CHAPTER 7 Stocks and Stockholders

1. What is a subscription contract?

2. Pre-incorporation subscription contract is mandatory and is irrevocable for a period of at
least six months. When is it revocable?
3. (A) What are the sources of capital, and (B) different modes by which shares may be issued?
4. T/F. Stocks may be issued for a consideration less than par or issued price thereof.
5. T/F. Shares of stock shall not be issued in exchange for promissory notes or future service.
6. T/F. Where the consideration is other than actual cash, or consists of intangible property such
as patents or copyrights, the valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by the Securities and Exchange
Commission.
7. (A) What is stock certificate?
(B) When is it issued?
(C) How is it transferred?
8. May a stock certificate be issued to the subscriber even if he has not paid the subscription
fee in full?
9. What is a watered stock?
10. What is (a) derivative suit, (b) individual suit and (c) representative suit?
11. What are the liabilities of directors consenting to the issuance of stock for a consideration
below par value?
12. What is the interest on unpaid subscription? And when does the computation of interest
commence to run?
13. T/F. If the subscription contract fixes the date for payment, failure to pay on such date shall
render the entire balance due and payable with interest.
14. T/F. After due date, the shares become delinquent.
15. What is call?
16. T/F. If no date when the subscription becomes due is fixed in the subscription contract, the
board of directors can make a call for payment, and specify the due date. Notice of call is not
necessary.
17. What are the effects of stock delinquency?
18. T/F. Holders of subscribed shares not fully paid which are not delinquent shall have all the
rights of a stockholder.
19. What are the procedures for sale of delinquent stocks?
20. The board of directors decided to sell delinquent shares in public auction. Person A offers to
pay the whole amount for 30 shares; person B, 20 shares; and person C, 15 shares. Who is the
highest bidder? What will happen if there are no bidders in the public auction?
21. What are the requisites to validly recover stocks unlawfully sold?
22. What is the procedure that shall be followed for the issuance by a corporation of new
certificates of stock in lieu of those which have been lost, stolen or destroyed?
23. What are the rights and remedies of stockholders?
a. Rights as to control and management
b. Proprietary rights
c. Remedial rights
*NOTES*

Cases when stockholders’ action is required

By a MAJORITY vote of the outstanding capital stocks:

 Fixing the compensation of directors
 Adoption of by-laws*
 Fixing of issued price of no-par value shares
 Management contracts

By a 2/3 vote of the outstanding capital stocks:

 Denial of pre-emptive right
 Delegation of power to amend, repeal or adopt a new by-laws to Board of Directors*
 Removal of Directors/Trustees
 Ratification of act of disloyal director
 Amendments of Articles of Incorporation*
 Dissolution of Corporation*
 Adoption of plan or distribution of assets of non-stock corporation*
 Merger or consolidation*
 Sale, lease, exchange, mortgage, pledge or disposal of all or substantially all of corporate
assets*
 Increase of decrease of capital stock*
 Increase, create bonded indebtedness*
 Investment of corporate funds in another corporation or business or for any other purpose
other than the primary purpose*

Election of directors/trustees – candidates with the highest number of votes get elected. Non-voting
shares cannot vote.

*Non-voting shares can vote.