Title VII Flashcards
Ways a person may become a stockholder by voluntarily acquiring a share
- By purchase
- By subscription
What is a subscription contract
A subscription contract is defined as a contract by which the subscriber agrees to take a certain number of shares in the capital stock of a corporation, paying the consideration therefor or expressly or impliedly promising to pay for the same.
Differences of subscription and purchase of a share as to when can it be made
Subscription can be made before or after incorporation while purchase can only be made after incorporation
Differences of subscription and purchase of a share, if there is no agreement as to the time of payment
A subscription agreement need not to pay unless there is a call while sale is reciprocal and the purchaser under a deed of absolute assignment or sale must fully pay the purchase price at the time the shares are transferred
Differences of subscription and purchase of a share, as to obligation to pay
The subscriber cannot be released from his obligation to pay the subscription price, while a stockholder who sells his shares can condone the obligation of the purchaser to pay
Differences of subscription and purchase of a share, as to its application to the Statute of frauds
The Statute of Frauds does not apply to subscription contracts while the same applies to the purchase of a share if the price is not less than 500 Php
How is a subscription contract formed?
A subscription contract is perfected by an offer by one of the parties, the corporation or the subscriber, as the case may be, and an acceptance of this offer by the other.
Why is a subscription contract falls under the concept of quasi-tradition
The subscriber’s right as a vendee is exercised or used the moment the contract accrues or is assumed the moment the subscription contract takes effect or is assumed the moment the subscription contract takes effect or the moment the Certification of Incorporation is issued. It is also for this reason that the subscription contract cannot be deemed covered by the Statute of Frauds because the contract is always partially executed with the acquisition of ownership
Who are the parties in a subscription contract
The subscriber and the corporation itself
What is a pre-incorporation contract
is one entered before incorporation
What is a post-incorporation contract?
is one entered after incorporation.
What is a conditional subscription contract?
is a subscription that does no take effect so as to make the subscriber a stockholder or confer rights until the condition is satisfied.
Are stockholders with unpaid subscription liable for the debts of the corporation
Under the Trust Fund Doctrine, the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. The corporation may no dissipate this and the creditors may sue stockholders directly for their unpaid subscription.
Is the Trust Fund Doctrine only limited to the unpaid portion of the subscribed capital?
It is not limited to the unpaid portion of the subscribed capital if the corporation is insolvent or if it cannot otherwise pay its obligation. The capital stock, property and other assets of the corporation are regarded as equity in trust for the payment of the corporation creditors.
What is a subscription of increase of authorized capital,is it covered by the Trust Fund Doctrine?
A subscription of increase of authorized capital is a commitment by an investor to purchase a company’s shares at a future date, it is not covered in the Trust Fund Doctrine.
What is Additional Paid-in Capital, Is it covered in the Trust Fund Doctrine?
APIC is the amount of money that stockholders contribute to a company in excess of the par value of the shares. It can also be referred to as a premium paid over the par value, APIC falls within the purview of the Trust Fund Doctrine because it forms a part of the equity emanating from the original subscription agreement.
Instances when the Trust Fund Doctrine is violated
-When the corporation releases or condones payment of the unpaid subscription and the stockholder has no right to demand the refund of his investment.
-When there is payment of dividends without unrestricted retained earnings
-When properties are transferred in fraud of creditors
-When properties are disposed or undue preferences is given to some creditors even if the corporation is insolvent
-When the Capital stock is decreased which has the effect of relieving the stockholders of the obligation to pay respective subscription
What is the Trust Fund Doctrine
The trust fund doctrine is a legal principle that protects a corporation’s creditors by ensuring that corporate assets are held in trust for their benefit.
What is unrestricted retained earnings?
According to the Securities and Exchange Commission (SEC), unrestricted retained earnings are the profits and gains a corporation has accumulated after deducting distributions to stockholders and transfers to other accounts
Can you subscribe Treasury shares?
No, Treasury shares are not subject to subscription contracts because Section 59 of the RCCP covers only acquisition of unissued shares. However, when treasury shares are re-issued, the shareholders are entitled to exercise their preemptive right.
Distinguish Capital and Authorized Capital
Capital includes all properties and assets of the corporation that are used for its business or operation while Authorize Capital is the amount fixed in the articles of incorporation.
Distinguish Subscribed Capital and Paid-up Capital
The former is the portion of the authorized capital stock that is covered by subscription agreements whether fully paid of not while the latter is the portion of the authorized capital stock that has been subscribed and actually paid.
Cases that the pre-incorporation subscription can be revoked
If all other subscribers consent to the revocation before the expiration of the six-month period
Upon the expiration of the six-month period but before the filing of the articles with the SEC
Enumerate the considerations for stock
- Actual cash paid to the corporation
- Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued
- Labor performed for or services actually rendered to the corporation
- Previously incurred indebtedness of the corporation
- Amounts transferred from unrestricted retained earning to stated capital
- Outstanding shares exchanged for stocks in the event of reclassification or conversion
- Shares of stock in another corporation
- Other generally accepted form of consideration
Conditions for consideration of stock
-Stocks shall no be issued for a consideration less than the par or issued value
- Shares of stock shall not be issued in exchange for promissory notes or future services
-Where the consideration is property, whether tangible or intangible, such as patents or copyrights, the valuation thereof shall initially be determined by the stockholders or the board of directors, subject toe the approval by the SEC
Can a subscriber pay using the dividends that will be declared later?
No, It is settled that a corporation has no power to receive a subscription upon such terms as will operate as a fraud upon the other subscribers by subjecting the particular subscriber to lighter burdens or by giving him greater rights and privilegs.
What is Watered Stocks
These are stocks issued for a consideration less than the par or issued price thereof
What is Deposit on Subscription
Refers to an amount of money received by the corporation as a deposit with the possibility of applying the same as payment for the future issuance of capital stock.
Are unpaid subscribe stock transferable?
No.
No shares of stock against which corporation holds any unpaid claim shall be transferable in the books of the corporation
Are subscription agreements transferable?
The Supreme Court ruled that the assignment of the subscription agreements is a form of novation by substitution of a debtor which requires the consent or notice to the creditor.
What is a stock certificate
It is defined as a written instrument signed by the proper officer of a corporation stating and acknowledging that the person named in the document is the owner of a designated number of shares of its stock.
It is the evidence of a holder’s interest and status in a corporation.
Discuss the Principle of Indivisibility of Subscription
The doctrine states that a subscription is one, entire and indivisible whole contract. It cannot be divided into portions, the stockholder shall not be entitled to a certificate of stock until he has remitted the full payment of his subscription together with any interests and expensed, if any is due.
Remedies for the non-issuance of certificate of stock
- Action for specific performance
- Action for damages if specific performance is not available
- Petition of mandamus for the issuance of the certificate
- Recission of the subscription agreement with the consequent mutual restitution
Define Watered stocks
Watered stocks are stocks that are issued for a consideration less than the par or issued price thereof
Can a call the payment of unpaid subscriptions made only for some subscribers
A call cannot be made on only some of the subscribers. It cannot likewise make some of the subscribers pay a higher rate than others because calls must operate uniformly upon all subscribers and cannot be oppressive and discriminatory
When is not necessary to make a call for unpaid subscriptions
- When the date of payment is specified in the subscription
- When the corporation becomes insolvent
Exception: corporation is declared insolvent
Can a corporation set-off the unpaid subscription of a corporation employee
No, a corporation cannot set-off the unpaid subscription with the corporation’s employee. A call is still necessary to make the unpaid subscription due and demandable.
Define what is a delinquent stock
Section 66 of the RCCP provides that if within 30 days from the date fixed in the subscription contract or in the call, no payment is made, all stocks covered by said subscription shall there upon become delinquent
When does a stock become delinquent
The stock becomes delinquent if the unpaid subscription has not been paid within 30 days from the date fixed in the subscription contract or in the call.
Steps in the Delinquency Sale
- Resolution
- Notice of the sale
- Publication
- Sale
- Transfer
-Credit of Remainder
What are the contents of the resolution of the BOD in Delinquency proceedings
- The amount due on each subscription
- all accrued interest
- The date, time and place of the sale
How to determine the wining bidder in a delinquency stock public auction
It is determined who offers the full amount of the balance on the subscription together with accrued interest, costs of advertisement, and expenses of sale for the smallest number of shares or fraction of sale
Requirements where the delinquent shareholder can recover the delinquent stock after its sale
- There is irregularity and defect in the notice of sale or the sale itself
- The party seeking to maintain such action first pays or tenders to the party holding the stock the sum for which the same was sold, with interest from the date of sale at the legal rate
- The complaint was filed within six months from the date of sale
What the actions that a shareholder can file
- Derivative actions
- Individual actions
- Representative actions
What is a derivative actions
These are suits brought by one or more stockholders/ members in the name and on behalf of a corporation to redress wrongs committed against it, or to protect or vindicate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued, or have control of the corporation.
What are the requisites to file a derivative action
- He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed
- He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by laws, laws or rules governing the corporation or partnership to obtain the relief he desires
- No appraisal rights are available for the acts or acts complained of
- The suit is not a nuisance or harassment suit
- The actions is filed in the name of the corporation
What is the exception of “the person who will file the case must be a shareholder at the time the transaction was entered into” in filing a derivative action
The situation where the transactions continue or are injurious to the stockholder or affect him especially and specifically in some other way
What is the Exhaustion of Intra-Corporate Remedies
It States that a stockholder may sue on behalf of the corporation, he must allege with some particularity in his complaint that he has exhausted his remedies within the corporation by making a sufficient demand upon the directors or other officers for appropriate relief with the expressed intent to sue if relief is denied.
Where does Section 72 apply
It applies only if certificates are lost, stolen or destroyed.
Does Section 72 apply on certificates that are worn out
No. Section 72 will not apply and it is up to the corporation to decide if it will replace the certificate. The provision is also not applicable if the certificate was never issued to the shareholder because if was not delivered by the corporation. Section 72 does not apply if it is the corporation itself that loses the certificates before delivery
What is the procedure for issuing new certificate if it is lost or destroyed
- Affidavit
- Verification
- Publication
- One Year Waiting Period
- Contest
- Replacement
