Sec 60.

Subscription of stocks
HOW PARTICIPATION IN A CORPORATION ACQUIRED
1. Stock corp, by
a. Subscription contract
b. Purchase from corp of treasury shares
c. Transfer from a previous stockholders of outstanding shares
2. Non stock corp, by
a. Contract with the corp
SUBCRIPTION CONTRACT
- Any contract for the acquisition of unissued stock

Sec 61. Pre-incorporation subscription

GEN RULE: irrevocable for 6 months
Except:
o all other subscribers consent to the revocation
o the incorporation failed to materialize within said period
!!! Provided, AIC has not been submitted to SEC

Sec 62. Consideration for stocks

GEN RULE: Stocks shall not be issued for a consideration less than the par or
issued price
Options has to be equivalent to the value of the stock, no more no less
1. Actual cash paid to the corporation
2. Ppty (tangible or intangible) received by the corporation and necessary
or convenient for its use
3. Labor or services rendered to the corporation
4. Previously incurred indebtedness
5. Amounts transferred from unrestricted RE to stated capital
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion
If not actual cash, valuation should be initially determined by BOD
(subject to approval SEC)
No future services
MODES BY WHICH SHARES CAN BE ISSUED
- Subscription original/unissued
- Subscription to new stocks

Sale of treasury shares

Stock dividends

LIMITATIONS FOR ISSUE OF STOCKS

1. NO consideration less than par value (Sec 65)
2. NO exchange for a promissory note or future services
3. If intangible ppty, value determined by incorporators or BOD (subject
to approval SEC)
4. If no PV shares, issue value must be fixed
PATENTS, COPYRIGHTS
- Initial valuation determined by BOD
- Approval of SEC
FIXING OF ISSUED PRICE
1. If not in AIC BOD fixes, if authorized by AIC or by-laws
2. If not in AIC and BOD unauthorized SH fix

Sec 63. Certificate of stock and transfer

of shares
RIGHT TO ISSUANCE OF CERTIFICATE STOCK
- Must be signed by PRESIDENT or VP
- countersigned by SECRETARY
- sealed with the seal of corporations
EFFECT OF OVER-ISSUANCE OF SHARES
- Void even if possessor is in GF
RIGHT TO TRANSFER FULLY PAID SHARES OF STOCK
- Shares = personal ppty,
- TWO REQUIREMENTS:
1. Delivery of certificate
2. Indorsed by the owner, his attorney-in-fact, or other person
legally authorized
RESTRICTIONS ON TRANSFER OF STOCK (Sec 47)
- Reasonable restrictions only
- In the by-laws
- Shares only for Fil citizens
- Unpaid stock
VALIDITY OF STOCK TRANSFER

1. Delivery + endorsement
2. Transfer must be entered in the books to show the names of
involved parties, date of transfer, number of certificate, number
of shares transferred
MODE OF TRANSFER
1. Delivery + endorsement
2. Deed of assignment do this when not fully paid
EFFECTS OF AN UNREGISTERED TRANSFER OF SHARES
1. VALID -- between transferor and transferee
2. INVALID where the corporation is concerned except when notice
has been given to corporation for registration purposes
a. Transferor has VOTING RIGHTS and has the right to be voted
for
b. Transferor has DIVIDEND RIGHTS
3. INVALID against corporate creditors
o Transfer of shares does not relieve transferor of his liabilities
4. INVALID against creditors of the transferor without notice of the
transfer

Sec 64. Issuance of stock certificates

Full payment of subscription required for issuance of certificate of stock
- Or PRO-RATA
DERIVATIVE SUITS (remedy of SH)
- Shikay (on behalf of ABC) vs Paulo
- Wrong doing is against the corporation itself
INDEPENDENCE SUIT
- Case only affects the particular SH
REPRESENTATIVE SUIT
- Class suit

Sec 65. Liability of directors for watered

stocks
WATERED STOCK MEANING
- Stock issued for a value less than its equivalent either in cash, ppty,
services, or stock div
1. Issued WITHOUT consideration (aka PV) (bonus share)

2. Issued as fully paid when the corp has received a lesser sum of
money than its PV or issued value (discount share)
3. Issued for a consideration other than actual cash (such as ppty,
services, fair valuation of which is less than its PV or issued
value)
4. Issued as stock div when there is NO SUFFICIENT RE or surplus to
justify it
ISSUE OF WATERED STOCK PROHIBITED
- Refers to the original issue of stocks, because corp no longer needs
to issue otherwise (its a sale thereof)
EFFECT OF ISSUE OF WATERED STOCK Ultra vires
LIABILITY OF WATERED STOCK
- Any BOD or officer consenting to the issuance shall be SOLIDARILY
LIABLE

Sec 66. Interest on unpaid subscriptions

Subscribers for stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription
- At the rate fixed in the by-laws; or
- At the legal rate

Sec 67. Payment of balance of

subscription
GEN RULE: BOD can declare due unpaid subscriptions + interest at any time
- Failure to pay the due part of subscription shall render ENTIRE
BALANCE + INTEREST due and payable at the legal rate or rate in
by-laws
- Failure to pay within 30 days from agreed date delinquent stocks
public auction
Exception:
- Sec 13: date specified in CONTRACT

REMEDIES TO ENFORCE PAYMENT OF SUBSCRIPTION

1. Extra judicial sales at public auction
- Permits the corporation to sell unpaid stock for sale and dispose of it
for the account of delinquent subscribers
2. Judicial action

3. Collection of cash div and withholding of stock div

STATUTORY SANCTIONS ON STOCK DELINQUENCY
1. All rights denied to delinquent SH
2. Sec 43 corps may first apply cash divs due on delinquent stock to
unpaid balance
PAYMENT OF UNPAID SUBSCRIPTION OR A PART THEREOF
When to pay
1. Date specified in contract
2. BOD
Effect of failure to pay entire balance + interest due and payable
at the legal rate or rate in by-laws
WHEN STOCKS BECOME DELINQUENT
1. 30 days
2. BOD specified date
Delinquent stocks sale at public auction unless BOD orders
otherwise
REQUISITES FOR A VALID CALL
1. Lawful
2. BOD made it
3. Uniform operation across shareholders

Sec 68. Delinquency sale.

BOD (resolution) may order the sale of delinquent stock
- Amount due on each subscription
- Accrued interest
- Date, time, place of sale
- All this = 30 to 60 days from the stock becomes delinquent
Notice + resolution
Sent to all delinquents either personally or registered mail
Publish in newspaper in province where principal office of corp is
located, 1x per week over 2 weeks
Still not paid, sell at public auction to such bidder who shall pay
Full amount of balance
Accrued interest
Cost of advertisement and expenses of sale

If no bidder willing to pay all three,

The corp may bid the same and total amount due shall be credited as
paid in full in the books of the corp.
PROCEDURE FOR SALE OF DELINQUENT STOCK
1. BOD pass resolution
2. SH given notice of resolution.
o If not paid within 30 days, all stocks will be delinquent and
subject to sale
3. BOD (via resolution) orders the sale of the delinquent sale
o Amount due, date, time, place
4. If still not paid, public auction
HIGHEST BIDDER
- Pay the full amount of the balance on the subscription together with
the accrued interest, cost of ads and expenses of sale, for the
smallest number of fraction of share
- Subscriber cannot incur any deficiency because the highest bid
must not be less than the full amount
Illustration:
X subscribed to 5 shares
PV = 100 each, total = 500
Initial payment = 300
Balance of 200 was called, X failed to pay
Interest + cost of sale = 50, Total balance = 250
A, B,

C = bidders
A = 250 for two shares
B = 250 for three shares
C = 250 for four shares

A = highest bidder
A owns 2 shares, X owns 3 shares, all fully paid
BUT
B = highest bidder if
A = 200 for two shares (100 per share)
B = 250 for three shares (83.33 per share)
C = 200 for four shares
Because B is the one offering the full amount due

PURCHASE OF CORP OF DELINQUENT STOCK

- In the absence of a bidder, the corp may purchase for itself the
delinquent stock.

Sec 69. When sale may be questioned.

Grounds for recovery of stock unlawfully sold are:
1. Irregularity or defect in the notice of sale; and
2. Irregularity or defect in the sale itself of the delinquent stock.

Sec 70. Court action to recover unpaid

subscription.
REMEDY BY JUDICIAL ACTION
Gen Rules:
1. corps cannot maintain a suit for enforcement of unpaid subscription
without first making a call
2. judicial remedy is limited to the amount due on any unpaid
subscription plus accrued interests, costs and expenses.

Sec 71. Effect of a delinquency.

GEN RULE: No delinquent stock shall be voted for or be entitled to vote at
any stockholder except dividends.

Sec 72. Rights to unpaid shares.

Holders of unpaid shares (which are not delinquent) have the rights of a
stockholder.

Sec 73. Lost or destroyed certificates.

1. The registered owner of a certificate of stock or his legal representative
shall file with the corporation an affidavit in (3) triplicate indicating (if
possible)
a. The circumstances as to how the certificate was
lost/stolen/destroyed
b. The number of shares represented by such certificate

c. The serial number of the certificate and the name of the

corporation which issued the certificate
d. Other info that may be necessary
2. After verifying the affidavit and etc, corp should publish a notice in a
newspaper where corp has its principal office (1 per week; over 3
consecutive weeks)
a. At the expense of registered owner
b. Notice indicates the name of corp, registered owner, serial
number, number of shares represented by such certificate, and
that after the expiration of 1 year from the date of the last
publication
c. If no objection is presented to the corp regarding the certificate,
the right to make such objections is barred; and corp should
cancel in its books the certificate of stock which has been lost
and issue a new certificate
i. EXCEPT, in fraud, bad faith, negligence on the corps part,
no action may be brought against any corp which shall
have issued certificate of stock

Sec 74. Books to be kept; stock transfer

agent.
BOOKS AND RECORDS TO BE KEPT BY CORP
1. Record of all business transactions
2. Minutes of all meetings of SH
3. Minutes of all meetings of BOD
4. Stock and transfer book (for stock corps)
RIGHT TO INSPECT CORPORATE BOOKS
The record of all business transactions of the corp and the minutes of
any meeting shall be open for inspection of any BOD or SH of the corp
at reasonable hours on business days.
REMEDIES AND SANCTIONS FOR ENFORCEMENT OF RIGHT
1. Action for mandamus.
- In case the officers of the corp wrongfully denies BOD or SH the
right to inspect the books.
2. Civil and criminal liability.
- Any officer or agent of the corp who shall refuse inspection to
BOD/SH shall be liable to such BOD/SH for damages.
- If refusal is because of a resolution or order of BOD, liability of
refusal shall be imposed upon refusing BOD
LIMITATIONS ON RIGHT TO INSPECTION
1. Purpose of inspection (BAD FAITH)

The person demanding to examine has improperly used

information secured through any prior inspection of records.
2. Books of foreign corps
- Rights do not apply where the corp is not organized under PH law
3. Trade secrets
4. Reasonable hours

Sec 75. Right to financial statements.

Within 10 days from the receipt of a written request of any SH/BOD,
the corp shall furnish its most recent financial statement
BOD shall present to such SH a financial report of operations, which
shall include financial statements, duly signed and certified by an
independent CPA.
BUT if paid-up capital is less than Php 50k, the financial statements
may be certified under oath by the treasurer or any responsible officer
of the corp.
FINANCIAL STATEMENTS INCLUDE
1. Balance sheet
2. Income statement

Sec 76. Plan of merger or consolidation.

Two or more corps may merge into a single corp which shall be one of the
constituent corps or may consolidate into a new single corps which shall be
the consolidated corp.
BOD shall approve a plan of merger/consolidation setting forth the ff:
1. The names of the corps proposing to merge/consolidate constituent
corps
2. The terms of merger/consolidation and the mode of carrying the
consolidation
3. (If any) A statement of changes in the AIC of the surviving corp
4. such other provisions wrt the proposed merger/consolidation as are
deemed necessary or desirable

Sec 77. Stockholders or members

approval.
NOTICE

Upon approval by majority vote of BOD of the merger/consolidation, it shall

be submitted for approval to stockholders of each of such corporation at
separate corp meetings.
Notice of meetings shall be given to all SH of respective corps at least
TWO weeks prior.
Notice should state purpose of the meeting and include summary of
the plan
VOTE
Majority BOD + 2/3 OCS
AMENDMENTS TO PLAN
VOTE = majority BOD + 2/3 OCS
DISSENTING SH appraisal rights

Sec 78. Articles of merger or

consolidation.
After approval of SH, ARTICLES OF MERGER/CONSOLIDATION shall be
executed by each of the constituent corps signed by the president or vp,
certified by the secretary or assistant secretary of each corp setting forth:
1. The plan of the merger/consolidation
2. [Stock corps] Number of shares outstanding
[Non-stock] Number of members
3. the number of shares/members voting for and against such plans

Sec 79. SECs approval and effectivity of

merger or consolidation.
Articles of merger/consolidation submit to SEC in (4) quadruplicate for its
approval
Except for (special laws)
o Banks, Loan associations, Trust companies, Insurance companies,
Building, Public utilities, Educational institutions, etc

Sec 80. Effect of merger or

consolidation.
1. Constituent corporations shall become a single corporation. Surviving
or consolidated corp designated in the plan.

2. Separate existence of constituent corporations shall CEASE, except

that of the surviving corp
3. Surviving or consolidated corp
a. posses all the rights, privileges, immunities and powers and shall
be subject to all the duties and liabilities of a corp
b. posses all the rights, privileges, immunities and franchise of each
of the constituent corps; and all pptys (real or personal),
receivables due on whatever account including subscriptions to
shares; etc
c. be responsible and liable for all the liabilities/obligations of each
of the constituent corporations in the same manner as if such
incurred such liabilities/obligations
PROCEDURE FOR EFFECTING A PLAN OF MERGER/CONSOLDATION
1. Approval of plan (BOD)
2. Submission to SH for approval
a. In a separate meeting with proper notice
3. Execution of formal contract
a. AIC shall be executed by each of the constituent corporations, to
be signed by the president or vp and certified by the secretary or
assistant secretary of each corporation setting forth the matters
in Sec 78.
4. Submission to SEC for approval
5. Conduct hearing of SEC
6. Issuance of certificate by SEC