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Stocks and Stockholders

Voluntary acquisition of shares can occur through purchase or subscription. A subscription contract is an agreement to acquire unissued stock, whether in an existing or future corporation. Purchase occurs after incorporation when the full price is paid upfront, while subscription can occur before or after incorporation and does not require immediate full payment. Stock options grant the right to subscribe to unissued stock within a specified period, while warrants entitle holders to purchase already issued shares in the future. The trust fund doctrine treats subscribed capital as a trust for creditors, who can sue shareholders directly for unpaid subscriptions when the corporation cannot pay debts. Instances where this is violated include releasing unpaid subscriptions or paying dividends without retained earnings. For a derivative suit

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369 views4 pages

Stocks and Stockholders

Voluntary acquisition of shares can occur through purchase or subscription. A subscription contract is an agreement to acquire unissued stock, whether in an existing or future corporation. Purchase occurs after incorporation when the full price is paid upfront, while subscription can occur before or after incorporation and does not require immediate full payment. Stock options grant the right to subscribe to unissued stock within a specified period, while warrants entitle holders to purchase already issued shares in the future. The trust fund doctrine treats subscribed capital as a trust for creditors, who can sue shareholders directly for unpaid subscriptions when the corporation cannot pay debts. Instances where this is violated include releasing unpaid subscriptions or paying dividends without retained earnings. For a derivative suit

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Voluntary acquisition of shares

1. Purchase
2. Subscription

Subscription contract – Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed. Notwithstanding the fact that the parties refer to it as a purchase or some
other contract.

Purchase Subscription
After incorporation Before or After
Must fully pay the purchase price at the time the Need not pay unless there is a call
share is transferred
The obligation to pay can be condoned Subscriber cannot be released from his obligation
Statutes of frauds cannot be applied only if the SOF cannot apply to Subscription
price is less 500.00

 As a rule, only persons whose ownership is registered in the stock and transfer books are
considered stockholders of record.
 The rights of a shareholder accrue only upon entry of his name in the books of the corporation.

Stock Options and Warrants

1. A stock option is a privilege granted to a party to subscribe to a certain portion of the unissued
capital stock of a corporation within a specified period under the terms and conditions of the
grant, exercisable by the grantee at any time within the period granted.
2. A warrant is a type of security which entitles the holder of a stock corporation or to purchase
issued shares in the future evidenced by a warrant certificate, whether detachable or not,
which may be sold or offered for sale to the public but does not apply to a right granted under
an option plan duly approved by the SEC for the benefit of the employees, officers and/or
directors of the issuing corporation.
The period to subscribe is not less than 1 year but not more 5 years.
 Subscription need not be in writing.

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
not dissipate this, and the creditors may sue the stockholders directly for the unpaid subscription.

 Not limited to the unpaid portion of the subscribed capital if the corporation is insolvent or if it
cannot otherwise pay its obligation.

Instances where the Trust Fund Doctrine is violated

1. When the corporation releases or condones payment of the unpaid subscription and the
stockholder has no right to demand the refund of his investment.
2. When there is payment of dividends without unrestricted retained earnings
3. When properties are transferred to defraud creditors.
4. When the properties are disposed, or undue preference is given to some creditors even if the
corporation is insolvent.
5. When the capital stock is decreased which the has the effect of relieving the stockholders of the
obligation to pay their respective subscription.

Release of a stockholders

1. If supported by a consideration
2. Unanimous consent of stockholders and creditors

Pre-incorporation Subscription

 Shall be irrevocable for a period of at least six (6) months from the date of subscription, unless
all of the other subscribers consent to the revocation, or the corporation fails to incorporate
within the same period or within a longer period stipulated in the contract of subscription.
 No pre-incorporation contract subscription shall be revoked after the articles of incorporation is
submitted to the commission.

Consideration for stocks

Stocks shall not be issued for a consideration less than par or issued price thereof.

1. Actual cash paid to the corporation


2. Property, intangible or tangible, actually received by the corporation and necessary or
convenient for its use and lawful purpose at a fair valuation equal to the par or issued price of
the stock. (value shall be determined by the stockholders and board of directors, subject to the
approval of the SEC)
3. Labor performed for or services actually rendered for the corporation
4. Previously incurred indebtedness of the corporation
5. Amounts transferred from the unrestricted retained earnings to stated capital
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion
7. Shares of stock in another corporation
8. Other generally accepted form of consideration

Certificate of Stock

The capital stock of corporations shall be divided into shares for which certificate signed by the
president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the
corporation seal, shall be issued in accordance with the bylaws.

 It is a personal property and may be transferred by delivery of the certificate or certificates


indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make
transfer.
 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 shares transferred.
 No shares of stocks against which corporation holds any unpaid claim shall be transferrable in
the books of the corporation.

Street Certificate

When a stock certificate is endorsed in blank by the owner thereof, it constitutes street certificate, so
that upon its face, the holder is entitled to demand its transfer into his name from the issuing
corporation.

Transfer of Shares

1. There must be delivery of certificate. Transferor to Transferee


2. The share certificate must be indorsed by the owner or his agent
3. To be valid vis-à-vis the corporation or third parties, the transfer must be recorded in the books
of the corporation.

Do not apply to subscription contracts entered into between the corporation or subscriber.

Full payment is not required.

Jurisprudence which relaxes the requirements of delivery and endorsement.

1. Owner himself requested the registration


2. Secured a SPA from registered Owner. (Ponce vs Almons Cement)

Rationale of Registration

1. To enable the transferee to exercise all the rights of a shareholder


2. To afford to the corporation an opportunity to object or refuse its consent to the transfer in case
it has any claim against the stock sought to be transferred or any other valid reasons
3. It inform the corporation of any change in ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a stockholder
4. To avoid fictitious transfer

Principle of Indivisibility of Subscription

A subscription is one and cannot be divided into portions, so that the stockholders shall not be entitled
to a certificate of stock until he has remitted the full payment of his subscription together with any
interests and expenses, if any is due.

Watered Stocks

A director or officer of a corporation who consents to the issuance of the stocks for a consideration less
than the par value or issued price; consents to the issuance of a stock for a consideration other than
cash, valued in excess of the fair value; or having knowledge of a the insufficient consideration, does not
file a written objection with the corporate secretary. (solidary liable with the stockholder concerned for
the difference)

Derivative Suit
Suits brought by one or more stockholders/members in the name of and on behalf of the corporation to
redress wrongs committed against it, or to protect, or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or the ones to be sued, or have control of the corporation.

Requisites

1. He was a stockholder at the time the transactions subject of the actions occurred and the time
the action was filed.
2. He has exerted all reasonable efforts and alleges the same with particularity in the complaint, to
exhaust all remedies available under the AOI, by-laws, laws or rules governing the corporation
to obtain relief
3. No appraisal rights are available for the act or acts complained of
4. The suit is not nuisance or harassment suit
5. The action is filed under the name of the corporation.

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