Title VII

Question 1

Ways a person may become a stockholder by voluntarily acquiring a share

Answer 1

• By purchase
• By subscription

Question 2

What is a subscription contract

Answer 2

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.

Question 3

Differences of subscription and purchase of a share as to when can it be made

Answer 3

Subscription can be made before or after incorporation while purchase can only be made after incorporation

Question 4

Differences of subscription and purchase of a share, if there is no agreement as to the time of payment

Answer 4

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

Question 5

Differences of subscription and purchase of a share, as to obligation to pay

Answer 5

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

Question 6

Differences of subscription and purchase of a share, as to its application to the Statute of frauds

Answer 6

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

Question 7

How is a subscription contract formed?

Answer 7

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.

Question 8

Why is a subscription contract falls under the concept of quasi-tradition

Answer 8

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

Question 9

Who are the parties in a subscription contract

Answer 9

The subscriber and the corporation itself

Question 10

What is a pre-incorporation contract

Answer 10

is one entered before incorporation

Question 11

What is a post-incorporation contract?

Answer 11

is one entered after incorporation.

Question 12

What is a conditional subscription contract?

Answer 12

is a subscription that does no take effect so as to make the subscriber a stockholder or confer rights until the condition is satisfied.

Question 13

Are stockholders with unpaid subscription liable for the debts of the corporation

Answer 13

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.

Question 14

Is the Trust Fund Doctrine only limited to the unpaid portion of the subscribed capital?

Answer 14

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.

Question 15

What is a subscription of increase of authorized capital,is it covered by the Trust Fund Doctrine?

Answer 15

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.

Question 16

What is Additional Paid-in Capital, Is it covered in the Trust Fund Doctrine?

Answer 16

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.

Question 17

Instances when the Trust Fund Doctrine is violated

Answer 17

-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

Question 18

What is the Trust Fund Doctrine

Answer 18

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.

Question 19

What is unrestricted retained earnings?

Answer 19

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

Question 20

Can you subscribe Treasury shares?

Answer 20

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.

Question 21

Distinguish Capital and Authorized Capital

Answer 21

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.

Question 22

Distinguish Subscribed Capital and Paid-up Capital

Answer 22

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.

Question 23

Cases that the pre-incorporation subscription can be revoked

Answer 23

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

Question 24

Enumerate the considerations for stock

Answer 24

• 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

Question 25

Conditions for consideration of stock

Answer 25

-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

Question 26

Can a subscriber pay using the dividends that will be declared later?

Answer 26

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.

Question 27

What is Watered Stocks

Answer 27

These are stocks issued for a consideration less than the par or issued price thereof

Question 28

What is Deposit on Subscription

Answer 28

Refers to an amount of money received by the corporation as a deposit withe the possibility of applying the same as payment for the future issuance of capital stock.

Question 29

Are unpaid subscribe stock transferable?

Answer 29

No.

No shares of stock against which corporation holds any unpaid claim shall be transferable in the books of the corporation

Question 30

Are subscription agreements transferable?

Answer 30

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.

Question 31

What is a stock certificate

Answer 31

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.

Question 32

Discuss the Principle of Indivisibility of Subscription

Answer 32

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.

Question 33

Remedies for the non-issuance of certificate of stock

Answer 33

• 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

Question 34

Define Watered stocks

Answer 34

Watered stocks are stocks that are issued for a consideration less than the par or issued price thereof

Question 35

Can a call the payment of unpaid subscriptions made only for some subscribers

Answer 35

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

Question 36

When is not necessary to make a call for unpaid subscriptions

Answer 36

• When the date of payment is specified in the subscription
• When the corporation becomes insolvent

Exception: corporation is declared insolvent

Question 37

Can a corporation set-off the unpaid subscription of a corporation employee

Answer 37

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.

Question 38

Define what is a delinquent stock

Answer 38

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 make, all stocks covered by said subscription shall there upon become delinquent

Question 39

When does a stock become delinquent

Answer 39

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.

Question 39

Steps in the Delinquency Sale

Answer 39

• Resolution
• Notice of the sale
• Publication
• Sale
• Transfer

-Credit of Remainder

Question 40

What are the contents of the resolution of the BOD in Delinquency proceedings

Answer 40

• The amount due on each subscription
• all accrued interest
• The date, time and place of the sale

Question 41

How to determine the wining bidder in a delinquency stock public auction

Answer 41

• 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

Question 42

Requirements where the delinquent shareholder can recover the delinquent stock after its sale

Answer 42

• 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

Question 43

What the actions that a shareholder can file

Answer 43

• Derivative actions
• Individual actions
• Representative actions

Question 44

What is a derivative actions

Answer 44

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.

Question 45

What are the requisites to file a derivative action

Answer 45

• 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

Question 46

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

Answer 46

The situation where the transactions continue or are injurious to the stockholder or affect him especially and specifically in some other way

Question 47

What is the Exhaustion of Intra-Corporate Remedies

Answer 47

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.

Question 48

Where does Section 72 apply

Answer 48

It applies only if certificates are lost, stolen or destroyed.

Question 49

Does Section 72 apply on certificates that are worn out

Answer 49

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

Question 50

What is the procedure for issuing new certificate if it is lost or destroyed

Answer 50

• Affidavit
• Verification
• Publication
• One Year Waiting Period
• Contest
• Replacement