RA 11232 - Obligations of Stockholder

Question 1

o Limited liability rule means?

Answer 1

Limited liability rule means that a stockholder is personally liable for the financial obligations of the corporation to the extent only of his unpaid subscription or that a stockholder’s liability for corporate debts extends only up to the amount of his capital contribution.

Question 2

Trust fund doctrine means?

Answer 2

Trust fund doctrine means that assets of the corporations are considered trust fund reserved for payment of liabilities to creditors of the
corporation.

Question 3

Watered stock?

Answer 3

Watered stock is shares in a corporation that are sold at a price higher than the value of the underlying assets

Question 4

Liability for watered stock
▪ Instances of issuance of watered stock:

▪ Issuance of shares without consideration – bonus share.
▪ issuance of shares as fully paid when the corporation has received a lesser sum of money than its par or issued value –
discount share.
▪ Issuance of shares for a consideration other than actual cash such as property or services the fair valuation of which is less than its par or issued price.
▪ Issuance of stock dividend where there are no sufficient retained earnings or surplus to justify it.

Answer 4

Notes only

Question 5

Liability for watered stock

▪ Nature of liability for issuance of watered stocks:

Consenting director/officer, non-objecting director/officer despite knowledge of issuance of watered stock, subscriber, subsequent transferor and transferee shall be solidarily liable for the difference between the fair value received at the time of issuance of stock and the par or issue value of the same.

Answer 5

Notes only