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DELINQUENT SHAREHOLDER

Being now the holder of certificate, what rights do you have among others?
Right to vote,
right to be voted upon,
right to dividends,
inspect the books
If the secretary in a meeting did not allow you to vote, what will you do?
If the refusal was not well grounded, i would file a case to compel the
corporate secretary.
One good reason would be? - Possession of delinquent shares
Why what is the effect of a delinquent SH?
Stripped of rights as a shareholder other than right to dividends
However, when corporation demanded payment for your balance in the subscription
contract, you told corporate secretary "i will pay the moment i get cash
dividends" how could that be resolved? Would it be a valid agreement for a
stockholder to demand payment of dividends before he will pay the balance on his
subscription contract? What do you think?
No. The shareholder cannot compel the corporation to declare dividends. This
situation involves two different relationships arising out of two different
contracts. An investment contract and a subscription contract.
How are these contracts different in a corporation setting?
SUBSCRIPTION CONTRACT
In a subscription contract, a subscriber initially pays for the down
payment, with a commitment to pay the balance. That is the commitment.
Because the subscriber committed to pay, he is the debtor of the corporation
and the latter can compel the subscriber to pay.
INVESTMENT CONTRACT
However, In an investment contract, the corporation never committed to
give the subscriber/shareholder profits. There was no commitment to the
declare profits, but there is only a commitment to declare such profits if
allowed under the circumstances.

In the investment contract, there was no guarantee. You took the risk. Of
course, we could always tolerate the exaggerations of trade. Exaggerations of
trade are tolerable. There are times that you will have the difficulty in getting
back your investments. These are the risk of investment. That’s the
difference from the debtor creditor relationship.

how do we resolve that issue? So how do we recover the true value? Their liability being? The directors or officers who consented to or who did not file an objection. Since the certificate is valid and the consideration is not. who purchased the water stock. The mistake or deficiency was in the consideration. So. every time a person buys shares of stocks. the buyer will always ask if it was sold with proper consideration and it will lead to the suffering of the economy. He went to the corporation and presented the said stock. with the corporate secretary. And if no one will trust in them. so long as . The transferability of the certificates would not mean anything if we have to examine them every time we buy a share of stock because it would cause great inconvenience. YES. can you transfer it to another buyer? If you are the subscriber of the watered stock and you got the certificate because it was made to appear that it was fully paid. to the watering of the stock is solidarily liable together with the stockholder. its transferability is rendered useless. What is considered as invalid there is the consideration for the watered stock. duly endorsed. he did not know this was a watered stock. Certificate is valid so there can be transfer of ownership. Is the corporation obliged to recognize that he is now the stockholder of the certificate? The corporation must honor because there is nothing wrong with the certificate. While in a subscription contract. WATERED STOCK If you are the subscriber of the watered stock and you got the CERTIFICATE. If we do not allow that. That is why certificates are made transferrable even if it is not fully paid. for the true value of the watered stock (difference between the actual price paid and the par or issue value) Why would the law allow a stock certificate which has not been fully paid to be transferred? To maintain economic relations among corporations and the public. Only the consideration is invalid. What about the watered STOCK? If the sale is valid the watered stock is also valid. there is no debtor-creditor relationship in an investment contract.In short. the corporation is a creditor in relation to the debtor shareholder. And so here comes now the transferee. Sir: We could no longer trust in the certificate and therefore it loses its credibility.

he may now file a suit under the name of the corporation to collect such deficiency. an interested SH may file a claim before the corporation and if the corp does not act on it. the buyer can file a suit to compel the corporation to issue. He will file in behalf of himself. you can file a CLASS SUIT/REPRESENTATIVE SUIT in behalf of yourself and in behalf of others similarly situated. REQUISITES: Corporation should have a cause of action That the shareholder demanded from the board to sue but the board denied such demand The SH must be a shareholder that the questionable transaction occurred or cause of action accrued The case should be brought in the name of the corporation Can a watered stock be the subject of a derivative suit? In what way? Yes it can. since they are the ones that are to be sued. It is an INDIVIDUAL SUIT – when one files a case in his own behalf for a cause of action that belongs to him. The cause of action to sue the directors who consented to the issuance of the watered stock belongs to the corporation. If there are several holders of watered stock and you all want to transfer but the corporation refuses. Under what circumstances you may want to file a derivative suit? In case of issuance of watered stock when you collect the difference of the consideration from the board of director and the stockholder who bought the watered stock. corporation is obliged to DERIVATIVE SUIT If the corporation does not transfer. Can a creditor file a derivative suit? . however. The corporation is represented by the directors hence they are the ones who should file the case. they won’t. DERIVATIVE SUIT – a suit file in behalf of the corporation.the certificate is legitimate then the honor/acknowledge and effect the transfer. He derives the right to file a case from the corporation. The cause of action belongs to the corporation and you are suing for the corporation.

they had not decided to file derivative suit. in that manner the directors shall be solidarily liable. Notwithstanding that this can used by unscrupulous stockholder to file a case against the corp and let the corp pay something to them and now they receiving return of capital then if to allow that that would be liquidating the capital. an individual case. They can’t recover the damages because the purpose of the derivative it should be in favour of the corporation. such that the cause of action should belongs to the corp. but a case on their behalf. do you think they can recover damages from that? NO. and in the instant case it was not for the benefit of the corp. then the court should give to them the unpaid balance. only the stockholders that are stockholders at the time of the suit can file the derivative suit. that should be given to them. . they trying to recover the unpaid portion belongs to the corp. The balance there is considered as a legal capital of the corp. so in the end what would the result of the derivative suit? The BOD will liable for the issuance of the watered stock and the nonissuance of the certificate of stock. So we are ready for the Derivative suit. do you think they can do that? NO. And it is the corp is supposed to recover it.No. moreover if they are allowed to recover the unpaid balance and be given to them the it would violate the trust fund doctrine. In the prayer of the derivative suit to be filed by the petitioning stockholders prayed that they be awarded with damages and they suffered sleepless nights because watered are issued. because these are part of the capital of the corp. why the directors did it to them. On the other hand. Here are stockholder now who’s filing against the directors because the directors refuse the file necessary case. such that it is the corp has the right to recover the balance. and if they allowed to recover the balance then that would tantamount to liquidation because it is part of the capital.

stolen or destroyed: Affidavit.LOST. And in order for the corporation to check whether it was really lost. what will you do? Can you sell it? Yes sir I can sell it because certificate of stocks is transferrable So you find a buyer and tell him “you see the par value of this. if possible. That’s why it is very important that if you are the stockholder who left in the taxi what will you do? Report it to the corporation and inform them that you lost your COS (certificate of stocks) so that it will be reflected in the book of corporation. . For all you know you have endorsed it to someone else and that someone will come in the corporation and claim also. someone will take them. stolen or destroyed. The registered owner of a certificate of stock in a corporation or his legal representative shall file with the corporation an affidavit in triplicate setting forth. STOLEN OR DESTROYED CERTIFICATE So if you happen to find a certificate of stocks in a taxi worth 10 million pesos. He shall also submit such other information and evidence which he may deem necessary. Of course. the circumstances as to:  how the certificate was lost. this worth 10 million pesos and I will sell it to you for only 2 million pesos” will you buy it? Of course its way more than profitable. you should report for all you know someone will claim it in the corporation.  the number of shares represented by such certificate.  the serial number of the certificate and  the name of the corporation which issued the same. So what does the law require? The following procedure shall be followed for the issuance by a corporation of new certificates of stock in lieu of those which have been lost. It’s important for the corporation not to just issue new COS because they want to be sure.

and that bond will answer to any other party who present himself as the owner who brought the certificate with him and prove that it was not lost and in fact it was legally transferred to him. You should execute an affidavit of loss stating the circumstances of loss “ I Mr J. once a week for three (3) consecutive weeks at the expense of the registered owner of the certificate of stock which has been lost. stolen or destroyed pursuant to the procedure above-described. General Rule After the expiration of one (1) year from the date of the last publication. stolen or destroyed.R C. Except In case of fraud. effective for a period of one (1) year. Alright. if we do not want to wait for 1 year just put up a bond. IF there is a Contest If a contest has been presented to said corporation or if an action is pending in court regarding the ownership of said certificate of stock which has been lost. stolen or destroyed. the right to make such contest shall be barred and said corporation shall cancel in its books the certificate of stock which has been lost. stolen or destroyed and issue in lieu thereof new certificate of stock. bad faith. Corporation shall publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office.Publication by the corporation. . the name of the registered owner and the serial number of said certificate. in which case a new certificate may be issued even before the expiration of the one (1) year period provided herein. General Rule: No action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost. If no contest. and the true and lawful owner stocks certificate number 0-10-0-10. while one evening I was in karaoke I drink too much and I left my stocks certificates beside a lady” you should recite the circumstances leading to the loss. That’s how important it is because it is transferrable. stolen or destroyed. or negligence on the part of the corporation and its officers. EXCEPTION: Unless the registered owner files a bond or other security in lieu thereof as may be required. for such amount and in such form and with such sureties as may be satisfactory to the board of directors. and the number of shares represented by such certificate. The notice shall state:     the name of said corporation. the issuance of the new certificate of stock in lieu thereof shall be suspended until the final decision by the court regarding the ownership of said certificate of stock which has been lost.