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Ca Law

X subscribed to 100 shares of a corporation but only paid for 70 shares. X has the right to dividends for all 100 shares. Shareholders X, Y, and Z each owned 10% of a corporation. X exercised pre-emptive rights for new shares while Y transferred shares to Z, increasing Z's holdings. X does not have a valid complaint as long as his ownership is not reduced. For a corporation offering an initial 60,000 shares for subscription, shareholder X who subscribed to 12,000 shares is not entitled to pre-emptive rights for the remaining 40,000 shares if those shares are later offered. A corporation may be compelled to declare dividends if it has surplus

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38 views2 pages

Ca Law

X subscribed to 100 shares of a corporation but only paid for 70 shares. X has the right to dividends for all 100 shares. Shareholders X, Y, and Z each owned 10% of a corporation. X exercised pre-emptive rights for new shares while Y transferred shares to Z, increasing Z's holdings. X does not have a valid complaint as long as his ownership is not reduced. For a corporation offering an initial 60,000 shares for subscription, shareholder X who subscribed to 12,000 shares is not entitled to pre-emptive rights for the remaining 40,000 shares if those shares are later offered. A corporation may be compelled to declare dividends if it has surplus

Uploaded by

Uyara Leisberg
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Written Assignment

Title IV

1. X subscribed to 100 shares of stock in a corporation which declared a cash dividend. The
dividend received by X is based only on the 70 shares fully paid by him. Has X the right to insist
on the payment of dividends corresponding to 100 shares?
- Yes, X has the right to insist on the payment of dividends corresponding to his total
subscription of 100 shares even if only 70 shares has been paid up by him. As a general
rule, the participation of each stockholder in the earnings of the corporation is based on
his total subscription and not the amount paid by him.

2. X, Y, and Z each owns 10% of the capital stock of a corporation. X exercised his pre-emptive right
to new shares while Y offered his corresponding new shares to Z who purchased the same,
thereby increasing Z’s proportionate holdings. Has X a ground for complaint?
- No, X has no ground for complaint as long as his 10% interest is not reduced. According to
Section 38, if the shares corresponding to one stockholder are not subscribed or purchased
by him within the fixed period for the exercise of pre-emptive rights, it does not follow that
said shares should again be offered on a pro rata basis to stockholders who took advantage
of their right of pre-emption. This is because as long as they exercise their pre-emptive
rights, their relative and proportionate voting strength in the corporation will not be
affected adversely. Even if the shares mentioned are purchased by only some of them.

3. Suppose the original capital stock of a corporation is divided into 100,000 shares which were all
offered for subscription. Only 60,000 shares were subscribed including 12,000 shares by X. Is X
entitled to pre-emption in case the remaining unissued 40,000 shares are again offered for
subscription?
- No, X is not entitled to pre-emption with respect to the remaining 40,000 unissued shares.
But where the number of shares initially offered for subscription was only 60,000, then X
may exercise his pre-emptive rights, in case the remaining 40,000 shares are subsequently
offered to subscription.
4. The corporation has surplus profits amounting to more than 100% of its paid-up capital stock. It
has not declared dividends for the last five (5) years. May the corporation be compelled by the
Securities and Exchange Commission to declare dividends to its stockholders?
- It depends. Stock corporations are prohibited from retaining surplus profits in excess of
100% of their paid-in capital stock, except: (1) when justified by definite corporate
expansion projects or programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with financial institutions or creditors,
whether local or foreign, from declaring dividends without their consent, and such consent
has not yet been secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation, such as when there is
need for special reserve for probable contingencies
5. A corporation borrowed money for the purpose of paying dividends. Is this legal?
- It depends. As a rule, dividends cannot be declared out of borrowed money, for borrowed
money is not profits; but money may be borrowed temporarily for the purpose of paying
dividends, if the corporation has used its surplus assets to make improvements for which it
might have borrowed money.

Title V

1. X entered into a contract with a corporation. In a suit against the corporation, its lawyer raises
the defense that the contract was in violation of its by-laws. Is this defense tenable?
- No, this defense is not tenable. As to third persons, the weight of authority is that they are
not also bound by the by-laws of a corporation except only when they have knowledge of its
provisions either actually or constructively.
2. Can the by-laws of a corporation provide for the place of meetings of stockholders?
- No. According to Section 47, 1st paragraph, No. 1, while the place of directors’ or trustees’
meetings may be held at the place determined in the by-laws, the stockholders’ or
members’ meetings must always be held at the city or municipality where the principal
office of the corporation is located or where practicable in the principal office of the
corporation.
3. The authority given to the board of directors to amend its by-laws was revoked in a meeting of
stockholders without previous notice that such matter could be acted upon in the meeting. Is
the revocation valid?
- Yes, the revocation is valid. The revocation is valid notwithstanding that no previous notice
was given to stockholders or members of the intention to propose such revocation.

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