NOTES G RCCP Stocks, Stockholders

NOTES G - STOCKS AND STOCKHOLDERS
Subscription contract – Any contract for the acquisition of unissued stock in an existing corporation
or a corporation still to be formed (Sec. 59 RCCP)
What are the kinds of subscription contracts?
1) Pre-incorporation subscription – entered into before the incorporation and irrevocable for a
period of six (6) months from the date of subscription unless all other subscribers consent to
the revocation or if the corporation failed to incorporate. It cannot also be revoked after the
submission of the Articles of Incorporation with the SEC (Sec. 60, RCCP).
2) Post-incorporation subscription – entered into after incorporation.
Shares of Stock – interest or right which an owner has in the management of the corporation, and its
surplus profits, and, on dissolution, in all of its assets remaining after the payment of it debt. The
stockholder may own the share even if he is not holding a certificate of stock.
Comparison (Sundiang & Aquino, Reviewer 2014):
SHARE OF STOCK CERTIFICATE OF STOCK

1. Unit of interest in a 1. Evidence of the holder’s ownership of the
corporation. stock and of his right as a shareholder and up
to the extent specified therein.
2. it is used an incorporeal 2. It is concrete and tangible.
or intangible property.
3. It may be issued by the 3. May be issued only if the subscription is fully
corporation even if the paid.
subscription is not fully paid.
RIGHTS AND OBLIGATIONS OF STOCKHOLDERS
What are the basic rights of stockholders?
1) direct or indirect [participation in management;

2) voting rights (Sec. 6, RCCP);
3) right to remove directors (Sec. 27, RCCP);
4) propriety rights:
(i) right to dividends (Sec. 42);
(ii) appraisal right (Sec. 27, RCCP);
(iii) right to issuance of stock certificate for fully paid shares (sec. 63, RCCP)
(iv) proportionate participation in the distribution of assets in liquidation (Sec. 139);
(v) right to transfer of stocks in corporate books (Sec. 62, RCCP)
(vi) pre-emptive right (Sec. 38, CCP);
5) right to inspect books and records (Sec. 73, RCCP);
6) right to be furnished with the most recent financial statement/financial report (Secs. 73 and
74, RCCP)
7) right recover stocks unlawfully sold for delinquent payment of subscription; and
8) right to file individual suit, representative suit, and derivative suits.
1
What are the obligations of a stockholder?
1) Liability to the corporation for unpaid subscription (Sec. 66, RCCP);

2) Liability to the corporation for interest on unpaid subscription if so required by the by-laws
(Sec. 65, RCCP);
3) Liability to the creditors of the corporation for unpaid subscription (Sec. 66, RCCP);
4) Liability for watered stock (Sec. 64 RCCP) by creditor or officer
PRE-EMPTIVE RIGHT
What is a Pre-emptive right (Sec. 38, RCCP)
a) A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of

shares of any class in proportion to his present stockholdings, the purpose being to enable
the shareholder to retain his proportionate and to retain his equity in the surplus.
b) Pre-emptive right is not available in the following:

1) Shares to be issued to comply with laws requiring stock offering minimum stock
ownership by the public;
2) Shares issued in good faith in exchange for property needed for corporate purposes;
3) Shares issued in payment previously contracted debts;
4) In case the right is denied in the Articles of Incorporation; and
5) If one shareholder does not want to exercise his pre-emptive right, the other
shareholders are not entitled to purchase the corresponding shares of the shareholder
who declined. But if nobody purchased the same and later on the board re-issued the
shares, the pre-emptive right applies.
APPRAISAL RIGHT
a) Appraisal Right – right to withdraw from the corporation and demand payment of the fair
value of his shares after dissenting from the certain corporate acts involving fundamental;
changes in corporate structure (Sec. 81, RCCP).
Upon demand, all rights accruing to the shares shall be suspended (Sec. 82, RCCP).
b) Rules of exercise of Appraisal right:

1) The stockholder must be a dissenting stockholder – One who voted against the
proposed action (Sec. 81, RCCP);
2) The stockholder must make a written demand on the corporation within 30 days after
the vote is taken;
3) The price to be paid is the fair value of the share on the date before the vote was taken.
4) If within sixty (60) days from the approval of the corporate action by the stockholders, the
withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it
shall be determined and appraised by three (3) disinterested persons, one of whom shall
2
be named by the stockholder, another by the corporation, and the third by the two (2) thus
chosen.
5) No payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment:
6) Upon payment by the corporation of the agreed or awarded price, the stockholder shall
forthwith transfer the shares to the corporation.
Who bears Cost of appraisal? Costs of appraisal shall be born – (Sec.84 RCCP)
(1) By the corporation, where the value as determined by appraisers is higher than what was offered
by the corporation to the dissenting stockholder; or
(2) By the dissenting stockholder, if the value determined by appraisers is approximately the same as
the price offered by the corporation;
(3) By the corporation, if the action is filed to recover the fair value of the shares and the stockholder’s
refusal to receive payment is justified; or
(4) By the dissenting stockholder, where an action to recover is filed and the refusal of such
stockholder to receive payment is unjustified.
Notation on Certificates (Sec. 85. RCCP)
Within ten (10) days after demanding payment for shares held, a dissenting stockholder shall
submit the certificates of stock representing the shares to the corporation for notation that such
shares are dissenting shares.
The notation is necessary so as to guide the secretary of the corporation who shall deny to the
dissenting stockholder the right to vote and the right to receive dividends in the proper situation
contemplated by Section 82, supra. When the shares of a dissenting stockholder are stockholder are
transferred or assigned, the assignee becomes a regular stockholder and the appraisal right of the
dissenting stockholder-transferor shall legally cease. (J. Nolledo, 1988)
ORDER OF DISTIBUTION OF ASSETS (Dissolution of Non-stock Corp. Sec. 95 RCCP)
a) All its creditors shall be paid;

b) Assets held subject to return on dissolution shall be delivered back to their givers;
c) Assets held for charitable, religious purposes, etc., without a condition for their return on
dissolution, shall be conveyed to one or more organizations engaged in similar activities as
the dissolved corporation;
d) All other remaining assets shall be distributed to members, as provided for in the Articles or
by-laws
e) In any other case, assets may be distributed to such persons, societies, organizations or
corporations, whether or not organized for profit, as may be specified in a plan of distribution
adopted.

NOTES G RCCP Stocks, Stockholders

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NOTES G - STOCKS AND STOCKHOLDERS

What are the kinds of subscription contracts?

2) Post-incorporation subscription – entered into after incorporation.

Comparison (Sundiang & Aquino, Reviewer 2014):

SHARE OF STOCK CERTIFICATE OF STOCK

RIGHTS AND OBLIGATIONS OF STOCKHOLDERS

What are the basic rights of stockholders?

1) direct or indirect [participation in management;

1) Liability to the corporation for unpaid subscription (Sec. 66, RCCP);

What is a Pre-emptive right (Sec. 38, RCCP)

a) A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of

b) Pre-emptive right is not available in the following:

b) Rules of exercise of Appraisal right:

Notation on Certificates (Sec. 85. RCCP)

ORDER OF DISTIBUTION OF ASSETS (Dissolution of Non-stock Corp. Sec. 95 RCCP)

a) All its creditors shall be paid;

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