Stocks and Stockholders

WHAT IS A SUBSCRIPTION CONTRACT?

It is any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. This is notwithstanding the fact that the parties refer to it as a purchase or some other contract.(Sec. 60)

WHEN IS A PRE-INCORPORATION SUBSCRIPTION IRREVOCABLE?

1. For a period of at least 6 months from the date of subscription;
   EXCEPTIONS:
   1. unless all of the other subscribers consent to the revocation; or
   2. unless the incorporation of said corporation fails to materialize within the said period or within a longer period as may be stipulated in the contract of subscription
2. After the AOI have been submitted to the SEC (Sec. 61)

HOW IS THE ISSUED PRICE OF NO-PAR SHARES FIXED?

It may be fixed as follows:

1. In the AOI; or
2. By the BOD pursuant to authority conferred upon it by the AOI or the by-laws; or
3. In the absence of the foregoing, by the SHs representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose (Sec. 62)

WHAT ARE THE REQUISITES FOR VALID ISSUANCE OF FORMAL CERTIFICATE OF STOCK(Sec. 63)

1. The certificates must be signed by the President / Vice-President, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation.

• A mere typewritten statement advising a SH of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. (Bitong v. CA, 292 SCRA 503)

2. Delivery of Certificate

• There is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. (Bitong v. CA, 292 SCRA 503)

3. Par value of par value shares / Full subscription of no par value shares must be fully paid.
4. Surrender of the original certificate if the person requesting the issuance of a certificate is a transferee from a SH.

WHAT IS THE NATURE OF A SUBSCRIPTION CONTRACT?

• Subscriptions constitute a fund to which the creditors have a right to look for satisfaction of their claims.
• The assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts.
• A subscription contract is INDIVISIBLE(Sec. 64).
• A subscription contract subsists as a liability from the time that the subscription is made until such time that the subscription is fully paid.

WHAT ARE WATERED STOCKS (Sec. 65)

Any director or officer of the corporation:

1. consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash, valued in excess of its fair value, or
2. who, having knowledge thereof, does not forthwith express his objection in writing and file the same with the corporation secretary

shall be solidarily liable with the stockholders concerned to the corporation and its creditors for the difference between the fair value received at the time of the issuance of the stock and the par or issued value of the same.

WHAT IS UNPAID SUBSCRIPTIONS

• Interest on all unpaid subscriptions shall be at the rate of interest fixed in the by-laws. If there is none, it shall be the legal rate. (Sec. 66)
• Unpaid subscriptions are not due and payable UNTIL A CALL is made by the corporation for payment. (Sec. 67)
• An obligation arising from non-payment of stock subscriptions to a corporation cannot be offset against a money claim of an employee against the employer. (Apodaca v. NLRC, 172 SCRA 442)

HOW ARE UNPAID SUBSCRIPTIONS COLLECTED?

1. Call for payment as necessary, i.e. the BOD declares the unpaid subscriptions due and payable (Sec. 67);
2. Delinquency sale (Sec. 68; to be discussed in the next section)
3. Court action for collection (Sec. 70)

CAN A DELINQUENCY SALE BE QUESTIONED?(Sec. 69)

Yes. This is done by filing a complaint within 6 months from the date of sale, and paying or tendering to the party holding the stock the sum for which said stock was sold, with interest at the legal rate from the date of sale. No action to recover delinquent stock sold can be sustained upon the ground of irregularity or defect in the notice of sale, or in the sale itself of the delinquent stock unless these requirements are complied with.

WHAT ARE THE RIGHTS OF UNPAID SHARES?

Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. (Sec. 72)

WHAT IS THE PROCEDURE FOR THE ISSUANCE OF NEW CERTIFICATES TO REPLACE THOSE STOLEN, LOST OR DESTROYED?(Sec. 73)

1. File an affidavit in triplicate with the corporation. The affidavit must state the following:
   1. Circumstances as to how the certificates were SLD;
   2. Number of shares represented; and
   3. Serial number of the certificate
   4. Name of issuing corporation
2. The corporation will publish noticeafter the affidavit and other information and evidence have been verified with the books of the corporation, (Note however that this isnotmandatory. The corporation has the discretion to decide whether to publish or not.)
   The notice will contain the following information:
   1. Name of the corporation
   2. Name of the registered owner;
   3. Serial number of the certificate;
   4. Number of shares represented by the certificate;
   5. Effect of expiration of 1 year period from publication and failure to present contest within that period.
3. SLD certificate is removed from the booksif afterone yearfrom date of last publication, no contest is presented.

• NOTE:One-year period will not be required if the applicant files a bond good for 1 year.

4. The corporation will then issue new certificates.

• However, if a contest has been presented to the corporation, or if an action is pending court regarding the ownership of the SLD certificate, the issuance of the new certificate shall be suspended until the final decision by the court.
• NOTE: Should corporation issue new certificates without the conditions being fulfilled and a third party proves that he is the rightful owner of the shares, the corporation may be held liable to the latter EVEN IF it acted in good faith.
• NOTE: Even if the above procedure was followed, if there was fraud,bad faith, or negligenceon the part of the corporation and its officers, the corporation may be held liable.