed, issued, accepted or transferred.

8. CGT is the tax on the gain the seller gets from sale, exchange or transfer of stock. The CGT for sale of stocks will be for the first P100,000 is 5% and amount beyond P100,000  is 10%.  For example, the seller bought the stock for P10,000  per 10 share (P1000 per share)  and sold to you at P300,000 (P30,000 per share)   then the capital gain would be P290,000  (P300,000-P10,000 ) . The tax would be 5% for the first P100,000 of P290,000 which is P5,000 plus 10% of P190,000 which is P19,000. The total CGT to be paid is P24,000 ( P5,000 plus P19,000).  Make sure that the CGT is paid within 30 days from sale to avoid penalty such as surcharge and interest.

9. Check with the Bureau of Internal Revenue whether taxes were paid and asked for the Certificate Authorizing Registration (CAR) of the stocks bought.

10. The CAR effect the transfer of stocks from the hospital to the buyer.

11. The CAR certifies that documentary tax, capital gain tax and other taxes had been paid and is now ready to be transferred.

12. A CAR is needed before your name will be entered in the stock and transfer book.

Right to Practice or Benefits or Both

13. When purchasing a hospital stock make sure if what you are buying is the right to practice (if you are a doctor) or benefits (like discounts) given by the hospital, or both. Make sure you have a copy of the contract /deed of sale and copy of the benefits. Enquire as to the type of stock you are buying (preferred, founder, or common) and ask for the privileges in buying said stocks.

Preemptive Rights

14. Once the hospital increases their authorize capital stock, look at their AOI as to how they will grant the preemptive rights. If their AOI is silent then the Corporation Code shall prevail.  According to section 29 of the Corporation Code of the Philippines “all stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto.”

Preemptive right is your right to buy stocks in proportionate to your share to maintain your ownership in the Corporation at par value declared during a stockholders meeting called for the purpose of increasing authorized capital stock.

For example, if the hospital was formed with 100,000 shares and you bought 10 shares  at 30,000 pesos per share (total 300,000 pesos for 10 shares) then you own the hospital by 0.01% (10/100,000).  If the hospital will increase their shares by another 100,000 during a Stockholders’ meeting agreed to be 1000 pesos per share or par value then you will be offered by the hospital another 10 shares of stock only at 1000 pesos/share (total of 10,000 for 10 shares) to maintain your ownership at 0.01% (20/200,000). You can then sell your shares at market value or the selling price (example, the initial P300,000 you bought was the market value)  being offered in the market.

Some Stockholders’ Rights

15. All persons who bought stock prior to the increased in the authorized capital stock either fully paid or paid in installment have preemptive rights. A person becomes a stockholder even on first payment of installment. According to section 72 of the Corporation Code of the Philippines “Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder.” It means that even if you are not yet fully paid, you are entitled to your preemptive rights.

16. Every Corporation is mandated by law need to have annual stockholder meeting whether you are fully paid or still paying in installment. Even stockholders who were not yet fully paid have full voting rights. You should receive an invite. If you do not then enquire from the hospital if you are considered a stockholder or not.

17. As mentioned earlier, the stockholder can examine the stock and transfer book.

Dividends

18. Regarding dividends look at the articles of incorporation if it is guaranteed or not. If not, then section 43 of the Corporation Code shall apply “ The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in case, in property, or in stock to all stockholders on the basis of outstanding stock held by them….. provided, further that no stock dividend shall be issued without the approval of stockholders representing not less than 2/3 of the outstanding capital stock at a regular or special meeting duly called for the purpose”.

The board of directors should declare dividend first before approval by stockholders meeting.  If the board does not want to give dividends then the stockholders cannot do anything although stock corporations are prohibited from retaining surplus profit in excess of 100% of their paid-in capital stock with some exceptions mentioned in the same article.

If dividends are given, the stockholder even on installment is entitled to dividends.

SUMMARY

“In buying hospital stocks, make sure that you have proof of purchase either by official receipt if fully paid and any other proofs if paid on installment.  Once fully paid demand for your stock certificate and better to look at the hospital STB if your name was properly recorded.  You should know your rights.  Demand for your preemptive rights if the hospital increased their authorized capital stock to maintain your ownership and voting rights.  In exercising your preemptive rights, you usually buy stocks at a cheaper price because the par value is usually way below the market value.”

Do not invest in something you do not understand.   Make sure all your rights are met, all your benefits are given as promised.   Before investing, ask information from friends, search the web and read the fine prints of any contract.

Let me share with you some anonymous quotes, “your body will be around a lot longer than that expensive handbag. Invest in yourself”, “do something today that your future self will thank you for” and “invest in yourself or no one else will.”

This post is written by:  Dr. Mary Gertrude Ong-Cordovez.

Mary Gertrude Ong-Cordovez, M.D. is a practicing internist, cardiologist and electrophysiologist in different major hospitals in Cebu.  She is an international registered financial consultant, certified investment solicitor, registered estate planner,   real estate broker and real estate appraiser.

I hope her article enlighten you on how you can better protect yourself from you investments in hospitals.

For your Financial Health,

Read More:

• The 5 Ps in Choosing the Hospital Stocks to Buy in Starting Private Practice
• Rules for Female Doctors: Changing Names after Getting Married
• Are Your Financial Plans and Investments Holistic?
• 6 Secrets of Becoming the RICH DOCTOR Your Friends and Family Think You are

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Pinky De Leon-Intal, MD, RFC

Doc Pinky is a licensed Medical Physician, Internationally Registered Financial Consultant, Certified Investment Solicitor and Associate Wealth Planner and Estate Planner of the Philippines. She loves to educate and spread financial literacy. She is a Lactation Consultant. She loves to travel. She is a devoted wife and mother.

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